Debt is the biggest game out there. As I discussed in chapter one, credit card companies can lend money to you, and then charge you interest upon interest, compounding the original amount borrowed over and over again until you can’t see beyond the wall of debt you owe. Then, they get to hound you daily until you set up a payment plan, and the calls are so incessant and threatening that many people are paying their debt FIRST before they address their needs and passion for music.
It’s easy to be confused and afraid when the debt collectors threaten to take you to court, get a judgment and put a lien on your income if you don’t pay up monthly and stick with it, and that fear can rule your decision-making if you let it. However, placing compounding debt as the master of your finances only ensures indentured servitude. Whereas paying yourself first, getting real about your income, assets and spending, and accessing the legal protections that are offered by the laws of the land are the only tickets to freedom.
It is your job, at all times, to ensure that your health savings accounts, retirement accounts, college funds and more- all investments that have a chance to compound returns for you and your children and increase yourfam4y income and assets – are your priority.
Why? Credit card companies use a compound to entrap people in this scenario. Investors use the power of compound into
More themselves from the shackles of borrowing and overspending.
How can you possibly do this, when you are in debt and don’t have even one extra thin dime?
You will have to address other areas of your income and expenses to get your budget in balance, as outlined in chapter one. But, just as importantly, you also have to shift your mindset, your goals, your habits and your consciousness. Investor knowledge means that you understand that your well-being, your ability to earn income, is central to its capacity to pay down debt in the first place. Think of “paying yourself first” as your seeds of prosperity. If you don’t seed your fields, you’ll never have enough to feed yourself. The debt collector is certainly not going to seed your fields for you, and the only harvest he is interested in is the one that comes at your expense.
The thinking that you should get out of debt before you start investing is flawed thinking. I already explained the importance of compounding your gains, increasing your passive income and protecting your assets in financial predator-proof retirement accounts. However, there is another reason paying yourself first is essential to fighting back. Debt and spending are nothing more than habits and your life underwater are an obsession with “not drowning” rather than “swimming.”
Apparently, if you were as focused on income and passive income as you are on paying down debt, you’d be swimming in assets now, instead of drowning in debt. Saving and investing are also habits, and the sooner you focus on compounding returns, the sooner you’ll have the income and assets needed to negotiate better terms on your debt, and protect your money from debt collection and liens. You will also shift out of the habit of borrowing and spending more than you earn, which was obviously completely out of control when you suffered from debt consciousness.
Here’s how powerful compounding your gains is. If you simply save $4,000/year for 30 years, at the end of that time, you have saved $120,000. If you invest $4,000/year for 30 years, and that earns 10% annualized (what stocks and bonds have done for the past 30 years), then you will amass $723,776. By year 40, your nest egg will be worth over $2 million. In short, compounding your investment gains is your ticket to freedom!