“Today, there are three kinds of people: the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s.”
Every personal financial plan should focus on the elimination of consumer debt, and your journey to financial independence after bankruptcy is no different.
You cannot achieve your financial goals while carrying any consumer debt, regardless of what your goals may be. Fortunately for you, if you’re coming out of a bankruptcy case, then you should have no unsecured debt.
I am uncertain why the concept of debt polarizes people so definitively, but I suspect it’s a sensitive topic for folks who come to realize their life is mostly rented. The costs of “renting” your life, in the form of mortgages, car loans and credit card balances, come at a steep price. Borrower is slave to the lender, and that maxim holds as true today as it ever has before. Financial freedom cannot be achieved until you first address your reliance on debt.
There are three perspectives when it comes to debt, specifically consumer debt.
First is the perspective of what I call the sick and tired. These are the people who have incurred significant debt and realize it cannot continue.
The sick and tired are fed up with sitting in gridlocked traffic in the daily commute to a job they don’t like to fund a life they do not enjoy.
They are sick of working the majority of their lives with absolutely nothing to show for their efforts. They now understand their life is slipping by rapidly, but they are unsure what action to take to begin living life more fully.
Second is the perspective of the blissfully ignorant. These are the folks who continue to believe their home is their biggest investment.
The blissfully ignorant force their kids to go to college so they can get a “great job,” maintain good credit scores, and always keep up the appearance of wealth.
They measure success by comparing themselves to other people in their social circles. The blissfully ignorant do not control their lives, other people’s expectations do.
Last is the perspective of the folks who see debt for what it is, indentured servitude.
If you buy a home or car you cannot afford, you borrow money to do so. In exchange for allowing you to use the home or drive the car, you agree to give your time to earn the money to pay off a lender.
The problem is material things only provide a temporary burst of distraction from your problems, but does not provide real and lasting happiness. You are selling the most precious commodity, your time, to rent things that make you temporarily feel positive about yourself.
Let’s use a mortgage as an example. The legal definition of a mortgage is simply an interest in real property.
However, a mortgage is so much more that. A mortgage is an agreement whereby a lender agrees to lend you money so you can use your home.
In exchange you agree to go to work for the next thirty years and pay at least thirty percent of your net pay back to the lender each and every month.
Also, you agree to be responsible for the house should any repairs need to be made, and pay property taxes on the property.
You also agree to insure the lender’s investment. By the way, if you miss even a single monthly payment, you are in default of the agreement and the lender may begin steps to take the property away from you.
If you do not miss any payments, your health holds up, and you can continue to faithfully serve the lender for thirty years, you can keep the house you’ve been living in. Sounds like an awesome deal…for the lender.
“What about capital appreciation,” you ask?
Appreciation does not provide monthly cash flow. Monthly cash flow is what you require to become financially independent.
If your monthly mortgage payments exceed your investment income it does not matter if you have several hundred-thousand dollars in equity in your home, your home remains a liability. You still have to give your time to pay the lender or you’ll lose the home.
Borrower is slave to the Lender. This relationship is a simple one, yet it eludes so many of us.
You should not trade a resource that is beyond all monetary value, your time, in exchange for the possession of stuff, unless your passion in life is accumulating stuff.
As long as you have debt, any debt, you cannot have freedom. Regardless of the vision you created for yourself, I expect you will require financial freedom to live life the way you desire.
Carrying ANY debt is the exact opposite of financial freedom.
Your choice to file your bankruptcy was a step in the right direction for living a life of financial independence. Assuming financial independence is what you truly want most, incurring debt in the future is a choice which will prevent you from getting what you want, and it could lead to another bankruptcy.
If you are serious about achieving financial independence, you must live by the principal: “if you have to borrow money to buy something, then you cannot really afford it.” It’s that simple.
After building your emergency savings account, all available excess cash should go toward paying off any debt which may have survived your bankruptcy. Make paying off your post-bankruptcy debt your single-minded focus, attacking the balances relentlessly until you have no remaining creditors.
Get out of debt by all means necessary. If you have to sacrifice your credit score to eliminate debt and your true desire is financial freedom, then immediately do so. When you make the decision to eliminate debt from your life, a credit score becomes much less important.
You are buying back your freedom with every dollar you use to pay off lenders, and soon no creditor will own your time. You will be the sole owner of your time.
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