Become Debt Free
Most countries in our world have debt. Some have very high debt and some not so much. The seven most indebted nations are Japan, Greece, Italy, Portugal, Singapore, USA and Belgium.
The United States of America has the highest value of debt – 18 trillion dollars. It is more meaningful to rate the indebtedness according to their debt-to-GDP Ratio. You can see the chart here: http://www.forbes.com/sites/mikepatton/2014/09/29/the-seven-most-indebted-nations or you can go to Wikipedia and see the debt of every country http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
It is a shocking statistic that almost every country in our world is living beyond their mean. I wonder what is wrong with our world and our culture. Why did they spend so much money? When you have a debt of 100% debt-to-GDP ratio, that means you owe one year of income. For example, if you can save 10% of what you earn to pay the debt, it will take you ten years to pay off your debt – not counting interest.
I have been indebted before and it was a very dreadful feeling. Besides feeling bad, I had to pay a very high interest every month to service the debt I owe to the bank. It was after I read the book “Rich Dad, Poor Dad”; I realised that I created the problem myself. I have no one to blame, it was all my own fault.
Once I paid off my debt, I was free. I felt wonderful.
Borrowing money to buy a house which I could understand, because it is extremely hard to save up enough money to buy a house. Therefore, we have to borrow money from the bank. The least money you borrow the better. The best way to approach this is to buy the cheapest house you can get.
This is the best starting strategy if you want to build wealth. Since you are paying less in interest when you borrow less. When you have paid off the first house, you can upgrade to a bigger one. Which is easier than buying a big house from the start.
I will have you a calculation which will give you a better picture. (In the example below, I will assume an interest of 10% per annum and house do not go up in price).
The first example – you first buy a cheaper house and it cost you $100,000
So yearly interest = $100,000 x 10/100 = $10,000. Assume that you can pay it off in 5 years, so the total interest is $50,000.
Then you upgrade to a bigger house which cost $200,000. You sell your first house for $100,000, so it will only cost you $100,000. Assume that you can pay it off again in 5 years. So you own a house of $200,000 in 10 years and you paid an interest of $100,000.
Second example – you buy a more expensive house and it cost you $200,000
So yearly interest = $200,000 x 10/100 = $20,000. Assume you can pay the same amount as in the first example. You paid it off in 10 years.
So the total interest you paid is $20,000 x 10 = $200,000
You paid $100,000 less in interest if you take the first example.
I understand most people want a nice house, but you can see it is not a wise decision if you have to pay more interest. You are virtually working for the bank.
Whoever invented interest is a genius. It is a very good tool to enslave someone. If you have read my last article, you will know that it is the bankers who control our world. We are all slaves to them. In order not to be slaves to these bankers, we have to stay debt-free. They can no longer control you when you don’t have debt. It will be even better when you can put your money in the bank and they pay you interest; so they work for you.
You want to be rich, you need financial education. Making money is not hard when you know how.
There are other attributes that you need to build wealth. You need to know how to take educated risks and understand money is only a tool. Do not be attached to money emotionally; money is not everything. Do you make money as your life goal.
Many financial experts advise us to pay ourselves first. It means you need to save a portion of your income for emergency. The reason most people are poor because we spend all we earned, or we spend more than we earn and we got ourselves in trouble.
One of the good way to save money is not to buy anything which you don’t need. I know a lot of us has a habit of buying things that we don’t need. I used to do that myself. You have to change your habit if you want to build wealth.
When you have spare money then you can use it for investment. You will never be rich if you don’t know how to invest.
“An investment in knowledge pays the best interest.” – Benjamin Franklin.