Thursday, January 24, 2008

THIS Is The Reason To Be Debt Free

If you don't read any of my other posts, please read this one. I know I yap and yap about getting out of debt in order to build wealth, but without hard facts to show you, I'm finding that some people just aren't seeing the need to do it. So here's your lesson. Listen up.

Here's what you are probably doing now:
  1. Paying minimums toward mortgage and cars

  2. Savings, if even there, is hovering at the same amount every month. Sometimes it even goes down.

  3. Total retirement plan consists of a 401K plan for each spouse, or maybe even for only one spouse.

You are just plugging along, getting no traction in making a difference to your financial future.

Here's what you can do if you are debt free:

Let’s say your take home pay is $4000 per month. If you could live on just $2000 per month (which you should be easily able to do if you don’t have a mortgage or car payments), that leaves $2000 to invest. So let’s put this extra $2000 into a growth stock mutual fund at an average rate of 12% per year. This money must be deposited every single month. If you are 40 years old now and did this plan, you will have $2 million dollars when you are 60. For those of you who like colors and pictures, here's your chart:

So, if you refuse to live below your means, refuse to get rid of your debt, keep buying crap you don’t need, what will you have when you retire? Your piddly 401K and if you are lucky, maybe a couple thousand in the bank. And no, you should not count on Social Security. This isn't rocket science, people.

Which life are you choosing? $2 million or nothing?

The above chart is from Dave's investment calculator. It's easy to do, so go plug your own numbers in and see how you could end up.