Having many years’ experience in the financial services industry, I understand a lot about debt. The Canadian debt to income ratio is now a whopping 165% our neighbor’s to the south & most of Europe now report huge debt percentages.
There are two types of personal debt. Good debt, mortgages or loans to purchase assets and bad debt, primarily consumer debt, goods and services that do nothing to add to your net worth. Sorry a flat screen TV or closets full of Jimmy Choo shoes does not add to your net worth!
Although we have retired early we do have some debt, we have “good debt” in the form of mortgages, which our renters pay. The additional rental income offsets our travel expenses.
Over the last few years, we have consciously avoided bad debt, which meant no monster flat screens or exotic vacations that we were still paying for a year later. We learnt to live within our means and to spend our money on necessities’ not wants!
Identifying and eliminating “the wants’ is the first step to financial independence. A “want’ is anything that is not helping to feed and shelter you.
- Track and list your monthly expenditures.
- Go over that list with a red highlighter and mark items that are “wants’
- Total the amount that you spend per month on ‘wants” surprised? Most people are.
- Think about what you could do with that money. Could you pay off debt, save it, invest it?
Coming next, how to…….
Pay it off with a Snowball!