The best money saving tip I could ever give someone is to pay off your debt. All of it! Forget what you hear about good debt vs. bad debt. There is no such thing as good debt. There is only bad debt and worse debt.
Debt is bad for you personally, it is bad for the government and it is bad for business. If you can not look at what is going on in the markets right now and see how bad debt is, then you are in denial.
It is not just expensive in dollars, but it is expensive in choices. You have very few choices when you have payments. You are a slave and debt is your owner.
So how do you pay it off? It takes sacrifice. There is no way around that. You will hear advertisments that say “get out of debt without changing your lifesyle”. That is crap. It can’t be done. Your lifestyle got you into the mess, your new lifestyle will have to get you out.
So where do you start? Stop borrowing money! Today! You can not get out of the hole you dug until you put down your shovel.
Next get on a budget. A small one. Cut everything you don’t need. Cable, cellphones, eating out, and whatever else is not essential to survival. Plan your meals carefully to get the most for your money. About $600.00 a month for a family of four should be plenty.
After that, stop putting money in your retirement for now. Use that money and any other money you have found in your budget to pay on your debts. Start with the smallest and work your way up. If you have money in the bank or non-retirement mutual funds or stock, cash it out. Leave a couple thousand for emergency and put the rest on debt.
Once everything is paid off but your house, build up 6-12mths worth of living expenses and then start putting 15% away for retirement.
Now you have no payments but the house. Welcome to the land of the free. Now you have choices.
But wait. Stop borrowing money. How is that possible? Just don’t do it. There has to be absolutes in life. “I will not murder someone in cold blood and I will not borrow money for anything but a house”. Just make it an absolute for you and your family. A principle to live by. Don’t buy it unless you can pay for it that very minute.
“But I need a new car.” No you don’t. You may need a car, but you don’t need a new one. Only buy what you have cash for. If that is a $500.00 car that only lasts a year, then so be it.
“But I want my kid to have this or that.” Too bad. They will survive without it and they will probably be better for it. You are not doing them any favors by living a life on the edge of insolvency. Love and support is free.
“But I make more return from my mutual fund than I pay in Interest.” Really? Have you looked at your portfolio today. This one always kills me. This does not take the risk of having payments into account. You can not enumerate this risk, so doing the math is impossible. Instead you should use your gut to do these types of calculations and my gut tells me that without payments I can build wealth quicker with less risk.
We have been sold on debt. We have been convinced that it helps us. It is a lie. Debt costs too much in too many ways. Pay it off!