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Debt Free Living – Why?

Budgeting image with calculator and pen

Looking around your neighborhood you see new or fairly new vehicles in every driveway.  You see beautiful homes with great yards and several adult toys around the yard.  Included might be a boat, 4-wheeler, riding lawn mower, camper, expensive bicycles, etc…  What happens when someone gets all these gadgets with loans?  We end up with several payments we need to be responsible for each month.

Okay, so I hate being responsible for a ton of payments that go out to other companies instead of into my account, I admit it.  I will use an example, which is probably a little higher than some and lower than others for this demonstration.

  • House payment each month $1,000
  • Car payment #1 – $250/month
  • Car payment #2 – $250/month
  • Student loan – $250/month
  • Credit cards (all together) – $400/month

Then of course we all have our normal monthly bills with utilities, medical insurance, etc… on top of all those payments.  What effect did this have on our life?  Well if you keep the house payment knowing even without one, we still would have to pay rent somewhere, so you may as well be investing in something you will have equity in some day.  You are still left with $1,150/month in extra payments which we have to make.  It may not sound like a lot to someone making great money each month, but it actually is quite a lot.

If I look at a typical tax rate of 35% on an income and if we have a $20/hour job.  This means we need to work an extra 88 hours just to pay the extra debt off each month.  That is 2 of your weeks of pay, just for debt!  Even if you are one of the lucky ones and make $40/hour, that still means 44 hours, which is a full week of work, just for debt payments.

With the above example your “have to pay” total monthly expenses may end up around $3,000/month, which means you would be required to have a job with an income of $4,600/month to cover just your normal monthly expenses.  This ends up being right around $28.85/hour you need for an income.  That can be two of you working full time to make that number or one making it.

Without the extra debt the amount needed drops to $2,831/month which ends up being $17.69/hour to cover basic living expenses.

My disclaimer:  The math is not exact, it is only using general numbers and I have rounded to make it simpler.  🙂

That is a lot less stress!

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