Reasons to Live Debt Free

Freedom to Choose

When you are debt free, the money that you make is your own. Okay, so the taxman wants his share, but all things being equal, you can spend your money how you choose.

What you are not doing is paying interest to corporations which frankly would not notice if you did or not. Don’t get me wrong, businesses need to make money, but I choose to let them use somebody else’s money and hard work, not mine.

What I choose to do with my money is not to work a nine to five job, spend quality time with my wife and dogs and enjoy a full social life with my friends and neighbours.

How would your spending change if a large chunk of your income was freed from servicing your debt?

Would you choose to live any differently if you were debt free?

Earn Interest Instead of Paying It

I find that when I talk to people about finance, the often lose interest, look bored and try to change the subject. However, there is a reason it is called “interest”, because once you understand a little about how money and numbers work, I defy anybody not to become very interested indeed.

Here are some facts about compound interest –

If you have a 25 year mortgage at 5% and double the repayments every month you will repay the mortgage over 16 years earlier, saving over $50,000 in interest on a $100,000 loan.

Then invest your monthly mortgage payment (which in this case is $590) in a savings plan paying 2.5% interest for the remaining 16 years. At the end you will have savings of over $139,000. Of that over $20,000 is interest earned, money working for you instead of the other way around!

When you are debt free your money can work for YOU while you sleep – soundly – not for the corporations. I call it a “get rich slow” scheme.

Save for Retirement

Many people spend their whole working lives working to save for retirement and pay their debts before they finish work. Then they finally retire and find that they have all the time in the world, but less spare money than when they were working!

If you consider the examples I showed above and took out your mortgage at, say 25 years old, by the time you are 50 you will have leveraged your initial mortgage $100,000 mortgage debt into $139,000 savings, AND you own your house.

Or, to put it another way, the $590 per month you saved for 16 years can then be withdrawn from your savings every month for almost 20 years!

If you free yourself from debt at a young enough age and use those payments to save for your retirement you can either retire earlier, or have a much higher income if you continue working.

What would you do, retire early or work longer and take higher retirement income?