Many personal financial writers advocate for having a nest egg in case something happens. The general consensus is three to six months worth of expenses in a bank account or other safe form of investment. This is a good idea. We have all seen just how close to the edge many people are when the economy takes a dive. Of course it doesn’t take a world wide financial event to create a problem. It could simply be losing a job or getting injured and being unable to work.
Rates of saving vary around the world. The US seems to get a lot of the attention because of the stunning fact over 50% of adults have less than $1000 in a savings account. Think about that for a moment. Your car breaks down or your heater or air conditioner stops or you have a visit to the emergency room. Each of those can easily be a thousand dollars. Even worse when more than one happens at the same time.
If you can service your debt levels and sleep at night then debt is not a bad thing.
The average savings per US household looks a bit better at a bit over $16000 in 2019. Until you think about this being an average. There are many households in the hundreds of thousands so that means more than a few with significantly less.
Growing up in Australia we had a conservative view of debt. Yes, it was usually a necessity if you wished to buy your own home. Credit card debt existed whilst not being a primary method of funding our lifestyles. That didn’t mean we weren’t aware of the, “I owe, I owe, it’s off to work I go” mentality. If you can service your debt levels and sleep at night then debt is not a bad thing. In some cases it can make a lot of financial sense.
The qualitative measure is the mental affect debt can have on people. Over the years I have had a home mortgage and financed a car. The home came before the car. I’ll write about cars at a later date. Plus a monthly credit card for living expenses that was paid in full each month. I have never carried credit card debt and it really should be avoided.
When I decided to start travelling I kept my house as an insurance plan if I didn’t like the nomad lifestyle. I rented it out and the income basically covered the mortgage and other costs. I also owned the car outright by that time. After about 18 months I knew I wouldn’t move back to my home and it was sold. I was now debt free.
The feeling is one of those things you can’t convey in words. Perhaps a good writer could do a better job. If you no longer have regular monetary commitments, the attitude to work is completely different. This is coming from a place where I was well ahead on my mortgage payments and could have paused them for more than 12 months if necessary. The cliche is I just felt free. That freedom can also be translated into a wealthy life.
Work became a choice rather than a chore. I could choose what I wanted to work on, who I wanted to work with and where I wanted to work. Truth be told, I had a bit of this attitude for the years leading up to my travel because I had a good financial base. Removing the debt took it to another level.
You don’t have to sell a startup for millions to achieve this feeling. I certainly didn’t. I did look at my life and removed a lot of expenses that weren’t providing me with a good return. If you are working towards being debt free, this is a good first step. That $100 discretionary item each month can go towards debt reduction rather than a short term high. Think in the long term.