Who Owns Your Future
Posted on August 12, 2006
When you sit down at your desk to write checks to pay your monthly bills, have you ever thought about how much of your future is owned by someone else? “What?,” you say, “no one owns my future.” But is that true?
Do you have car payments, credit card payments, payments to furniture stores, department stores or any of the numerous other consumer debts so many people have? If so, someone else owns part of your future and here’s why. Look at your monthly statement. How much of the minimum payment is interest or finance charges? The time it takes you to earn that amount of money is owned by someone else. Here’s something to think about.
A recent study showed that the average American household has about $9,000 in credit card debt. At 18% interest, it requires $135 per month just to pay the interest on the debt. In 2004 the average national wage was just over $35,000 or about $17 per hour. At this rate, one would have to work almost eight hours to earn enough to pay interest on the average credit card debt. But that’s before taxes. Payments on consumer debts are made with after tax dollars. The interest is no longer tax deductible the way it once was. If we assume that about $5 of the $17 hourly wage goes to pay FICA, federal, and state taxes, then it would take over eleven hours to earn enough to pay interest on the average credit card debt.
The question is, what does the interest payment buy? The answer is simple�nothing! You may be enjoying whatever you purchased that ran up the credit card balance, but the interest you incur while paying it off requires you to trade part of today’s time for what you did yesterday. In the above example, you lose over eleven hours of income before you even begin to pay the debt. That’s why I ask, “Who owns your future?”
When you have to pay interest on money you borrowed to purchase things you used last month or the months before it takes away from what you can do this month. Imagine working 10-15-20 hours this month for nothing; labor that doesn’t buy anything, it only pays the interest. This can be very discouraging. Running up consumer debt mortgages your future and commits future earnings to pay for today’s pleasure. That’s why consumer debt is so destructive. It’s also why many people find themselves in financial trouble before they realize what has happened.
Now, back to paying those bills I mentioned earlier! How much of your future does someone else own? When you think about it this way, it’s a bit upsetting isn’t it? But, until you get mad enough to do something about it, nothing will change. You can’t keep living the lifestyle that put you in this position and ever be able to enjoy all of today’s income. If you keep committing part of tomorrow’s income for today’s pleasures the problem will only get worse. You have to make some changes.
Here’s a tip! Bills that include interest you can’t deduct on your tax return are probably the result of destructive debt. Whenever you pay one of these, write down the amount of interest you pay. At the end of the month total it up. Then take your income for the month, after taxes, and divide it by the number of hours you worked. Divide the amount of interest you paid by the amount per hour you netted. That will tell you how much of your future belongs to someone else.
When you see how many hours you have to work to pay interest that buys you nothing, you should start to get a bit mad. If it’s a lot of hours you may get real mad, but until you get mad enough, you probably won’t make the changes needed to do something about it.
Paying off consumer debt is a big burden for most people. Not only does it rob you of buying power and force you to live on less than what you make, it lowers your standard of living and reduces self-esteem. When part of what you make each day goes to pay interest on money you borrowed to enjoy yesterday, it can make the thoughts of work miserable.
What portion of your future is owned by others? Would you like it back? Would you like to get up each day and go to work knowing that at the end of the day you’ll get to fully enjoy the fruits of the day’s labor? Well, the only way to do that is to get out of debt. Until then, you are nothing more than an indentured servant to the people you owe. Your debt is a contract binding you to work for them until the debt is paid. It’s not a very pleasant thought, is it?
Getting into debt is easy and exciting. Often, all you have to do is sign a charge ticket and you get all these fun things to enjoy. Getting out of debt is another matter. It’s difficult and time consuming. Next week in this space I’ll to share a tip on how to do it that you may find a bit unconventional. Between now and then take a few minutes to determine how much of your future is owned by others. This exercise will get you ready to make the kind of commitment you’ll need if you want to buy back the rest of your life. Next week I’ll show you how you can do it.
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