OK. Anyone could sit down and create a budget, but it takes motivation, drive, and discipline to actually stick to that budget. Before we start telling you how to create a budget and use all the tricks and systems to be successful, we need to motivate you about why you should!
Here are some cold, hard facts:
- If you pay off debt slowly, you will pay more–a lot more (and you will be paying for a long time). Sometimes you’ll see breakdowns of different payment plans that give you a nice small number that is manageable per month. We like that. But then you do that math and realize your original $60,000 student loan is actually $124,000 if you follow their payment plan. WOW. We definitely don’t want to double our debt just because we had some selfish, unplanned, unbudgeted years.
- If you pay off debt slowly, you won’t be able to use the money you worked hard to earn on things that YOU want to spend it on. Instead, you will be giving it to the government.
- If you pay off debt slowly, you will more likely get into more debt along the way and keep the vicious cycle alive.
Eye-Opening and Jaw-Dropping Math
Now that we have begun to enlighten you with the reality that is accepting debt as a long-term lifestyle, it’s time to use some real numbers so that when you come to that fork in the road at “debt free” and “debt burdened” you are easily able to choose which path you want to take. SPOILER ALERT: If you are reading this, there is a good chance you are at your fork. Okay, now it’s time to put the you of today in your future self’s shoes and imagine your lifestyle as it would occur based on which path you choose to start down today.
Scenario One: You are making $50,000 per year. That’s about $37,500 after taxes , which is a decent chunk of money. Imagine that your living expenses are $20,000 per year—before you interrupt this pleasant scenario with horror thoughts about living on $20,000, let us kindly remind you that you just left college—okay, now we will continue. Imagine that you didn’t have any debt. You could spend twenty six THOUSAND dollars on whatever you want!
Scenario Two: You are making $50,000 per year. That’s about $37,500 after taxes, which is a decent chunk of money. Imagine that your living expenses are $20,000 per year. Imagine you are $70,000 in debt. None of that money is yours. Bummer.
If you are leaning towards Scenario One we are excited for you and are impressed with your excellent choice-making skills. Still needing more guidance towards the debt free path? There are a couple more possible lifestyle outcomes described below:
Scenario One-A thoughtful (and fun) post graduate lifestyle—complete with student loan debt and a solid plan to eliminate it quickly: Let’s say that you start out in the “real world” with $60,000 of student loan debt at a 7% interest rate (a typical grad student loan interest rate). Imagine that you work hard, stick to your budget, pay extra on your debt and pay off $60,000 of debt in 5 years. That’s approximately $12,000 per year or $1,000 per month or $250 per week. If you’re 25 now (like I am), you will be 30 years old, with zero debt, making somewhere between $60,000 and $70,000 per year. Wouldn’t it be great to be 30 and debt free, able to save or spend $40,000 to $50,000 however you’d like?! Not convinced? If you didn’t budget and make a debt payoff plan, you will be 30 years old and about $45,000 in debt…still.
Scenario Two- A thoughtless (but fun) post graduate lifestyle—complete with student loan debt and unnecessary spending: Let’s say that you start out in the “real world” with $60,000 of student loan debt at a 7% interest rate (a typical grad student loan interest rate). You are probably paying a minimum payment of a $450. According to your payment plan, you will be paying $450 every month for 30 years, totaling $124,000. That is a difference of $64,000—you have just doubled your debt. No fun. Because you are fun and thoughtless, it is possible that you are currently going out to eat twice a week and spending $20 each time, you’re taking $160 from your possible debt payoff plan. If you’re currently spending $100 every weekend at the bar, you’re taking $400 from your possible debt payoff plan. If you’re buying lunch every day during the week at about $8, you’re taking $160 from your possible debt payoff plan. That is $720 that is wastefully spent on restaurants and bars each month that you could use to pay toward paying off debt quickly. Essentially, all those little expenses aren’t so little when they are all added together.
We want our hard earned money to be our money, and if you’re reading this blog, you probably want your money to be yours too. It starts with getting motivated by doing some simple math, is accomplished by maintaining determination and dedication, and triumphantly ends in paying off all debt so that your money can be your money!
Be sure to check out our post on starting your own personalized budget for tips on putting your money where your motivation is!
“By recording your dreams and goals on paper, you set in motion the process of becoming the person you most want to be. Put your future in good hands—your own.”
-Mark Victor Hansen-