Welcome to the tenth installment of our 10-week video series, which will help you avoid the most common red flags that are keeping you broke. If you’d like to follow along with our FREE guide, you can download your copy here.
Our tenth red flag is you don't understand how debt really works, and neither did I at one point, and that's why I found myself broke.
I think we can all agree we know how debt works on the surface. You take out a loan or a credit card to purchase an item and you pay a fee called interest to borrow that money. Then you just make payments until that loan is paid back in full. EASY!
The mistake I made, and many others do as well is I got too many payments and went too far into debt and I didn't understand how much of an affect that was having on my life and my future.
Fast forward many years later, I now completely understand debt and it's affect.
We are sold that debt is a tool by the financial industry. When you want or need something you just take out payments and go into debt.
Just walk into any bank and you'll see these messages on their brochures and from the bankers themselves. Got an emergency? Get a credit card. Opening a business? Get a loan. Need money for your kids' college or your next vacation? Take out a home equity line of credit.
But here is the thing. Banks, credit card companies, financing companies, and the entire financial industry are in the business of making money. They aren't in the business of looking out for you and your best interests. That's your job!
Why is this important to understand?
Most people go into debt for the worst things and the financial industry will gladly keep lending them money to do so!
I don't go into debt for anything anymore. But I used to! And I bought into the argument that you should leverage debt, meaning you should use debt to your advantage to further your progress and keep more of your cash in your pocket by making payments.
But here lies the problem, I was going deep into debt for the worst things possible, and so are most other people who are struggling with money and debt.
Think about your car, clothes, appliances, TV, computer, smartphone, vacations, and kids' toys. Do any of these things increase in value over time?
NOT A SINGLE ONE!
And take a guess at where many people are feeling the pressure? You guessed it! It's the credit card bills, the car payments, the financing bills, and all those purchases that ultimately go down in value. On top of that, the debt is like a double whammy because not only are all those purchases going down in value, but you're also paying interest and fees to have it. OUCH!
When you're taking the majority of your income and making payments and investing in stuff that goes down in overall value, eventually that leaves you with nothing but a bunch of worthless stuff and no money.
Not exactly the recipe of a stable financial future.
First, stop taking financial advice from the financial industry or companies that are lending you money. These companies are not helping you by offering you credit. They are selling you a product that keeps them in business.
They want you in debt because that keeps them in business. The more debt you have, the more money they make.
Second, if your entire paycheck is wrapped up in making payments every month, this should be big red flag to stop using debt. You really need to get on a plan to pay it off.
Third, you need to invest in yourself by getting educated. As I mentioned above, nobody is looking out for you the way you think they are, and if you aren’t careful, that entire paycheck you work so hard for is going to make everyone else rich and leave you broke. I’ve been there, and I’ve done that, and I’ve got the t-shirt.
This wraps up our 10-week series on the top red flags that are keeping most people broke! Now that you know what to look for, it's time to dump these red flags so you can kick financial stress and payments for good!
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