When you do money, there are certain things you have to do with it. We need to figure out a way to use money more than once. When we make money, we have our living and our lifestyle expenses immediately to deal with. Now let me differentiate these two for you. The living is food, clothing, shelter, and transportation. Lifestyle is how expensive those are. For example, your transportation can be a $5,000 used car or it can be a $50,000 new car. The lifestyle is the issue. Your shoes, your clothes, the food you eat, and the place you live in all can vary in the cost of it to you.
Right now, in America, most people’s money is gone right here. Parkinson’s law states that expenses will grow to meet or exceed income? See, I’ve had people tell me, “Oh, yeah, Tim. I know all about that. The problem in America is everybody spends everything they make.” That is no longer the problem in America. The problem now is that we spend everything we make and everything we can borrow. This is where the slavery and the bondage come in. This is the reason you can’t stop and climb off the hamster wheel. Well, we’ll get to that reduction in a minute, but understand that it’s not about pending all you make. It’s about borrowing more than you actually have.
To give you a picture of that. In America right now, the newest form of debt in America is cell phones. Last year there were $60 billion spent on financed cell phones. That was last year, who knows what it will be this year. But $60 billion on cell phones were financed. The majority that are doing this are people that can’t afford a thousand-dollar cell phone. So they’re financing it and paying a monthly payment.
Our paychecks are mostly consumed by the time we get done with living and lifestyle. Most people don’t have anything left, but now we understand we need savings and emergency funds. Any plan that I help you provide or develop for yourself has to include a decent living and lifestyle. It also has to include having some savings or an emergency fund.
The harsh reality is, is that according to gobankingrates.com in 2016, 34% of Americans had zero dollars of savings, and the next 35% had less than $1,000. So, that’s 69% of the American population at the end of 2016 has less than $1,000 of savings or an emergency.
Debt reduction, you’re told all the time you need to start reducing your debt. Get out of debt, get out of debt, and I agree. Couldn’t agree more. The fastest and most assured way of increasing one’s net worth or overall wealth is to reduce debt. It works 100% of the time, and there’s no downside to it. You can’t get hurt by reducing debt.
See, net worth is all your assets. Which would be cash, cars, houses, property, bonds, stocks, less any debt that you have is your net worth. So, if we have zero debt, our net worth just went up dramatically because now it equals all our assets. The fastest way to do it is by debt reduction.