Tonight at a party I overheard a conversation. An older gentleman was advising a younger couple to do some travellling while they were young because “once you start making money, you’ll go into debt and then you have to keep working.” It seems strange making money would cause you to go into debt, but in many cases this is true. There are many people with very high paying jobs that are very deep in debt. Debt doesn’t seem to be inversely related to the amount of money you have. Many people with very large salaries are tremendously in debt. Why is this?
I think that people look at their salary and it makes them feel like they have “earned” certian things in life. They start to think the deserve a new car–even if it is a bad idea financially. Over time they aquire many things that they “deserve” and the debt associated with those items.
The most successful people I know live well below their means. There monthly spending is a fraction of their monthly income. They don’t see possessions as something they “deserve”. That isn’t to say they live in poverty. On the contrary, they enjoy the freedom of buying things that they want, but since their focus isn’t on possessions, they tend to be much more conservative. Instead of spending their time buying things to increse their credit card bills, they focus on using and investing their money wisely.
Debt is not determined by how much you make–it is determined by how much you spend. Spending more than what you make produces debt. Even spending exactly what you make produces debt because there will always be unexpected expenses. By only spending a fraction of your income you can elliminate your debt and begin to save. It may not happen overnight, but controlled spending will always put you on the right track.
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