After meeting with over 200 families, it’s been my experience that one of the primary concerns most private practice owners articulate as being THE barrier to their financial freedom is having too much debt. During the delivery of a financial plan, one of my most enjoyable moments is when we review and analyze eliminating their debt in our program. I am often struck by two things I observe in the responses I receive from the household members:
- The time frame in which the household debt can be eliminated is often a BIG SHOCK to the household members.
- The amount of cash flow which will be available to the household when the debt is completely paid off is often SUBSTANTIALLY MORE than what the household is currently living on now. In other words, most households are paying more in servicing their debt than they are in paying for their basic lifestyle expenses. That is an inversion of how it should be.
Let’s review observation #1.
Look, I don’t care HOW the debt was obtained. It is what it is. All I can tell you is that it is nowhere in the realm of optimal for the vast majority of households to carry the amount of debt they carry. When I ask the question: “When do you want to be debt free?” It is certainly not ideal for me to get the following responses:
- I don’t know
- 20-30 years
- My accountant said having some debt was good
YOUR INABILITY TO NAME THE MONTH AND YEAR IN WHICH YOU WILL BE DEBT FREE WILL CAUSE YOU TO PERPETUALLY BE IN DEBT.
There is NO reason why the vast majority of you cannot be debt free within 7–10 years. And when I say debt free — I MEAN DEBT FREE! No more car debt. No more credit card debt. No more house debt. No more student loans. No more business unsecured debt (SBA loans, credit lines, purchase loans, equipment loans).
The only thing I consider business secured debt is a piece of commercial property EARNING INCOME 10-15% ABOVE ITS EXPENSES. That is generally something you do not want to pay off.
Now let’s look at observation #2.
When you really look at HOW much money you are spending on servicing debt, it can be mind-blowing! Here is a real life example of what a practice owner pays each month in servicing debt:
- Mortgage: $1800
- Student Loans: $650
- Credit Cards: $1000
- Car: $650
For most people, this may seem normal. Now let’s throw in the business debt:
- Business Loan: $4000
- Business CC: $1500
- Equipment: $1000
Total Monthly Debt Payments: $10,600
How would you like to have an extra $10,600 a month to spend on whatever YOU WANT?
Let’s be real, I know most of you needed to get loans to start your business. You took a big risk and you should be rewarded for it! DO THIS — Reward yourself by getting this debt load off your back as quickly as possible so you can enjoy the fruits of your labor sooner rather than later.
- Here is how to eliminate debt in the most effective and efficient possible way:
Work out utilizing the debt elimination software when you will become debt free on your current path.
- Based upon that date, NAME THE MONTH AND YEAR YOU WOULD LIKE TO BE DEBT FREE.
- Work out a system of how much you need to accelerate paying off the debt in the time frame you’ve decided. For instance, if you need a $1000 a month accelerator margin to be debt free in the time frame you named but can only do $500 right now, then gradually work up towards the $1000 monthly accelerator. ALWAYS FOCUS ON WHAT YOU CAN DO.
- Analyze how much free cash flow will be available to you when you have all the debt paid off and use that as motivation to do what it takes!
If you can’t find the accelerator margin then you need to cut spending from some place. Try looking in places that you are wasting money OR look at ways to crank up your business viability and plan for more income to pay this debt off for good. In order to achieve a truly powerful financial condition, you must first decide to unburden your household and business of the debt load you are carrying and then TAKE ACTION!
Always KEEP YOUR EYE ON THE TARGET of how much money will be available to you when you are debt free. Use that dollar amount for MOTIVATION!
Think of the financial power and freedom you will have in the end!