60k with no debt versus 100k with debt.
It’s not how much you earn, it’s how much you save. It’s not how much you make; it’s how much you keep. That’s the saying that sticks in my mind when thinking about smashing through debts in my journey to live unshackled by bills, mortgages, economic servitude, and just payments in general. Sayings are all fine and well to keep sight of your goals or gather some motivation when you just need a boost, but I wondered beyond that, how the actual numbers and actual facts, supported or contradicted this bit of feel good folksy wisdom. With this in mind I set out to crunch some numbers. How much would a person with no debt need to make to achieve the same amount of take home pay as a person with typical debts of a person in the United States.
Now all of this is simply to achieve the same amount of excess cash per month (For savings) as someone who makes 100k with debt. This doesn’t fully show the entire picture. What about lifestyle, stress, and the ability to buy things that you want. Granted, it’s true that the six figure income probably qualified you for a nicer house, in a nicer neighborhood, with a nicer car, but beyond the extra sparkle and shine, is there a functional difference to the value of your life, as long as you have a safe, quiet, reliable house or car? Should I be measuring lifestyle in house square footage, the year of my car, designer watches, and top of the line clothes, or does it make more sense to measure my wealth in free time, financial security, and the ability to cultivate meaningful experiences (talk about buying everything at a minimum of 50% off and the story begins to change).
100k after taxes=74116.25 or 71016 (depending on who you ask).
Then you must subtract the following
Car payment -300
Student Loan Debt -300
This comes out to 48916 when considering 74116.25 take home.
This comes out to 45816 when considering 71016.00 take home.
-25,200/yr in debts
You keep 48916.25
60k after taxes=47226.25
You Keep 47226.25
Things you get with 100k lifestyle
Financial security/coushin from economic down turns
Free time with loved ones
The ability to travel
Economic mobility for children
Things you get with 60k lifestyle
Now I’m not saying that poverty is a virtue, quite the opposite but living below your means and being financially effective is quite different from living in poverty.
The point of all of this is that eliminating debt can mean the same thing as getting a very large raise.
Consider this analogy; Let’s say that money is your fuel for getting through life. You and the Mr. Jones both have 20 gallons of fuel in your savings accounts. You elect to buy a car that gets 30 miles to the gallon while Mr. Jones congratulates himself on buying a hummer which gets 8 miles to the gallon, costs 2x as much for insurance, and has greater maintenance costs. Who is going to have a harder time on the road trip of life?
There’s absolutely nothing wrong with making a lot money, but don’t fall into the trap that so many people do-feeling a false sense of security, loading up even more debt, signing a contract to spend the next 40 years of your life paying for this, and risking your well being on a paycheck that you are now dependent on to support a lifestyle that owns you. Not the other way around. It’s so much more freeing to know that no one controls you-not the bank, not the car dealership, not Sallie Mae, not even a credit card company. This is your life and if you structure it carefully, with some forethought, you can rest easy knowing that you have true financial freedom that can’t be taken away by the next round of layoffs, predictable economic downturns, war, or interest rate changes.
Economies wax and wane, housing prices fluctuate, and whispers of the next war can all change your priorities and status when they were leveraged by debt.
Use these compound interest calculators to calculate how much money just 5 years of your debts would become in 30 years if invested.