Let’s get real with FIRE

Recently, I was watching a national news broadcast and one of the stories covered was about a person who was able to knockout nearly $80,000 of debt in just seven months. I was hooked! That’s amazing! That’s inspiring! How does someone clear out that much debt in so little time? 

The story went on to interview the person to detail how this can be accomplished. It turns out that with focus and a budget you can wipe out almost $80,000 worth of debt in just seven months. 

And while I was impressed with the accomplishment, I realized it’s just not practical for the average household in the country to replicate. Why? One word – math. In order to wipe out $80k in seven months you need to pay down that debt to the tune of $11,428.57each month! That’s $11,428.57 extra – sitting around after you pay your taxes, rent/mortgage, utilities, food and transportation. 

The US Census Bureau reported that the median American household income in 2017 was slightly more than $60,300. After reducing for taxes and FICA (I’m using a total of 15% for average federal, state, and FICA withholding. It could be more or less but you get the idea), I estimate the median American household is left with about $51,000 annually or $4,270 monthly to paid their monthly necessities.

Clearly that’s not enough to pay off tens of thousands of dollars of debt in under a year.

Don’t get me wrong, this story can be inspiring for those wanting to get control of their finances and seek financial independence. The ability to wipe out such a large amount of debt in so little time was quite an accomplishment for this person. For anyone to be able to size up their financial situation, recognize the direction has to change and actually execute it, is incredibly remarkable. 

But where does the average person come up with another $11,400 after taxes each month to get control of their finances? I don’t know. For all practical purposes you don’t. The average American just doesn’t have that kind of money laying around. 

What can we take from the story?

Rather than just disregard the whole story, there are some lessons to learn from this person’s experience. 

First, you need to recognize that your situation may not be where you want or where it needs to go in order to gain more financial security. Most folks ignore the issue figuring that it will all work out eventually. Maybe it will, but that’s not how I approached our debt issues. We realized that we were giving money away each month to the credit card companies or student loan processors and wanted to keep it instead. Clearly the person in the news report had enough as well.

Second, take that frustration and channel that energy into developing a plan that will turn you in the right direction. Make a commitment not to take on additional debt. Don’t add to your problems. As you’re paying off the existing debt, it doesn’t really matter how you pay down the debt. Pay off the little balances first and then move your way up to the larger ones or focus on the highest interest rate and work your way down. In the long run, it really doesn’t matter as long as it works for you.

Third, work at it. Change is hard but that’s ok, the results are fantastic. The results are tangible. If you’re throwing an extra $500 or $1,000 at your debts each month, think how great it will feel when you complete your goal and now have that $500 or $1,000 extra to invest toward your financial independence!

If you have one, include your financial partner and get on the same page. You’ll both have insights and differing views of where you stand financially. Additionally, working together it makes the tasks easier knowing that you’re sharing the load. Don’t forget to recognize your accomplishments along the way. I’m a huge fan of celebrating small victories to keep the momentum going. I’m not talking about taking a $3k vacation after paying off a $750 credit card either! Make it small and reasonable but take the time to acknowledge that you’re on the right track and are progressing towards your financial goals.

Keep at it and you’ll be pleased with your accomplishments over time. You may not have an extra $11k each month, but when you start with an extra $100 and increase to $200 or $300 over time, it will move the needle. Don’t compare yourself to others and feel you can’t keep up. That can be self-defeating and discouraging. Striving for financial independence is not something that’s accomplished in a couple months. It takes years with focus and commitment. And with those years of focus and commitment, you will see the results.

Have you said goodbye to debt? What technics did you use to get it under control? Share your thoughts in the comment section below.

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