In America, people define rich by how much money and material possessions a person holds. We look at indicators like size of house, type of car, designer clothes, etc. The result of this definition is a society driven by consuming more than their means.
In June of 2010, Forbes posted an article comparing average household debt between the United States and China. Americans on average carry 136% of their income in debt. The Chinese carry 17%. This situation is not sustainable.
I say we need to change rich’s definition. I believe in defining rich by how little you owe and by your quality of life.
Take a minute to think about all of your largest expenses. Then think about how well you would be living if you could cut those expenses in half, or even eliminate them. Personally I carry a $1200/month mortgage on my primary residence and a $1000/per month mortgage on a rental house. I have no other debt. If I could end my mortgages, I’d be living cash flush every single month. My family would save more, travel more, drive better vehicles, etc. In my mind, we would be rich. We already live a decent life. We own a modest house, drive older cars and carry no personal debt besides our mortgages. But imagine what we would do with $2200 extra every month.
Based on this concept, my wife and I made a goal to cut one of our mortgages by the time I am 40 (I am 32 now). I intend to drop the second mortgage by age 50.
In 2006, we decided to pay off all of our debt outside of our mortgages. We paid off $19,000 in a single year. It was a hard year. We did nothing that year except pay off debt. However, it was one of the best feeling years of my adult life. We used Dave Ramsey’s snowball approach to debt elimination. I find the snowball approach important because of the psychological benefit of paying off your debts smallest to largest. You start winning faster.
Hopefully I can motivate you to sit down and look at your debt situation. Start taking action to eliminate your debt. I promise you amazement when you start to feel “richer” without increasing your income even one cent.