For many people the amount of debt they carry is something they would like to push to the back of their minds. Credit Cards, Auto Loans, Mortgages, Student Loans etc. These numbers can be intimidating when compiled in front of your face but ignorance does not change the fact that the beast exists. Think of it like this – you can deal with a hard situation now or a harder situation in the future.
For my money (pun intended) the first thing to examine is how we think about money. Specifically, how money relates to our time and energy. The financial debts that I carry today, mean leverage against my future time. In the American Economy, we often must exchange time and energy for money. That’s most people’s situation – A job that puts a dollar premium on their time. We use that money to pay bills, purchase necessities, save for the future, and buy things we want. It’s simple:
Money = (Energy / Time) (I give energy over an 8 hour workday (time) in the form of skills/labor to an employer or business of my own and I am compensated with money… sometimes)
Debt is like negative money
-Money = Debt , or
Debt = -(Energy/Time)
Basically, financial debt creates a situation where you actually go into an energy and time, debt. Your future time and energy is spoken for because you owe money to someone in the present.
This is where paying off my $60,000 of debt was super sobering. I’ve said many times that I wanted to experiment with being a Personal Trainer after walking away from the Engineering world. I was 25 years old at the time. I realized that my repossessed car, credit card balance, and student loans were holding my future time and energy hostage.
Being a personal trainer requires the time to build up a clientele. You’re essentially building a business inside a business. It takes TIME. Lots of it. Building enough rapport with people for them to be willing to pay you $100 for a 1-hour session takes lots of up front energy with no immediate monetary pay off. It could take 2-3 years to build up a client base strong enough to net you $30-60k/year depending on your sales ability. And I suck at selling. That’s 2-3 years of hardly any income. I could have ignored my debts and focused on Personal Training and paid the debts off when I reached a certain income level. I didn’t want to do that because I felt a moral obligation to pay off the bills I had accumulated. That was my personal conviction. You’re your own person but it sure has been nice to chase writing and speaking without debt collectors beating my door down.
The trade-off for prudence to my financial responsibilities was a full time job in the US Military. I’m grateful for my military service and I definitely was looking for a job where I felt I was in service to something greater than myself. However, if I hadn’t been in debt I don’t know that I would have ever even thought to go into the Army or if I would have ever stopped working as a personal trainer. My options were limited to full time jobs that had the promise of immediate pay. Fortunately, I chose the military. It’s still one of the best decisions I ever made. I acknowledge that it’s easier to say that when you don’t leave war with any physical or mental wounds. Again, I’m fortunate. Unlike me, many people are forced in to scenarios that are less than optimal because they have the mounting pressures of debts that must be paid:
- It’s not volunteering with a cause you love because a job with a terrible company culture pays you money for the bills you have.
- It’s not working part-time and instead working full -time… turning something that could be enjoyable into a frustration around the things you can’t do because you are working full time. You need the money today.
- It’s not building the business you want because the full-time job is paying you the cash you need.
- It’s not exercising or spending time with loved ones because you have a long commute to the full-time gig that pays you enough to get out of debt.
- It’s having to accept any job available with any set of circumstances… because you need cash now.
Whether you’re in debt or not, I think it helps to understand that the energy we give to a job over a period of time generates income and this helps us look at our spending a bit differently:
- Every time I buy a cup of coffee for 3-4 dollars
- Every time I buy the unlimited data plan for my phone or upgrade my phone
- Every time I buy something at the grocery store that’s not on my list
- Every time I get a car loan
- Every time I buy a new pair of shoes…
…I am essentially sending my time and energy out the door.
I’m not fundamentally against anyone making any purchase but, I would hope we are aware of whether our purchases align with where we want to spend our time and energy. Does our spending reflect our long-term priorities?
This is why I think budgeting is so powerful. It’s one thing to say, “Yeah, I’m very careful with how I spend money!” It’s another thing to see it on paper or on your smartphone screen… dollar for dollar. A budget gives you the opportunity to put a quantifiable number on how you prioritize your time and energy.
- Rent – $600 of my time and energy
- Utilities – $100 of my time and energy
- Phone – $35 of my time and energy
- Gas – $80 of my time and energy
- Auto Insurance – $40 of my time and energy
- MMA Gym – $150 of my time and energy
- Savings/Retirement – $300 of my time and energy
- Whatever else based on your income, needs, and priorities…
Now, imagine the last line said the following…
- Debt Payment – $1,100 of my time and energy
The last year of the three year period where I was paying off my car loan and credit card debt I was paying approximately $1,100 a month (The Army Paid off my Student Loans as a part of my enlistment). I didn’t have the car anymore and much of the credit card debt was related to penalties for a 6 month period where I couldn’t pay the minimums. At the time, I had to get emergency oral surgery for my wisdom teeth and I didn’t have insurance. I paid the $6,000 bill with a credit card. That $6,000 balance turned into about $13,000 that went into collections. I didn’t have the car and while I needed the surgery, I didn’t need the $7,000 in late fees and interest. Watching $1,100 dollars of my valuable time and energy walk out of my life each month was gut wrenching. It wasn’t buying me food, shelter, clothing, education, health, retirement, or even entertainment. That money was purely helping me break even. It was like I was walking through the desert while pouring water on the ground. I shutter to think of what that money could have done in an Individual Retirement Account (IRA) or the learning I could have been doing at an MMA gym back when I was in the military.
The difference between the priorities we talk about and the things we actually do can easily become mismatched. People talk all time about what they are going to do. A budget isn’t just about finances. It’s a tangible way by which we hold ourselves accountable to the priorities, dreams, and goals that we say we have. If something gives real long-term value and fulfillment for you, then it deserves your time and energy, which means it deserves your money.
First, write down three goals you would like to accomplish in the next 5 years. Then, look at your bank statement for last month and do some rough categories for what you spent money on. How well does your spending reflect your goals and priorities?