“I used to think of our debt payoff journey as a prerequisite to wealth-building, that we couldn’t officially start ‘building wealth’ until we got rid of the debt. But the fact is that the two tasks go hand in hand.”
You’re Not Just Paying off Debt, You’re Building WealthFebruary 29, 2016 – 7:00 am on 60 Comments
This post originally appeared in May of 2013, just 5 months after we began our debt payoff journey. Enjoy!
Often the usually long-term task of paying off debt gets tedious and boring, as I wrote in a post last week. The post last week suggested a few ways to keep yourself motivated, and gracious readers added in the comments area their own valuable advice for staying on track when the boredom sets in.
Think Big Picture
But I realized something else this morning that I think we often don’t remember when chipping away at a mountain of debt:
You’re not just paying off debt, you are indeed building wealth.
I used to think of our debt payoff journey as a prerequisite to wealth-building, that we couldn’t officially start “building wealth” until we got rid of the debt. But the fact is that the two tasks go hand in hand.
For every single dollar you pay toward your debt, you are indeed increasing your net worth, i.e., building your wealth, by that same dollar and even more! How so? Because for every dollar of debt you pay off, the amount of interest you pay to the Shamelessly and Happily Taking Your Money Bank goes down, and that means more money in your own pocket!
Let’s use our own family finances as an example. I calculated our net worth in December of last year, shortly before we started our debt payoff journey.
Our Total Net Worth at that time was roughly $140,800.
Assuming, 5 months later, that our house value and retirement fund value stayed the same (retirement actually went up) , and that our auto values stayed the same (they did), and adding that we reduced our total debt from that time down by $4583, we now have a current net worth of $145, 383, a gain equal to the amount debt we’ve paid off: a gain of over $4,500.
That’s not too shabby of an increase in net worth in just 6 short months a gain of roughly 3%, and with no risk attached!
And the really good news is that as we continue to pay down our debt, this number will only rise each month as we pay less and less interest to SHTYM Bank.
SO, when you get bored with living the frugal lifestyle, shunning restaurants, shopping, vacations and all other supposedly “fun” activities, remember that you are not denying yourself a grand living of life, but instead, you are choosing to build wealth so that, as Kim from Eyes on the Dollar said the other day on a comment, “You can own your dreams instead of finance them.”