If you are on of the adult members of a young family, it is time to start thinking long-term about your family’s finances. Most young people wait too long before they start thinking about retirement and will pay for it later. While you can choose to live it up now, by going into debt, taking out more loans (whether it’s a home loan, car loan, or even parrot loans), it has to stop now. Let me show you why.
Situation 1 – Living in Debt for another Decade
Many people presume that later in their career they will have lots of money to play catch up on all of their finances. This includes not only the debt that they have built up, but also saving for retirement. Unfortunately, it’s not this simple.
Most young adults, in order to have a decent job, have attained their four-year degree from an accredited university. The average graduate has a little over $20,000 in school loans. If they wait to pay it off, interest builds up and they owe significantly more the longer they take to pay them off. If your partner also owes this much, that is $40,000 in debt between the two of you. Most young families don’t have a high net worth, but you would be starting out in the hole; $40,000 in the hole. That is before you even start paying for your lifestyle inflation.
If you buy a new car, go on a fancy vacation, or even worse, get a mortgage for a nice home, this puts you further into debt. Instead of having financial security, you have lost all sense of freedom. With debt comes bigger financial burden. If you want to switch jobs later, you have to ensure that you are making as much, if not more, as your current job. There’s also no room for taking time to yourself in between jobs because you need all the money you can get. The next decade is spent wondering if it is okay to do this, that, etc. Life is essentially torture because you failed to make sacrifice when it was easiest to do so.
Situation 2 – Debt Free Living
The alternative is two people who are committed to living a debt free life. What money that they owed from college, they paid off immediately by living in a cheap apartment and saving all extra money to throw at their debt. They really grow together as they tackle this challenge. After the short year or two of sacrifice, they are now debt free and have unlimited options. They, unlike the alternative family, understand the freedom that comes with living debt free and make it a priority.
If one of them wants to stay home and raise a family while the other works, they can because they don’t have to pay off monthly loans. If one of them wants to change careers, taking a pay cut, they can. The list goes on and on, but the idea is that living debt free ultimately gives you more freedom.
You may not be able to live without debt right away, but with a little sacrifice, you can make it work. It’s all about thinking towards your future and recognizing that freedom years from now, is more important than the luxury items now.