Where does it all go?
Several people have pointed us to the rich calculator, that reminds you just how insanely rich your indebted best customers are. There are millions of Americans who make more than $200,000 a year. That's 2 million dollars a decade, five or ten million dollars over the course of a career. Add it up, then look at the number. All you can do is shake your head and say, "where did it all go…" (Seth Godin)
Where does it all go? Well it goes in small amounts.
A few years ago a friend of mine declared bankruptcy. In its simplest form bankruptcy is when you no longer have the capacity to repay your current level of debt and so you are given the chance to start again with a clean slate. Although this initially may sound like a good option bankruptcy also comes with a high price tag. This friend of mine had not managed his debt wisely he had spent more than he earned. His business went under and many people were not paid what they were owed. In the end everyone suffered because of the bankruptcy. I think the most devastating thing for this friend was the discovery that he didn't have many friends at all only people who used him.
This all occurred shortly before his fortieth birthday. So at 40 he had to rebuild his life, make new friends, move to a new town. Unwise decisions about credit and a lack of a clear understanding of how much he owed led to his downfall. Luckily he was resilient and he has begun to rebuild his life but debt led to a great cost to his family and his future.
Most people spend more than what they earn. We have learned to live two pay packets away from bankruptcy. It is estimated that the average amount that we spend is about $400.00 per family per anum more than what we earn. Although this doesn't sound like a lot of money most bankruptcies are for figures less than $20 000.
The first step in finding financial freedom is working out where it all goes.
- Begin a spending log today to find out where your money is going
- This must come before you try to start to set a budget
- Once you work out where it is all going you will then be able to work out how to start saving money.