I would argue that the number one source of financial stress comes from not having access to money when you really need it. The perfect example of this comes when you end up in too much debt than you could afford. It ties up your monthly cashflow and leaves you in a position where you just are trying to get out. But often people neglect to save and secure their own financial future before getting out of debt.
Total household debt is up to $16.9 trillion for Q4 of 2022, and of that, nearly $1 trillion is credit card debt. Credit card debt had grown by 6.6% in Q4 over Q3. That’s the largest quarterly increase ever recorded.
It’s clear that Americans are being squeezed from every angle. Inflation is up. Interest rates are up and savings is down. It’s getting harder and harder to make ends meet. So it’s no wonder that people are charging on their credit cards. But when you charge on your credit card, what are you actually doing? You’re obligating your future income to pay off that credit card debt and with the interest rate so high, some credit cards are 25 to 30% APR these days. It could be a very heavy interest expense, but it’s what people need to do to get by. However, once you’re in credit card debt and you’re trying to get out, the natural reaction is to put all of your monthly cashflow, all of your extra money towards that debt because it’s draining you.
What people neglect to take into account is that even if you got all that credit card debt paid off, you’re still just at the zero line. You’re no more financially secure than you were when you were buried in debt.
You went from a position of having very little cash flow and no access to money, and now you’re out of debt, but you’re still in a very precarious situation financially.
This is why we think it’s important to both pay off your credit card debt, but also save for your future, to accumulate a pile of money that you own and have full liquidity use and control over to protect you and your family.
58% of Americans have less than $5,000 in savings and 42% of them have less than $1,000 in savings. Most families out there have a very difficult time absorbing a $400 medical bill. And let’s face it, how easy is it to rack up $400 in medical bills today?
Parkinson’s law says that expenses rise to meet income. So if you’re not diligent on saving your raises, guess what’s going to happen? Your expenses will rise to meet your income.
Another way to look at this is with the student loan debt. A lot of people stopped paying their student loans during the pandemic because of the forbearance. Didn’t they in essence, give themselves the raise? What’s going to happen when those payments resume and their cash flow is going to be pinched for the amount that they’re going to have to repay back to the student loans?
You know, we talk about this all the time, but really, there’s no such thing as a free lunch. Our capital also has a cost, and sometimes we don’t recognize that. In essence, what’s happening is we’re taking care of our current lifestyle wants and completely ignoring our future lifestyle needs.
One of the ways we help our clients is by using specially designed whole life insurance policies designed for cash accumulation so that they’re able to build a pool of cash that they’re able to leverage to pay off their credit card debt and achieve their other financial goals without interrupting the compound interest curve.
If you’re interested in learning more about how to manage your debt and your savings, check out our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn more about how exactly we will put this process to work for our clients, check out our Four Steps to Financial Freedom Webinar right on our homepage.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.