$14 Trillion in Consumer Debt: Is Time Working for You or Against You?

by Luke Lareau
4 Steps to Help Alter Your Financial Time-Line. Little by Little, a Little Becomes a Lot.

Time has always been an interesting concept to me. We all share the same amount every day. It can be our greatest ally, or our worst enemy. How we spend it and what we do with it can change the trajectory of our lives forever. Time can either work in our favor or it can work against us. It is valuable, it is fleeting and we should all utilize it carefully. Even as you read this, you are internally processing to see if your time is being well spent.

We can get indulged in forms of social media for hours without batting an eye, yet a lot of us do not spend adequate attention towards our finances which can allow time to forever work in our favor.

Often times, people make big and small purchases (outside of a home and vehicle) and put it on a credit card. Instead of paying that debt off right away, it incurs interest which gets paid to the lender (typically a credit card company). Then time begins to work against you and you end up owing more than what you originally purchased that item or service for. In 2018 alone, Americans paid more than $100 billion in interest for their debts. That is one way time and money can work.

 

The other side of the spectrum is when you make an investment, you are the lender, and each dollar begins to work for you. Think of every dollar being a little worker that does not stop — ever. Twenty-four hours a day, three-hundred and sixty-five days a year those dollars begin to work on your behalf. Now, now is when time starts to work in your favor. We live in a global economy, so the money you have invested is participating in a global market that never sleeps. Therefore, each dollar is slowly growing, slowly creating more dollars (workers) that are contributing on your behalf.

Instead of having time work against you where you have to put more labor hours (active income) in to pay for something, use the money that you’ve worked so hard for to start earning interest and dividends on your account (passive income).

Here are simple actions you can take to begin having your money work for you:
  1. Spend less than what you bring in. Seems simple, yet a large percentage of Americans can’t afford a $400 emergency bill. The actual percentage is staggering, it is approximately 40% who cannot front that bill. All major sources confirm these numbers. So, adopt a spending plan. There are numerous apps and resources that can make your lives less stressful and more fulfilling. Check out Mint, Personal Capital, YNAB, the list goes on and on for financial tracking applications. Once you know how much is coming in and going out, you will begin to create a healthy financial foundation.
  2. Create an online savings account. Have a standard checking account with a local branch, but keep a majority of your savings with an online savings account, like Ally Bank. (Here’s an article on how standard savings accounts are costing you money). They pay out interest rates that correlate to national interest rates set by the Federal Reserve. Earn an average annual return of 1.7% based on current interest rates. You can set automatic deposits if the idea of manually putting money in sounds daunting. Try to save anywhere between 2–6 months worth of expenses. The weight and pressure of your finances will slowly be lifted from your shoulders. Did I mention financial stress and concerns lead to marital and relational issues? You can avoid that, too. Work together on this with your partner if you’re in a relationship.
  3. Pay off your debts. You may want to start paying off the debts that have the highest interest rates. These are the expenses that are forcing time to work against you. Remember the dollars that were working for you earlier as investments? Debts are dollars that never sleep ensuring that you stay impoverished. Break the chains of debt. We were made to be free, not enslaved to the lender.
  4. Invest. If you’ve never invested, look into Betterment and Acorns. These are two set it and forget it applications. With Betterment, you set automatic deposits to have your money invested in multiple index funds that ensure your money is diversified for a low fee. They reduce your risk automatically as you get older so that your money is invested appropriately for your age. With Acorns, every transaction you have with a credit/debit card gets automatically rounded to the nearest dollar and they invest the rest for you. Similarly to Betterment, the money gets diversified over multiple index funds. This is one way to encourage saving and investing even when you spend. This doesn’t mean you should spend more to invest more, but it is a safeguard to make sure you have money being invested.

When you get in your car and are about to go on a journey, do you plan where you are about to go? Do you enter your destination into Google Maps? I would be stressed if I was about to go on a very long trek without being able to see where I was bound to land. The same goes for your financial road-map. Once you know where you are wanting to go and have the tools to get you there, the rest of the journey becomes enjoyable.

There are countless turns, mountains, valleys, storms and sunny days ahead for all of our financial journeys. Do not be afraid to ask questions. If you got lost would you be embarrassed to ask a local for directions? Not at all. It is better to look silly for a moment than to be aimlessly navigating through uncharted territories. The same applies for your finances. Get connected. Utilize the tools, technology and resources that are available. Before you know it, you will see exactly where you are wanting to go and how to get there for all of your financial adventures.

 

*This is not financial advice. For educational purposes only.

Leave a comment

Back to Debt