I re-listened to The Richest Man in Babylon by George Clason during my workouts the past couple of weeks. I really enjoy that moment where something different resonates with me at a different point in my life. It’s as if something was speaking directly to me. It was a story of how a man ran away from his debts and the friends he owed them to. He wandered aimlessly through the desert, became a slave, and somehow recaptured his freedom. Along with it, a sense of newfound appreciation of what freedom means. Using this drive, he focused his attention in freeing himself from his debts and decided to face his creditors head on. He bargained with them and though receiving the emotional lashing warranted of a non-paying debtor, they all agreed to his plan. This is what he came up with.
The first person he pays is himself. He pays himself 10% of all his earnings.
The second thing he pays is his debt. 20% of all his earnings, divided equally between all the people he owed the money to.
The third thing he pays is all of his living expenses. The remaining 70% he uses to survive and spend.
I’ve been doing the 10% savings and I can vouch for its timeless value. Even when I lost my entire savings in a crypto bankruptcy, this system never faltered and I am again rebuilding what I had previously lost. If I continue this and invest wisely then it’s a guarantee of wealth at some point in the future. It’s the debts I’m having trouble mastering. As of today, I owe: $60,000 in student loans, $33,000 debt consolidation loan, $20,000 personal loan, $18,000 collateralized loan, $12,000 SBA loan, and $10,000 PayPal Credit balance. That is a staggering negative $153,000. This is a common problem with Millennials, myself included. Considering I have $34,000 of locked collateral and $23,000 of assets, that leaves me with a negative net worth of $96,000. It’s time to face the music. I am a slave to debt. Like the character in the book, I need a plan and I believe this is it.
Placing my wealth first is the first priority. I mastered this law and principle. I don’t even have to think about it. It just goes into purchasing bitcoin. Automatic every payday. What’s different about the 20% approach is that the paying off debt is second priority. It’s a very important distinction that this priority is above my food, shelter, utilities, and other living expenses. Crazy right? A lot of debt plans prioritize living expenses and then trying to find a way to make more money to pay off debts with. I’ve struggled with balancing expenses and numbers and it just becomes mush in my head. I become fret with worry and insecurity. I can see the value of this approach by freeing the mental stress of it all. If at every payday I put away my 10% and then automatically throw 20% toward my highest interest balance, I can use whatever is left over to figure out expenses, rent, etc.
I know for a fact that even if I don’t think I have enough, it will somehow magically become enough. By forcing myself to use 70% of my income, I automatically make decisions based on how much money I have. I no longer have the discretionary income to spend if I already sent it toward a debt. Genius. I previously struggled with paying more each month because I was always planning expenses into the next month and end up spending all the extra money I had. It seems simple but all I think I need is a small shift in priorities.
The truth is that I haven’t really prioritized and committed to paying off these debts. In some circumstances, I can foresee that if I commit to this plan. I may have to make changes to my life if my income suddenly disappears or gets drastically reduced. This method is a sure-fire way to continue saving and paying off debts but it forces its user to conform to 70% of their income, whatever it may be. There’s a million and one ways to save money and the internet is littered with advice: lowering rent, cooking food in bulk, taking a bus, etc. It’s the reality that if given a choice, we would always choose what’s easier. But if my money left me no choice, then I would have to take what I can. That’s a truth only persons that have experience poverty can tell you. Every option when you’re poor is a lot more narrow than you can imagine. It’s most times harder, but never impossible. Just got to do what you got to do.
I remember as a high school graduate and living on my own. I had a living expense of less than $1,000 a month. What the hell happened to that guy? If I was able to do it by sharing a one bedroom apartment with four other friends, getting food from a restaurant I worked at, and still maintaining car expenses and having a social life, anyone can do it. In my older age, my lifestyle has undoubtedly increased and my monthly expenses now reaching $4,700 a month. I do have a kid in tow and steady girlfriend of almost five years with three kids of her own but I’m still the same kid on the inside. I know I can do this and I definitely will. I’m going to give it by best shot and will keep you guys posted on my progress. Keep hustling.