28 Lessons on paying off your debt and achieving financial independence

This thread was based on my conversation with Melanie Lockert on the Pursuit of Learning Podcast.

We discussed Melanie’s book Dear Debt, which I recommend if you are looking to payoff your debt and achieve financial independence.

1. Money

Money is a currency in our life. An energy. An exchange.

Money also has baggage attached to it. Lessons we’ve learned when we were young. Stereotypes.

We often think only rich people have money or that investing is only for the rich. We need to lose this mindset.

2. You define enough

Regardless of your wealth level, you will often feel you don’t have enough money. As Ken Honda said, “If you think you have enough money, you do.”

Do not let others define what you need. Define it yourself.

3. Define wealth

Ask yourself these money questions:

• Do I have enough
• Do I have shelter
• Do I have health
• Do I have food
• Do I have love

You do not need money to be wealthy.

You need to be physically, mentally, and emotionally healthy.

4. Scarcity mindset

If you have a scarcity mindset, you believe there will never be enough. Regardless of how much you have, it is not enough.

The goalposts are always moving, and you try to get everything you can. You don’t want to share with others.

Don’t do this.

5. Abundant mindset

You have enough.

You can always get more.

There is enough for everyone to win. You’re more open to sharing with peers.

You’re willing to share ideas, contacts, deals with others.

You understand that you can grow the pie big enough for everyone. Do this.

6. Mindfulness

The past is gone, don’t dwell on it.

The future is not here yet, don’t worry about it.

The present moment is all we have, focus on it. Use this present moment to your advantage.

7. Comparison

Do not compare your journey to others. Every person’s financial journey is their own.

We all have different starting points, different debt levels, different earning levels.

Your journey is your own and should be your focus.

8. Network

We say your network is your net worth, and it is. When you build a circle, you have more opportunities.

If you are a freelancer, you can compare rates. Understand opportunities.

Your network will often be your path to financial independence.

9. College

Whether it’s a bachelors degree or a graduate degree, have a plan:

• what will it cost
• how will you pay for it
• what is your plan to pay it off

Regardless of what your decision is, it is your decision, and you will need to live with it.

10. Change

Change is inevitable.

As Mike Tyson says “everyone has a plan until they get punched in the mouth.”

Yes, make a plan for college. Make a plan for your life, and learn how to adapt your plans when life throws you curve balls.

11. Not your debt

Realize as quick as you can, you are not your debt. Read that again. You ARE NOT your debt.

You have debt. The debt does not define you.

When you realize this, and realize there is a way out, your life will start to change.

12. Stages of debt

Debt, like grief, has stages:

You need to work your way through the stages to acceptance, and that is when the work begins.

13. Denial

You don’t want to acknowledge your debt. Do you know:

• how much your income is
• what your expenses are
• what your debts are
• your interest rates
• your net worth

Get out of denial. Know where you stand.

14. Anger

Why didn’t my parents teach me about money?

Why didn’t someone tell me I shouldn’t go into debt for school? When you’re angry, you’ll ask a lot of questions.

Many of them will be why questions.

Don’t get stuck in this phase, as many do, only you can get you out.

15. Bargaining

In this phase, you’re looking for every way out. You’re bargaining with yourself in your mind:

• please, God help me
• please, can I win the lottery

What you aren’t doing is taking the action you need to take.

16. Acceptance

When you accept the debt.

When you accept you were responsible for getting into it, and you are the only person who can get you out of it, you will be in a position to make changes.

Now, now you can start to do the work.

17. Examine

The first thing we need to do when we deal with our debt is to understand exactly where we are at:

Understand what your daily interest rate for all of your debts is.

18. Financial independence formula

Financial independence is simple.

Understand each step in the equation to succeed at achieving financial independence.

19. Earn more

Too many in the financial independence community focus on spending less.

Long-term, this will not be as beneficial as earning more. Focus, as much as possible, on increasing your earnings in life. There is a much greater upside to this approach.

20. Spend less

Learn how to control your spending.

There is only so much you can cut back though, which is why the upside is limited.

Once you are living a life you are happy with financially, do not increase your spending when you increase your earnings.

21. Invest the rest

While we are in debt, depending on what the debt is, we will focus our investments on paying down our debt loads.

There are different debt paydown methods we will discuss, which are:

22. Increasing earnings

We are going to increase earnings by either increasing our salary, or by side hustling. To increase our salary, there are a few things we need to do:

• ask for a raise
• ask for what we are worth No ask. No get.

23. Side hustles

A side hustle is a second job with fewer hours.

What you are trying to do is incrementally increase your income:

• brand ambassador
• freelance writing
• affiliate sales
• pet sitting

Use sites like Fiverr, Craigslist or Task Rabbit.

24. Frugality

Frugality is focused on reducing expenses. Certain expenses you will eliminate altogether. Other expenses you will focus on reducing.

It will be your choice what is being eliminated versus reduced. If you don’t need it, eliminate it. If you love it, reduce it.

25. Extravagance on a budget

Being frugal, while you’re paying off your debt, doesn’t mean you cannot enjoy extravagances.

You can get a massage at massage school.

You can get nice hairstyling at a beauty school. You can purchase events or objects on Groupon.

26. Frugal with friends

You do not want to always tell your friends “no.”

Instead, when trying to be frugal, offer them alternatives:

Come with solutions, not with problems. Know when to splurge and when to save.

27. Snowball method

The debt snowball method focuses on paying the smallest debts first.

This is not the mathematically correct way to handle debt; however, it may be the best psychological way.

By paying off the small debts, you learn that you can pay the debt off.

28. Avalanche method

With the avalanche method, you focus on paying off the debt with the highest interest rate first.

This is mathematically the right play; however, it may be some time before you fully pay off any of the debts.

Ask yourself: Math or Psychology.

Originally published at https://clint-robert-murphy.com on December 1, 2021.