Can you imagine your life without debts? No credit card bills, no auto loans, zero student loans, and no mortgage. Here are the top 5 benefits of being debt free!
I am happily debt free. In fact, I never once in my life owned a credit card.
If there was anything I ever really wanted or needed, I saved up for it or already hand the money on hand thanks to careful planning.
I have no student loans, no mortgage, and no auto loans (I don’t own a vehicle). I owe money to nobody. And that itself is a wonderful feeling.
With that, here top 5 benefits of being debt free!
1 – More Money to Save
When you aren’t paying money to people or entities you owe each month, you have the ability to build up your savings.
Less money going out to pay debt, means more money you can keep for yourself to do with as you see fit.
One of the most important things you can do with saved money is build an emergency fund.
It is strongly advised by many that you have 3-6 months of money in your savings account to cover all expenses in the event of job loss and/or medical emergency.
2 – Less Stress / Peace of Mind
Money problems are an enormous source of stress for most people. With less bills to pay each month, there is less worry and stress.
Furthermore, when you have less debts to pay and more money to save, you can also spend on things to make you happier and relaxed.
This is not to say you should go over board with fun to the point where you are in debt again. However, with extra money, you have the freedom of having more options to have fun.
In addition, when there is money in the bank for emergencies or other unexpected expenses, you can rest easy knowing you are financially prepared and covered for bad times.
There is peace of mind when you are debt free.
Nobody is going to pound on your door to repossess your car, furniture, or home.
3 – More Money for Investments
When you are debt-free, you have more money you can save. As such, more money saved is more money that can be invested.
You can start building up your investments or even building them faster being debt free.
You can save for the down payment on a rental property and earn additional income. Or you can invest in the stock market (which can also provide you with additional income via dividends).
Heck you can even save up to start your own business.
There are many vehicles of investment out there, but one thing is clear is that more money gives you more options. And I believe that more options mean more opportunities.
When you are debt free you have enhanced opportunity to build up your investments.
4 – Higher Net Worth Potential
When you are debt free you are now in the best position to build and grow your wealth. That means building up your assets and growing your net worth.
What is net worth? Basically, it is your assets (what you own) minus your liabilities (what you owe).
Your net worth will provide valuable insights on your overall financial health.
If your assets are greater than your liabilities, you have a positive net worth. If your liabilities are greater than your assets, you have a negative net worth.
I believe the best assets are those that can provide an increasing cashflow and appreciate in value over time.
While not always 100% guarantee, an example would be stocks and real estate which have historically been excellent vehicle of wealth creation.
5 – Better Retirement Prospects
The less you spend each month paying down debt, the more you can contribute to retirement accounts and/or assets that will provide income or cash to retire on.
For example:
The average American household credit card debt is around $5,200 as of 2022. The stock market has returned an average of 10% each year over the past century.
Now let’s say you save $5,200 each year by being debt free and invest that in the S&P 500 each year for 30 years straight.
After 30 years, you would have over $1 million in wealth built up thanks to compound interests.
If you started working at 25 years old and did that until 65 years old you would have over $2.7 million.
The above example is just without credit card debt alone. Depending on how much you can save and wisely invest, you could very easily retire well before the traditional retirement age.
Conclusion
And there are the top 5 benefits of being debt free!
I happily have no debt and the bulk of my net worth is in assets that produce a cash flow each month.
Over the past 9 years, I have built a six-figure portfolio that generates a yearly average of over $1,100 per month in dividend income!
That is passive income that I earn while I sleep!
If you are interested in beginning your own journey into dividend growth investing, personal finance, and financial freedom, check out my Getting Started page.
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So, what do you guys think? Are you debt free or working towards eliminating your debt? Also, got any tips or tricks for getting out of debt?
Let me know in the comments below!
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