We live in a consumerist society in which credit is easy and accessible to everyone. The problem is that when we borrow, everything is more expensive. The only solution to this problem is to learn to live with the least amount of debt possible. Although it seems impossible, more and more people do it. But how do they get it?
Next we will analyze how the mind of people who have no debts works.
This is the mind of people without debt
They feel attached to money
To value the importance of money it is necessary to feel attached to it and be clear that it does not fall from the sky or grow in a pot. Normally we have to exchange our time for money: I work eight hours a day and in exchange I charge X. Why not calculate the price of the things we buy during working hours? It is the easiest way to learn to value what it costs to earn money.
They control their domestic economy
These people have a perfectly defined mental scheme of their monthly income and expenses. The renewal of the insurance or the payment of a tax will not catch you by surprise. They control their domestic economy to the millimeter and know the origin of each euro that enters and the destination of each euro that leaves.
They don’t spend everything they earn
People without debt know that they cannot stretch their payroll as if there were no tomorrow. Earning 1,000 does not mean being able to spend 1,000. These people closely monitor their money to avoid spending more than they enter. It is the basic rule of the saver: you have to spend less than you earn because otherwise finances would roll downhill and without brakes.
They know how to say no
As soon as we step on the street we are surrounded by incentives to spend money: bars, vending machines, shops, shopping centers … Everything seems necessary and many times we think we see an opportunity to save where there is none. You have to change the chip and say NO to purchases.
People who live without debt are very clear about this: they cannot be constantly buying. What if a new jacket, what if a TV on sale, what if a more modern mobile…. DO NOT. We must stop this spiral consumer and know how to say NO to shopping.
They think long term
When you think in the short term, the reward is immediate. Do you need a new car? With an easy loan at 7% interest you have the possibility to enjoy that car in a few days and pay it in comfortable monthly installments for five years. Sounds attractive, right? Or better yet, accept the financing (more expensive) offered by the dealer and thus the procedures will be even faster.
People who live without debt are patient and able to think long term. These people do not need the car today, but they do calculations and estimate that they may have to change what they have in 4 or 5 years. For this reason, they save and pay cash for the new vehicle when it is time to replace it with the old one.
They know how compound interest works
Compound interest can make our savings grow, but also that we pay much more for something if we buy it on credit.
Let’s go back to the example of the car from the previous point to have this clear. If we ask for a loan of 20,000 euros at 7% interest and repay in 4 years, in the end we will pay 22,988 euros for the car. That is, almost 3,000 euros more because of interest. If we repay that same loan in 8 years, we will pay 6,176 euros of interest, so the car will really cost us 26,176 euros.
It is clear that the longer the term of repayment of the debt, the greater the interest payable, since the compound interest plays against the debtor and in favor of the lender. People who have no debts fully understand this and therefore pay everything in cash.
In our example, the difference between buying the car in cash or doing it on credit is more than 6,000 euros. With that money you could travel with your partner 20 days to the Caribbean at full speed and enjoy the true pleasures of life. Don’t you think it’s worth it?