Paying Down Debt

What are you focusing on?

I want to share a quick story that provided valuable lessons for me, and I hope it will do the same for you. I had a couple in their 70’s reach out to me over the last month and ask for my help. I have thoroughly enjoyed working with this couple and getting to know them better. They are truly good people, and have worked hard their entire lives. Unfortunately, like so many Americans, they are having the same fear as many do in retirement…running out of money.

Many factors led to their current situation, including a lack of financial education in some key areas. The wife in this scenario has a chronic disease that will greatly affect their ability to live the life they both want, and the husband also has his fair share of health issues. There were not a lot of strategies put in place to protect either one of them in the event of a disability or long term health issue, and in my opinion, they received some bad suggestions through the years with how they positioned their financial life. At this point, that doesn’t matter. We can only move forward, and luckily they understand that.

I would like to highlight a couple things that I noticed when working with them that became very prominent in our discussions. First, they do not have any debt. That was one of their main goals their entire financial life, and they accomplished that. They are like most people entering retirement in that they did not want to have a mortgage, auto loan, or any debt for that matter. They tried to pay down and get rid of as much debt as they could over the years. This was not necessarily a bad decision. However, I want you to read and understand that just because they’re debt free does not mean they are financially free. They are still scared and have no strategy in place to take care of them if something goes wrong. Their financial life is still exposed to wealth eroding factors such as taxes, inflation, fees, disability, health issues, market volatility, low returns, and others.

Due to paying down all their debt, including their mortgage as quickly as possible, their cash flow was not substantial enough to put enough money aside each month. Before you knew it, those months turned into years, and the years into decades that consisted of their children graduating, getting married, and then becoming parents of their own. This fulfilled one of this couple’s greatest joys, being grandparents. This approach of paying down debt allowed them to not have any payments in retirement, but it also did not allow them to have a sufficient amount of assets producing cash flow to provide certainty in their financial life. Instead of pursuing their MAXIMUM financial potential, they pursued their minimum financial potential. Like many, they thought it was in their best interest to plan to be in a lower tax bracket (less income), compared to implementing strategies to be in a higher tax bracket (more income) and have options to pay less in taxes. They are now in a position where they have to rely on social security, medicare, and potentially other family members unless other strategies are implemented.

The second thing I have noticed in working with them is their mindset. Keep in mind, this couple is in their 70’s, and they’ve lived through a lot of economic changes over the years. After asking them some questions on how money was approached and handled in their families, I quickly realized they were in a scarcity type mindset. This is how most people are, and even I still struggle with this at times. This impacted their entire financial life and contributed to the situation they’re in today.

If you are unfamiliar with the scarcity mindset, I think one of the best resources to have a better understanding of it is Garrett Gunderson’s book, Killing Sacred Cows. He talks about this in the very first chapter, further cementing its importance. Most believe there is a finite resource, or “pie”, from which we all share and that the more we have, the less others have, and vice versa. When people act from a scarcity mindset, they are acting on fear. In this case, fear that they won’t have enough money in retirement to pay bills such as their mortgage. Unfortunately, they focused so much on not having any debt that that’s the only thing they got. If we focus on something hard enough, we might just get it.

The financial industry and pundits teach us that your financial security hinges on the concept of having all of your material resources paid off. This could be a great strategy, but we must identify why we are moving in that direction, and how it affects every other area in our financial life now and in the future. In my experience, most people pursue this “tunnel vision” approach because of fear of loss, and as I mentioned earlier, the things we tend to focus on are exactly the things we will get. This is not always done in a comprehensive manner, let alone a holistic approach.

This is not a message to not pay down your debt, or to demean this couple or anyone for that matter. They simply did the best they could with the knowledge they had at the time. This is a message to become as educated as possible when it comes to your money and finances. To always be looking for ways to grow personally and professionally, to grow money on your side of the ledger, and to reduce your risk as much as possible by taking ALL factors into account.

I want to help you either avoid or limit the “curve balls” that life can throw you. I’m thankful for the opportunity to work with this couple, and many others who need guidance, a little education, and certainty.

If there is anything I can help with, or if you’re wondering how you can improve your financial life, I would be happy to have a conversation with you. I hope you found value out of this and go produce it each and every day in your own life!