Stay Out of Debt
I am not going to say rich people don’t use credit cards, but one thing that has been impressed upon me by all of the ones I know personally is that they pay them off in full at the end of the month. In short, they don’t go in debt. There is one exception for this, which is a mortgage, but we will get into this later.
In general, the rich and successful person does not shot outside of his or her means. They make a budget and stick to it or under it if possible. They always make sure that a portion of their income goes into savings and investments for future needs.
The masses, by contrast, tend to live hand to mouth. That is, anything they make, they tend to spend right away. If they get a pay raise or other increase in income, they end up spending the increase almost immediately.
When we look at rich people, they don’t acquire debt that doesn’t acquire value. That is, if they are going to go into debt at all, they are pretty confident that make money from the deal. And even then, when they do purchase something on credit, they know how to write off the interest and the expense so that they end up paying much less than they would otherwise, and they always shop for the best deal on interest that they can get.
For instance, if a rich or successful person purchases a truck, that person knows good and well that the income that they can generate from that truck will pay for itself in a certain number of months. Additionally, the rich person will negotiate to get a low interest or no interest loan to purchase that truck.
By contrast, the masses purchase cars, boats, vacations, and almost everything you can imagine on high interest credit cards. These things will neither help the person pay off that debt, nor is the debt in any way tax deductible.
The one area where rich people do go into heavy debt is in purchasing their homes. Because the interest on a home is tax deductible, they can significantly lower their apparent income and tax rate by paying a larger mortgage. If they want a shiny new boat, they will pull the money out of their house, where the interest is tax deductible and write off the interest on their new boat through the house. Again, they are careful to not over-spend, and budgets are the rule, never the exception.
Making a ton of money and spending everything you get will never give you financial freedom. If you want to achieve a life of wealth, prosperity and financial freedom, learning to live within your means and not go into debt is critical.
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