I just read an article by Clark Howard that says that Americans pay 9% of their income to interest every year!! This seems just incredible to me. This means that 9% of most people's income is going right out the door and into the pockets of bankers. http://www.clarkhoward.com/dont-let-credit-card-interest-cripple-finances?ecmp=clarkhoward_social_facebook_sfp
I am not sure how this interest is broken down. I don't know how much of it is credit card interest and how much is house payment interest and how much is car payment interest etc. but 9% is a huge amount to be paying for the privilege to use money.
If you make $35,000 a year and you are the average American, $3,150 of your income goes straight out the window. What could you do with $3,150 more per year?
Can we change this? Many people are choosing to give 9% of their money away per year to interest. Now, I understand bringing that down to 0% might not be possible, but certainly it could be brought down some. Contrary to some political pundits, we do have a much larger amount of control over our own financial destiny than some would have us believe. The big bankers do take our money but we have to consider that we might be somewhat complicit in this. Sometimes we have emergencies and sometimes we have needs that must be met but sometimes, we just want what we want when we want it and this is what gets us in trouble.
In the book The Millionaire Next Door, it talks about how people who are self-made millionaires do two things.....they work on the offensive and the defensive. This means they both make as much money as they can and they save as much money as they can. Most people who live in affluent neighborhoods are good at the offensive but not so good at the defensive, meaning they spend what they make and sometimes more than they make. Not too many will make it to being a millionaire but we can all work on both the offensive (making as much as we can) and the defensive (spending as little as we can).
Most people who make it into the self made millionaire categories do not live in affluent neighborhoods. They live like a regular Joe and save their money.
What does this have to do with the average American paying 9% interest? It means that people often live beyond their means.
Many financial advisers advise that people pay off their credit cards and get out of debt. Dave Ramsey calls this the debt snowball. You decide that big bankers taking 9% of your money in interest is offensive. You decide that rather than help them live the good life, you want to help yourself live the good life. Instead of spending, you save and put that onto either your smallest credit card bill (some say this has a better immediate gratification) and pay that off or you put it on your highest interest credit card and pay that off. After that, you work to pay the next one off etc. Doing this, you work your way slowly out of debt. When you pay off the first credit card, you take that money that you would be paying onto that card and put it on your next one. Hence, the snowball.
Just think if Americans everywhere did this. This would be 9% more (potentially or at least a percentage of that) in our pockets for our retirements, our fun, our charity work, our communities.
Let's stop supporting the big bankers and support ourselves. The first step is acknowledging that most of us can.