God, do I hate paying interest! To anyone. For anything.
I abhor paying interest, and I avoid it like the plague! You should too.
I think that most people who currently enjoy a life of financial freedom have this distaste of interest payments hard-wired into their brains. This trait must be present in any household CEO who insists on running her household like a well-run business. If the trait isn’t inherently present in the household CEO, then it must be learned. Otherwise, the odds of achieving a life of financial freedom will be long indeed.
And remember, just as it’s true that you don’t have to be rich to be financially free, it’s also a fact that wealth doesn’t guarantee financial freedom. The sad case of the late Ed McMahon is a prime example of a supposedly wealthy person who was actually far from being financially free. Most people like the late McMahon, who find themselves in the ironic position of being indentured servants despite their high incomes, can trace their predicament on a general apathy towards debt and the insidious interest that comes with it.
And before many of you start banging on your keyboards to say I am being too militant regarding debt, I will say that I do not avoid debt entirely, as I could not have bought my home without a loan. But that’s the only interest I pay.
To me, it’s perfectly acceptable to pay interest on a home loan. That is, assuming one does not buy more house than they can truly afford. That means your debt-to-income ratio for housing expenses does not exceed 28%.
I understand that there will be different circumstances for different people. After all, most of us need loans for education, a budget-appropriate automobile, medical emergencies, and other household needs. But the savvy household CEO understands that the power of compound interest cuts both ways. Therefore, they always think long and hard before agreeing to take on any additional debt.
In the end, those of you who are successful in minimizing the amount of interest you pay to your creditors will also be successful in managing your household finances and attaining a life of financial freedom!
Photo Credit: stock photo
(Note: This is a reprint of an article originally posted on 4 January 2009.)