Debt is the era’s most offensive four-letter word. Behold these grizzly statistics, courtesy of the good ol’ Federal Reserve:
- Total consumer debt in 2018 reached (cue Dr. Evil voice) $3.898 trillion — a 7.6% jump from 2017.
- Student loan debt in 2018 totalled $1.524 trillion, with the average indebted student owing $76, 468 (that’s a heck of a lot of ramen noodles).
- The average consumer debt per capita in 2018 was $11,880.
- In May of 2018, credit card debt reached $1.02 trillion — the highest level ever recorded.
- 20% of adults roll over $2,500 or more a month in credit card debt.
So, if you’re striving to get and stay out of debt, then you aren’t alone. But while there’s (sometimes) strength in numbers, if you’re doing what many — if not most — indebted people do, then you’re taking one step forward and two steps back. What’s this widespread blunder? It’s failing to fully understand that there are two sides of the get-out-of-debt equation, not just one.
Let’s start with the side that everyone grasps: cutting costs. We’re in no brainer territory with this one. Even little kids understand that if they want to make their allowance or birthday money (ding ding ding!) go further, they need to practice impulse control and avoid blowing their wad on candy and comics (unless they’re shrewd investors, and have a credible lead that a $5 Amazing Spider-Man comic is going to be worth a fortune in a few decades).
But — and here is the part you’ve been waiting for — the other, and often far more effective way to get and stay out of debt is to increase your long-term capacity to make more money.
Now, the critical words in that commandment aren’t “make more money” — they’re “increase your capacity.” Why? Because at the moment, you’re probably making as much money as you can. For example, you might have full time job that pays you a fixed amount — rain or shine. Or you may be freelancer or independent contractor who does everything you can to maximize your income. And so, being told to make more money can seem annoying. And stupid. And redundant.
Yet I assure you: it’s none of those things! Because what we’re talking about here is capacity. And that means one of the best things you can do for your financial future, is to identify profitable — but realistic and practical — ways to increase your long-term ability to make significantly more money than you do right now.
For example, maybe you go back to school and learn in-demand skills that increase your capacity to make tens of thousands of dollars more per year, and also give you plenty of comforting job security (check out healthcare analytics or cyber security). Or perhaps you emblazon your vehicle with car wraps and get paid to drive around. Or maybe you speak to your manager and see if there is a way you can expand your knowledge and experience — for example, by spending a day a week working in another department or on another team. And if none of these options are appealing or feasible, then at the very least you can talk to successful family members and friends — or hit the web — and get some positive and practical advice. You’d be surprised at how many total strangers are happy and willing to share their two cents (and sometimes much more than that).
The bottom line here is simple, but easy to overlook in the fight against debt: don’t just focus on cutting costs, but also look at how to make more money. When you make your financial pie bigger, you increase your wealth — and that, friends, is the name of the game!