The Matt Viera Newsletter
Posts
4 Principles to Debt Free Living

4 Principles to Debt Free Living

A Few Fundamentals

Matt Viera
December 23, 2022

Image by Jill Wellington

Good morning and Happy Friday!

Welcome to another edition of The Matt Viera Newsletter.

Thank you for your continued support.

Happy Holidays to you and your family.

I will not be publishing the newsletter next week (December 30, 2020). I will be returning on January 6, 2023 with another edition of the Interview Series.

With that, I wish you a Happy New Year!

I recently came across a YouTube video called "A Minimalist Approach to Personal Finance" by Matt D'Avella (link below). As I am always looking for any strategy or helpful information regarding personal finances, I decided to give it a watch.

D'Avella starts with a sobering data point: 8 out of 10 Americans live paycheck to paycheck.

It's no secret most people have debt, be it a mortgage, a car note, student loan debt, credit card debt, etc.

Debt notwithstanding, most people rarely look closely at their personal finances, specifically how they spend money. It's as if they are scared of what a close look at how they spend their money may reveal.

And, since it is the holiday season, I would be remiss if I didn't ask: how much did you spend on gifts, holiday outings, travel plans, etc.?

Did you use only cash when you made these purchases?

No?

I didn't think so.

Now I'll ask: how do you plan on paying off that debt?

D'Avella states he graduated from college with over $97,000 in student loan debt. Despite this debt, he purchased things he didn't need, e.g., a new car, a TV, a computer, etc.

Once he took a good look at his personal finances and made some sacrifices, he was able to pay off all of his debt in four years.

Here are some of the principles he applied:

Image by Steve Buissinne

Principle #1: The basic formula to win at personal finance is simple: spend less money than you make.

Easier said than done.

One of the reasons why D'Avella explains is that we don't typically have conversations about money. Money as the topic of a conversation is taboo. We don't talk about how much we make, have saved, or how much debt we are up to our eyeballs in.

This resonated with me. One of the first things I did when I started this newsletter was to be transparent about my finances. Some people who read the first two newsletters I published (here and here) commented on how surprised they were about how transparent I was about my personal finances.

What's the harm in discussing personal finances?

On the other hand, several people have informed me this newsletter inspired them to be more intentional with their finances.

Another reason it's so easy to spend more than we make because most people do not follow a budget. I confess: I have never used a budget. Ever.

I am currently working on developing a budget using the 50/30/20 method.

Note: I will discuss budgets in upcoming newsletters.

And, of course, credit cards make it all too easy to spend.

The bottom line: to effectively take control of your personal finances, it's essential to learn the basics about personal finances, e.g., setting up a budget and reviewing your credit score at least once a year. Read a book or two. Take a personal finance course. Coursera has a personal finance course that is decent, helpful, and completely free (link below).

Principle #2 - Avoid Lifestyle Creep

When most people get a pay raise or earn more money, they tend to want to upgrade their possessions, e.g., buy a new car, move into a more expensive home, frequent more restaurants, etc.

This increase in spending is justified by the spender as a reward for their income increase.

Instead of spending the additional income, you should pay off debt, build an emergency fund, learn the basics of investing and invest some of that money.

In the long run, it will be more beneficial to you.

Play the long game. It's all about the long game.

Principle #3 - The Myth of "I Don't Have."

D'Avella points out that most people will justify buying a new pair of sneakers or a workout outfit to start a new workout routine. They believe if they don't have the necessary apparel, they cannot start.

I remember when my student loan payments were suspended, and I suddenly had an extra $550 per month. Instead of saving that money, I purchased a ton of camping gear. While I do use this gear, I certainly do not use it as much as I believed I would before buying all the gear.

Buying anything you believe you need to start anything is simply an excuse.

Principle #4 - You Need to Make Sacrifices

Do you want to be debt free?

I presume the answer is yes.

To become debt free, you have to make sacrifices.

D'Avella talks about how he lived in his parents' basement for two years to get control of his finances.

Total housing expenses are what people spend most of their take-home pay on.

Your total housing expense should be no more than 28 - 30% of your gross income. For example, if your gross income is $5000 per month, you should pay, at most, $1,500 on your total housing expense.

Considering inflation, the rise of mortgage interest, rent, etc., this can be incredibly challenging, especially in New York City.

Lowering your total housing expense by moving in with your parents, moving in with a roommate, or moving to a lower-cost-of-living area can be a complete game changer financially.

Again, easier said than done, especially in New York City.

However, if you want to achieve your financial goals, sacrifice has to be made in some way, shape, or form.

Four powerful quotes from the video:

"What you deserve is to be debt free."

"You deserve not living paycheck-to-paycheck."

"Rich people are rich because they make smart decisions with their money. They don't go out and lease a brand new BMW, and they don't rent an apartment they can't afford."

"If you can build a healthy relationship with money and create positive habits that stick, you will be able to become financially free."

Remember the fundamental principles as we approach 2023: