In an earlier post I wrote that the first rule for money is to save. Saving money will always increase your wealth and provide you with the means to take advantage of opportunities or overcome emergencies that you can be sure will arise during your lifetime.
For many people the biggest obstacle to saving money is excessive debt. Personally, I see debt as a dream killer. One of the many problems with debt is that many people fail to consider the interest and monthly payments associated with debt. The amount of money borrowed is not the amount that you will actually pay and you will reduce your income each month to repay that debt.
Here is a simple example of the effect that interest has on the price of an item. If you purchase an item for $100 on credit with a 10% interest rate over one year, the actual cost of the purchase is $110. Therefore, you have just increased the price of the item you purchased by 10%. The result is that you pay too much for the convenience of not paying for it today.
Think about taking an item to the cashier to pay for it and you are told that the price is 10% higher than what is on the tag. You would not be happy and most likely would not purchase the item. However, each time that you purchase something on credit you have increased the price of that item by the amount of interest you will pay. If the interest rate is high and you make minimum payments, you could even double the cost of your purchase. Ask yourself when you make a purchase on credit if you would pay ten or even twenty percent more for that item.
The second thing that people don't think about is the monthly payments that are associated with debt. The fact is that your cash flow will be reduced each month until your purchase is paid in full. It doesn't take many purchases until you no longer have enough cash to pay your debts and living expenses. I like to think that I get to keep the money I work for instead of sending it off to some credit company. I also like to know that there is enough cash available to take care of important things in life such as food, vacations and emergencies.