Lindsey Hough is a terrific managing editor on our Palm Beach crew. She’s also $40,000 in debt. Lindsey shared what the real costs of that debt mean over time. The results may shock you…
I wanted to see what my debts were costing me in terms of investment opportunities. The official term for this is “opportunity cost.”
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[Opportunity costs are the benefits one could have received by taking an alternative action.] For this hypothetical, I assumed an investment in our elite Legacy Portfolio. I used an annual return of 10%, to be conservative (the actual growth projection for our Legacy portfolio stocks is an average of 11.14% per year). I also assumed I would reinvest the dividends from my investments each year. The following chart shows the results of a $40,000 investment in Legacy stocks, compounded at a conservative 10% per year. If I invested $40,000 (my current debt load) in Legacy stocks today, I would accumulate over half a million dollars over the next 30 years. By the time I approach retirement age, I would be closing in on $1.5 million. All it took was my looking at that chart… And the veil of ignorance I had been wearing for years was at once lifted! That $40,000 rushed forward to become an ugly… -$40,000. It was no longer just a number I pulled out of thin air whenever I got around to thinking about it. It was a hole. I was backwards. To grasp just how stunting my debt is: Let’s imagine my journey to becoming wealthy is a marathon. The start of the race is “$0” and the finish line is “wealthy” (slightly different for everyone, so I won’t define here). Well, with my $40,000 debt burden, that’s the equivalent of beginning my marathon not at the starting line… but 20 miles behind it (it takes 10,000 steps to walk five miles… 40,000 steps to walk 20). |
Lindsey was kind enough to share her personal debt struggle in an ongoing Wealth Builders Club (WBC) essay series: “Debt and Credit Solutions.” Its purpose is to help club members identify and repair debt/credit problems—in a quick, painless way.