Financial Freedom: Learn How to Live Debt Free

Most adults know that the economy cycles through periods of growth and recession, but few adults prepare themselves during times of prosperity for times of hardship. A wise employer once said to me while discussing an hourly wage increase in order to help ease financial strain in my family, "the more money a person makes the more money they will spend." True wealth cannot be determined by the dollar figure brought in every month but is more accurately determined by the dollar amount left over at the end of the month once all the bills are paid.

To demonstrate, let me introduce you to the Jones family and the Smith family: each family is comprised of a mother, a father, and two children. The Jones family collectively earns $5000 per month; the Smith family earns $10,000 per month. The Jones family purchased a moderate home and is fairly frugal in their monthly expenditures. They have an average amount of auto and consumer debt, and they are putting away a little each month toward education and retirement. The Smith family purchased a lovely home that was within their price range and spent a great deal of money furnishing it. They, too, have auto and consumer debt, but their higher income qualified them for higher credit limits, which they have used for vacations, clothing, furniture, and more.

At the end of the month the Jones family has $250 left over to save for emergencies, holidays, and future family vacations. On the other hand, the Smith family has nothing left over at the end of the month-every penny is being spent on their mortgage, utilities, cars, credit cards, and more. So, which family is wealthier: the family which earns $60,000 annually and has $3000 to spare, or the family which earns $120,000 annually and has nothing to spare?