A Powerful Plan For Paying Off Your Debt

This past weekend I finished rereading "The Richest Man in Babylon." Although I read it a few scant months ago I loved the book so much and realized I hadn't yet got all I needed to out of it. I highly recommend this book of short stories (read my short review here) as it contain so much financial wisdom that is easy to read and apply. Jobina and I are trying to decide where to invest the profits from selling our rental property and so I went to The Richest Man In Babylon looking for some advice on investment discernment. I was not disappointed.

Aside from that advice I was looking for, I was struck by one chapter's story on how to get out of debt. The story is about a foolish Babylonian man who becomes addicted to spending more then he makes until finally he loses everything; his wife, his respect, his job, and even his freedom as he is sold into slavery. The wife of his new master questions him repeatedly - do you have the heart of a slave or a free man. This makes our hero angry but his master's wife tells him that if he is a man who gives in to despair and does not repay his debts then he truly has the heart of a slave. In a daring escape, our hero leaves his master and heads out across the desert to make the trip back to Babylon. Along the way he almost dies but has an epiphany - he is a free man and he decides right there and then to repay his debts and reclaim his self respect. He survives the desert and returns to his home city determined to change his stars.

He meets up with a wise money lender (one of his debtors) who is impressed with our hero's desire to better himself and gives him a wise plan to do so. First, go to each of your debtors and let them know your plan, signaling your intention to pay back your debts and how you are doing it. Then proceed with the plan as follows:
1. Put aside 10% of you income to keep as a savings and wealth builder.
2. Live on 70% of your household income, doing whatever is necessary to live within these financial boundaries.
3. At the end of each month take the last 20% of your income and divide up amongst those you owe money to.

The plan works well and within a year not only has he repaid his debts, but he has won back his wife and the respect of even those he had borrowed from. Also, he now has a nest egg for investing in his future. He goes from being a slave to a freeman who never again foolishly spends more then he makes.

I liked this plan because it is realistic and gets the person into the habit of saving/investing that 10% right away. Of course it won't work if the person in debt believes the lie that they have to spend more then they make (or chooses not to live within their means). Still, this is a good general plan that could work for almost anyone. Debt (well, "bad" debt anyway) is like a dragon and slaying it is good for your health.