All of us have at least once seen a really nice car or truck drive by and thought, wow that person must have so much money. We have thought how nice it would be to be them. I am here to tell you that many of those people are not rich, and probably don’t make much more money then you do.

This all stems back to the age of the first credit card. When we as a society started to normalize debt. Most of the cars on the road are not owned by their driver, they are all owned by the bank.

Most of you will now already know where I am going with this post, but you might not guess what my message is. The reason most “rich” people are not rich is because they are swimming in debt. While most can afford their month to month payments, many of these people would be absolutely screwed if they lost their main income source. True rich people have enough money saved up that a few months without any income would be fine.

Truly rich people could completely lose all sources of income, minus their investments, and could live the rest of their lives out at their current lifestyle. Many of us wont ever get to that point, but it will only be due to life choices. Most people never become truly rich because they get sucked into the never ending cycle of taking debt to buy cars and houses they cant afford.

The last time you bought a car, did you go into the dealership knowing what you could afford as a payment, or did you go in knowing how much money you had saved up to BUY the car with. I am guessing the vast majority of you reading did the former, not the later. All of my family are people who will probably have car payments till the day they die. This is not necessarily a wrong thing to do, but you will have more money in the long run if you are not constantly spending some of your money on interest, and instead have that money PAYING YOU interest in the form of stocks.

For those of you who have a car payment right now its not hard to get out of it. There are basically two options; sell your car or pay off the loan. If you choose to sell the car, use the money to pay your loan off and buy a new car with what money you hopefully have left. If you want to keep the car you have, when you have the loan paid off in 6 years or so, start saving the money you would have paid towards the loan, then in a few more years trade the car in and use the saved money to pay for your next car completely.

I am not one who is going to pretend people should save money until they can buy a house outright, for the average person that is ridiculous, but be smart about your mortgage. Get a fixed rate 30 year loan, then pay it off in 15 years. The main strategy I am trying to “sell” is to have you monthly expenses as low as possible, so the money that would go to the bank to pay loans, instead goes to your investments and retirement account.