One of my first posts I wrote here was It’s Simple Isn’t It (I invite you to go over and have a look, it’s still pertinent (IMHO)).
The simple idea was the following equation:
Incoming cash - Outgoing cash = SAVINGS (or Losses if negative)
Given we have now defined debt-free do we need to change this equation? I don’t think so.
Outgoing cash is all your payments, and if you are paying down debt that is part of your outgoing cash, hence why if the difference is negative you have losses.
I have seen this equation obfuscated where folks who have debt, claim they are saving as well, which seems a little bit contradictory. If your debts - savings is a positive number you are most definitely still in debt, so you aren’t “saving” you are simply putting money aside (that might do better paying down your debt).
Many argue you need:
- Emergency Funds
- Rainy Day Savings
- etc., etc., etc.,
But depending on how much you are paying on your debt, wouldn’t you be “saving” more by paying down your debt ?
So I leave you with the question: Is it really that simple?