Welcome to The Wealthy Mom MD Podcast—a podcast for women physicians who want to learn how to live a wealthy life. In this podcast, you will learn how to make money work for you, how you can have more of it, and learn the tools to empower you to live a life on purpose. Get ready to uplevel your money and your life. I'm your host, Dr. Bonnie Koo.
Hey everyone. Today, we're going to talk about one of my favorite topics and probably the most common question that I get. Should I pay off debt or invest? Or should I go 50/50? And why? We're going to dig into this topic.
So in the last episode, I went over briefly how our human brains love to collapse “what happened” versus a story we tell ourselves now. In case you haven't listened to that episode, I'm going to summarize it real quick. Basically, there are two things: there's what happened, which is just the facts, nothing else. So something happens, and then we make up a story about it. Something happens. This “what happened” is neutral. It's just the facts with nothing added. Then, we make up a story about it. Human beings are story-making machines. Most of us live our lives on default and collapse the two. We think the story is what happened. The good news is we can decide to create a new story, but this can be challenging because of the way our brains are wired.
Debt is what happened, and then there is a story we are telling ourselves about the debt. Notice that debt probably does not feel neutral to you. That's because collectively as a society, we’ve made up a lot of stories about debt. So why don't we first define debt first? I love to describe debt this way: You wanted something and you didn't have the money, or you didn't want to spend the money, so you bought the money. The price of the money is the interest. You got that? You wanted something, you didn't have the money, or you didn't want to spend the money. So you bought the money, which is the loan. The price of the money is the interest rate.
Let's talk about our student loans because that's a topic that comes up all the time. At some point, you wanted to become a doctor. That first step after college was to go to medical school, and medical school costs a lot of money. At least it does nowadays, right? You didn't have the money or you didn't want to spend the money--probably more like our parents, right? And so you bought the money and the price of the money is the interest. These are your student loans.
I want to remind you that at some point, you wanted to be a doctor. Hopefully, most of you still want to be a doctor. Right now, I'm guessing you're making your student loans mean a whole lot of negative things. Why wouldn't you? Pretty much everyone and everything out there is telling you that debt is bad and you should pay it back as soon as possible.
Now that is an option, of course, but it's just one option. I like to look at debt repayment in terms of three choices. You throw all of your extra money towards your debt, so that means you're paying not just a minimum, but additional payments. Option two is to go what I call halfsies, meaning any extra money you have, you put half towards that and half towards saving or investing. The third option, which is the opposite of option one, is to pay the minimum payments on the debt and throw everything else at acquiring assets.
First, I want to say that it totally makes sense that most people are telling you to pay off your debt. I mean, you kind of have to, at some point. You do owe the money. It won't pay itself back. Sorry. I want to make sure that you understand that any extra money you put towards debt means that you're not putting that money towards acquiring and growing assets. The one rule of wealth is so simple: buy assets, not liabilities. An asset puts money in your pocket. It's money making money.
What if you put extra money towards acquiring and growing assets that can later pay off the debt? This choice is also available to you. There is no right or wrong choice here. My goal is for you to choose and love your reasons for choosing it. I want you to be able to say, “I choose this because I want to and it feels good” versus paying off debt quickly from a place of scarcity or heaviness. Often, people think you're going to have a whole lot more freedom afterwards. And I want to remind you, that the feeling of freedom, or if you're having a feeling of heaviness or negativity around debt, it's not because of the debt itself. It's because of the story you made up about the debt, right?
So like many of you, I agreed with the masses. Debt isn’t good, you should pay it off as soon as possible. I also subscribed to the idea that not all debt is bad. You know, student loans aren’t bad because that allowed me to get my medical degree, and now I can make a good income and I'll be able to pay it back. And the “bad debt” is consumer debt, credit card debt. Some people even lump car loans on there. Remember, the debt itself is neutral. It's the “what happened.” What story are you telling yourself about the debt?
Now, if that story doesn't make you feel good, are you willing to tell yourself another story about the debt? Is it possible that the debt can mean something else instead of what you're telling yourself right now? So that's my challenge to you. What new story about debt can you tell yourself? Is it possible that your student loans aren't keeping you from living the life you want? Is it possible that your current student loan debt doesn't mean you're bad at money? Is it possible that your student loan debt has nothing to do with your ability to live and create the life that you want?
Because here's the thing I do believe. I generally recommend that you pay off debt if the interest rate is above 5% or so, but it also really depends. Acquiring and growing assets takes time. And there are lessons to be learned in terms of acquiring and growing these assets. So anytime you're spending any money, you're spending extra towards debt, not only are you not acquiring or growing assets, you're missing precious time in terms of the lessons you need to learn to become a great investor.
Let's recap what we talked about today. When it comes to debt, debt is what happened and everything else is a story you're telling yourself about your debt. That in itself is not good or bad. Debt is money you didn't have or money didn't want to spend. So you bought the money and the price of the money is interest. Ask yourself what you are making your debt mean.
We have three basic choices when it comes to how to pay off debt. You can throw all of your extra money towards the debt too. You also can go 50/50, 50% towards that 50% towards saving or investing. Thirdly, you can put all of your extra money at acquiring and growing assets.
Finally, you need to decide what feels right for you. The best reason, in my opinion, to do something is because you want to, not because you're worried, not from a place of scarcity, not from a place of heaviness around your debt.
I'll see you next week.
Hey, if you're a woman physician who is ready to take control of your money, you've got to check out my program Money for Women Physicians. It's part course and part group coaching and a hundred percent guaranteed to put more money in your pocket. Go to wealthymommd.com/money to learn more.
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