Freedom is not a function of how much money you make. It's more often a function of how little money you owe. There are two kinds of people in the world who can be considered financially free: those who make so much money that they can't possibly spend it all, and those who don't owe anybody anything. While very, very few people find themselves in the first category, almost anybody with a decent income and some determination can find themselves in the second one.

And that is what this book is all about. Making you free by removing the shackles of debt, then taking the money you used to use to service all that debt and investing it to make you financially independent. Is it simple? Yes, as you'll soon find out. Is it easy? No, because it requires a new way of thinking, which is never easy to bring about. It also takes time, which for many is an equally difficult concept. But let me tell you, it's worth it. Because, since you only get to live once, isn't it better if you spend your life doing what you want to do instead of what you have to do? That's why our journey together is called "Life or Debt." That's not just a catchy name: it's literally a choice you make every time you spend money. You'll understand exactly what I mean by that in short order. And by the time you finish reading this book, I promise: you'll choose life over debt, and you'll be happy you did.

A New Perspective on Money: Opportunity Cost

Let's both take a minute and take a glance around our respective rooms. (If you're not at home right now, imagine that you are.) Notice all the stuff in the room you're sitting in, and I'll do the same. Now, let's take one or two of these things and see what they're really costing us. Ready? I'll start. Right now, I'm sitting on a leather chair that costs $1,000. My wife bought it for me for my birthday. I know that's a lot for a chair, but it's really cool, and besides, I spend a lot of time here. (See how I'm justifying myself? And I don't even know you!) Anyway, if my chair was bought with credit, and paid for over time with minimum payments, how much did it cost? If I used a credit card and made minimum payments every month, it could have cost up to $3,000: $1,000 for the chair and $2,000 for the credit card company. Happily, however, that isn't the case with my chair. (As you might imagine, we're not heavily into credit around here.) But it still cost me a lot more than $1,000. Because that money is no longer around to work for me. If it was, and I had invested it and earned 10% every year, 20 years from now, I'd have $6,727 instead of a worn-out chair.

My chair is a good example because it cost a nice round number, and one that you can use to help you do this same exercise in your home. In other words, if you paid $10 for some item in your room, multiply that $10 by 6.7, and you'll know how much you would have had if you had invested that $10 at 10% for 20 years. So, your $10 ashtray costs you $67. And that $3 pack of cigarettes you're filling it with costs you about $20.
What I'm describing here is a term that you might want to become acquainted with: opportunity cost. It simply describes how money you spend today costs you in terms of the opportunity to have more money tomorrow. And that cost isn't just measured in money. It's measured in something a lot more precious: time.

Let's go back to my chair. We've discovered that the opportunity cost of my chair is $6,727. You know how long I could live on $6,727? Two months easy, maybe three. So, ignoring inflation, I theoretically could have retired at least two months earlier if I wasn't sitting in a $1,000 chair right now. What I have chosen to do is swap at least two months of total financial freedom in the future for a nice chair today! Was that a good trade-off?

Of course, I have to sit somewhere while I'm writing this, don't I? But wouldn't I have been better off buying this chair at a garage sale for $100 instead of owning it new for $1000? A $100 chair would have a 20-year opportunity cost of $670. So I'd still be retiring $670 later than if I'd sat on the floor working for 20 years. But retiring $670 later instead of sitting on the floor for 20 years is a swap I can live with.

Another way of measuring opportunity cost is comparing the stuff you've bought to how much you make an hour when you work. Let's say you work 40 hours a week and make $40,000 a year. If you have a typical work schedule, that comes out to exactly $20 an hour. But hold on. Because, you actually don't bring home that much, do you? Nope. You've got to pay taxes on that money. If you're paying 30% in taxes, you're actually making $14 an hour. So, if you're sitting in a $1,000 chair like mine right now, you were apparently willing to work an extra 480 hours over the next 20 years to do it. ($6,720 / $14 = 480) Think how many hours that is! That's 12 weeks! Three months! When was the last time you took three months off?

So here's the next exercise I want you to do. (Maybe you can cut and paste this section into a word processing program to make it easier.)

1. Write down your annual salary, or if you're hourly, about how much money you make every year. _____________________

2. Multiply the number above by .7 (to account for taxes) and write the answer here. ________________

3. Take a few minutes to think about all the expenses that are associated with your job every year (gas, food, clothing, etc.) When you've got a rough idea, subtract that number from the answer you got in number 2 and write that amount here. ____________

4. Divide the number above by 2,000 (the number of hours the average person gets paid to work every year) and write that answer here. ______________ This is your true hourly wage.

What you now have in front of you is how much you're really making every time you trade an hour of your life for that paycheck. Depressed? Well, grab a hankie, because it's about to get a lot worse!

5. Now, take a few minutes off while you look around your house. Estimate the price of all the useless "stuff" you've accumulated over the years. I'm talking about stuff you thought you wanted but don't really use that often, as opposed to the things you really like or really need. When you get a rough estimate, write that amount here. ____________

6. Take the amount in number 5 above and multiply it by 6.7 to calculate its 20-year opportunity cost. Write that answer here. ____________

7. Divide the number from number 6 above by your "true" hourly wage. (It's the number from 4.) Write that answer here. _________________

If you actually went through this exercise, what you've just uncovered is the number of hours of slave labor, hours you can never replace that went into surrounding yourself with this "stuff" you didn't really want or need. And keep in mind that this is if you paid cash for everything! If you used credit, the final tally is obviously much worse. Feel like going to the mall?

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