While taking on a reasonable amount of consumer debt is necessary for you to afford a car and a house, you must avoid taking on too much for too long a period.

Why? Because a 5%-6% interest rate may seem small but over an extended period of time, it compounds to a huge amount of money. You will find yourself paying tens of thousands of dollars in installment payments every month just to see that the principal sum you owe go down by a couple of hundred dollars.

For example, let's say you bought a $250,000 apartment and took a $200,000 mortgage at 6% stretched over 30 years. If you just paid the minimum installment payments every month, how much would you have paid in total interest?

The answer: Using a financial calculator, you can see that you will pay $1,173 in monthly installments for 30 years. That's a total of $422,280 in installment payments! You would have paid a total of $222,280 in interest to the bank. That's like buying two apartments and giving the bank one!

If you took a $200,000 Loan Over 30 Years at 6% Interest, You Would Pay a Total of $222,280 in Interest...Even More than the Loan Amount Itself!

So besides paying the minimum required monthly installments (like your bank wants you to), you must constantly pay more to further reduce and eventually eliminate your principal sum...or you will wind up donating hundreds of thousands of dollars to your bank over the long term!

When our spending is uncontrolled, our expenses always tend to rise up to match our level of income. No matter how much we earn. If we earn $2,000, we will find a way to spend over $2,000 and end up broke.

When we start earning $10,000 a month, we believe that we deserve a grander lifestyle, a flashier car, dine in exclusive up-market restaurants. Very often, the $10,000 we earn a month will be spent and we will end up having to start from scratch over again.

This pattern has been repeated by many intelligent people I know, some of them being my close friends. When unmanaged, whatever additional income we earn seems to disappear without a trace...doesn't it?

It is not how much you earn that will determine your wealth. More importantly, it is how much you are able to save and invest!