Let's put investment aside for one second.
Do you feel like you are constantly swimming in debt?
Have you ever wondered whether other people are dealing with the same, or whether you're worse with your finances than the average Australian?
Now you need not wonder any longer.
Comparison site Finder recently conducted a survey of everyday Australians to find out how much personal debt they have.
Let's break it down:
Debt is heading up for the average Australian
According to the study, the average Australian currently has, excluding home loans, $20,238 of personal debt.
So this includes all the money owing through instruments like credit cards, personal loans and retail instalment plans.
It seems rampant inflation and 12 interest rate rises over the last 13 months are having an impact.
A year ago the same survey found debt per person at $18,301. This means there has been an 11% hike in money owing after just 12 months.
According to Finder personal finance spokesperson Amy Bradney-George, many Australians have turned to borrowing to meet the rapid rise in the cost of essentials.
"A significant number of people are having to turn to credit cards, buy-now-pay-later services and personal loans in order to cover day-to-day expenses like food and electricity," she said.
"With inflation at an all-time high, debt is making it even more stressful for people to put food on their tables."
Within the $20,238, the $1,948 of debt was racked up via credit cards, $6,920 through personal loans, and $11,370 on car loans.
So do you have more or less debt than the average Australian?
Importance of erasing debt
So let's get back to investing, which is what The Motley Fool is all about.
Why are debt levels so important for building wealth?
Firstly, it's because the ability to save money is the most important factor in investment success.
US financial expert Brian Feroldi explained earlier this year why regularly spending less than your income is more critical to building wealth than having a fat paycheque or high investment returns.
"Those two factors are important, but they are more 'noise' than 'signal'," he said.
"Just ask some of the highly-paid celebrities and athletes who [end] up filing for bankruptcy protection — Mike Tyson, Nicholas Cage, Lindsay Lohan."
Secondly, it's because you shouldn't invest what you can't afford to lose.
The Motley Fool always recommends setting aside a savings buffer for unforeseen events, and investing whatever amount is in excess of that.
Commonwealth Bank of Australia (ASX: CBA) chief executive Matt Comyn, back in 2020, described the risks of borrowing to invest.
"Actually seeing and meeting customers, you get a real appreciation of the dangers of debt and leverage," he said.
"When things go wrong, unfortunately in banking the implications at a personal or a business level can be really severe."
