Debt Sucks the Life Out of You
My "Fixing Sucky Spenders" series continues today educating us on some philosophical junk about wealth-building which should be obvious... but clearly the hapless inhabitants of my community and country aren't too keen on the obvious, so here we are.... enjoy.
_________________________________________
But why am I so judgmental? Because if you’re listening to what I’m saying, and if what I’m saying about stupidity, waste, and suckiness is true for you, it hurts. And pain is an irritant… a catalyst for change. So, my judgment has nothing but your best interests at heart.
If what I say wasn’t true, you wouldn’t be taking it seriously, and it wouldn’t hurt. And in the end, the pain will set you free.
We don’t mess around in The Village. So if you can’t take the pain, get out of the ring until I get back to standup next week when I get to talk about my latest trip to Wal-Mart.
It’s pretty obvious what the tone of today’s topic will be. It’s likely to hit home with you, so there’s your warning shot. You won’t get another one. Today’s entry in the ring is our society’s favorite financial vice: debt.
Society sucks you into debt
First of all, what’s a vice? My definition: “Something bad we do that we know we shouldn’t.”
So, why is debt a vice? Because most people shouldn’t be using it. They do it wrong. But even debt is slightly divergent from the umbrella of my definition, because most people don’t actually know they shouldn’t be using it.
Most people see debt, especially consumer debt, as a good thing. From one perspective, sure, debt isn’t without its advantages. If you live a lifestyle where you get everything you want, right now, and don’t care about any repercussions whatsoever, debt is the best thing since legalized recreational marijuana in Colorado.
Our society thrives on it (debt, not marijuana). I don’t know anyone that doesn’t have some kind of debt, except for maybe a few retired relatives.
Companies and businessmen like to tell you that debt is good. It can, to a degree, help foster corporate growth. Economists will tell you that debt is useful for economic growth. Government obviously has no problem with debt. Ours has over $17 trillion of it on its balance sheet.
There is a smart use for debt in business, and (debatedly?) in government.
Debt taken on by individuals usually only brings with one thing—torched money. In other words, Suckiness.
The most common form of debt for consumers is credit card debt. For the most part (of coure there are exceptions), credit cards today are used to buy nothing but worthless crap, stuff we don’t need, vacations that make us poorer, and holidays that we haven’t been disciplined enough to save up for.
I have a unique perspective to offer here, and that is why you should listen to me. I’ve never gone a single month without paying off the balance on a credit card. I’ve never applied for a credit card, or maintained one regularly, for any reason other than to build up a credit history and earn bonus cash back rewards. In this way, credit cards have actually made me richer, because I spend less out of pocket on interest for things like a home due to a higher credit score, and I get free money in the form of cash back rewards or free purchases. And I never pay a cent in interest on my balance, because it’s always paid off each month.
This is NOT what the finance industry designed credit cards for. The industry designed credit in order to enrich itself, not you, by charging you interest for things you want now. They never envisioned that there would actually be people who are smart enough to game the system in order to make money by using credit cards.
Next, let me lay into what I call “toy” debt. This includes debt you take on for everything from transportation (cars, trucks, motorcycles, jet-skis, boats) to furniture.
Society tells you that you need a new car every couple of years. It tells you that you need the biggest, most versatile vehicle, or the coolest expensive toys you can to take out to the lake on the weekend. It showcases beautiful homes full of high-quality furniture, which it tells you to finance. Society tells you that this is what everybody does.
Well, “everybody” is a sucker “Everybody” is going to be working until they are 65. Pretty much “everybody” is stuck in a dead-end job they hate. You cannot let this be you. If “everybody” is doing it, that’s the opposite of what you should be doing.
Next: student loan debt.
My wife and I finished our first degrees completely debt-free. It was awesome. While are friends are complaining about interest payments, we were swimming in cash.
Unfortunately, I didn’t get out of graduate school debt free, though. From that experience, if there’s one thing I know from experience, it’s that state colleges are EXPENSIVE. So are the big online universities these days, so my friends tell me. And oftentimes, the degrees you earn online are almost worthless in the real world. People will tell you that an online degree is equivalent to a full-time education at a real college. In practice, this is far from the truth. Many employers see online degrees as a joke.
I’ve already written briefly, but cogently, about the cost of education, and the mistake of going to college if you are taking on huge debt loads without a plan for how you’ll make sure you are getting a good return on your investment (see Ebola # 2 in that article). See that article for four awesome questions to ask yourselves before you ever decide to take on debt. Student loan debt can be a benefit long-term—if you are making smart career and school choices.
Millions of young kids over the past thirty years, the period over which student debt and the cost of education have both skyrocketed, have come out of college with unmanageable debt loads which cannot be cancelled even through bankruptcy, and which do not go away when you die. How would you feel about leaving a debt load for your family to pay off after you die?
Think and research deeply before ever considering taking on student debt.
Lastly: Mortgage debt. This is the only kind of debt you should ever take on. The reason is, part of your monthly mortgage payment actually goes into ownership of your property, and ends up as a type of wealth for you. You pay exorbitant interest for the first few years, then the amount you pay in principal slowly accelerates.
It’d be nice if we could own a home without debt. But prices make this almost impossible. The cost of real estate in general has been going through the roof for the past 15 years, despite the housing crisis and crash in 2007-2008. Home prices have risen much faster than income over the past several decades, meaning housing is less affordable than ever. It’s not impossible to afford, of course, and if we want to be debt-free and financially independent, the key is to not have the need of paying for a residence. So a mortgage is almost a necessary evil.
You should regularly be making extra payments on your mortgage when you have money left over at the end of the month, or when you get windfall payments, tax returns, bonuses, or raises at work. On a $175,000 home, and a 30-year mortgage, an extra payment once a year brings your debt-free date six months closer, per year, with my plan. I like to think of things from that perspective, as motivates me to pay as much as possible, in order to bring financial freedom faster.
The bottom line for of debt is: Those who use it for toys are making themselves poorer. Those who is it to build wealth, investing in businesses, can potentially be making a good choice. If you’re taking on debt to buy shiny crap, you’re making a sucky choice.
Don't stop reading now.... there's one more part in the series.... Read on!
Freedom and prosperity begin now! Pick your poison below...
0 comments: