My Money Credo
1. Don't spend money that you don't have. This means: don't borrow. Borrowing makes you a slave to the lender (Proverbs 22:7) with the result being you then spend all your time thinking about repaying the debt. Your life and every activity you undertake is shaped by having a debt over your head. By buying into the concept of having a debt, you are allowing others to control your life and well-being. Debt, therefore, sucks eggs. Don't be a sucker!
I know - you're saying "c'mon! no Visa? No Master Card??" - NO. Not as debt anyway. Use the card for convenience, but PLAN TO PAY IT OFF EVERY MONTH without exception. As soon as you start making monthly payments to service that debt, you're a debtor spending more than you needed to in the first place. Got it on sale for 10% off? Does you a fat lot of good when you're paying 22% interest.
2. "Don't borrow money unless you can make money with the money you borrow." - Uncle Lou. This from my Dad's step-uncle who became wealthy digging ditches, outlived many of his children and enjoyed his work till the day he died, late in his 70's. This is, in my view, the core precept for borrowing if you are going to ignore #1 above. You shouldn't sign for that loan unless you have a budget and plan for how the money you are borrowing will be repaid and turn a profit. Most folks call this a business plan. A mortgage on a home is only the merest exception to this rule. Student loans? Unless you're getting a degree in turning lead into gold (and a large supply of lead on hand), you don't have a guaranteed income and therefore can't have a budget for repaying and profiting from your
3. Pay as you go. If there is something you want to accomplish that will require more money than you presently have, budget your income and set aside a little bit at a time in a savings or money market account to either save for later expenditure or to put into the work as finances allow. Violating this precept means you are headed for red ink on your balance sheet, that is to say, going in debt... again violating principle #1.
Prior to 2000, most Chinese citizens lived quite austere lives and saved religiously for later expenses, like weddings, education for their children abroad or their first car. That has changed dramatically in the past decade as they begin behaving more like American consumers (that is to say - saddling themselves with debt)
4. Never take on a debt to get out of debt. Sounds pretty obvious considering the above but do you know how many people, faced with an expense for which they have no funds will put it on credit? This is why the first thing you should save for (like right now) is an emergency fund of $1000 or so. (Credit to Dave Ramsey)
Look at it this way. An expense lacking financing is a debt as soon as you commit to it. And you can only enter into such a transaction via a credit card (debt). Fortunately, lending regulations make it easy to see how painfully expensive this is over time these days. Just look at your credit card statement and it should show you the cost to pay back the money you borrow making only minimum payments. Keep in mind - the interest rate that is used to calculate the payoff is the "good consumer" rate. If you slip and miss a payment, you get upgraded to the "bad consumer" rate, which will significantly impact the time and cost to repay the debt.
So - short answer to "should I have debt" is NO!!! Read carefully above again. The truth is: nothing puts you in the hole faster than debt and poor management of that debt.
The corollary to this truth is that nothing gets you out of the hole faster than carefully managing your income and setting aside specific money for specific needs (budgeting).
Careful readers will notice the word budget above... several times. In an upcoming post, we'll talk about budgeting as I believe this is one of those important things they should teach every High School student (but somehow many of us graduated HS without knowing a thing about it!)
Till next time...