Most of us, especially people like you who have come to read this blog, value freedom. And not the corndog and bald eagle variety, but the ability to make a wide range of decisions that affect the outcome of one’s life.
Freedom may not be everything; the single billionaire can do almost anything he likes, but can still be unhappy. It is something, though, and it’s a big part of a good life.
Debt is the opposite of freedom. It binds, controls, and looms. It’s the monster standing between you and freedom, growing slightly bigger every day thanks to the wonders of compounding interest. It’s easy to think of debt as “just money”, but I’ve seen how it affects people. Its reach extends beyond the ledger.
There are two types of debt that are often worth taking on. One is operational debt. You have an opportunity that’s going to make you $1000, but you need $500 more to make it happen. So you borrow the money, make your profit, and pay it back. That’s a simple and unlikely example, but more complicated versions of this are common in business.
The next is the purchase of a house. I think that in almost every case, buying a house is a bad idea. Taxes are high, home prices are high, and people don’t think about maintenance. Often it’s much cheaper to rent, and freedom is retained because you don’t have to worry about recessions or selling the house. But sometimes, like right now in Las Vegas, homes are extremely cheap, taxes are low, and mortgage rates are low.
Apart from these two things, don’t get into debt. Seriously, don’t. No one really cares what kind of car you have, so don’t finance a $20k+ car just because the monthly payment is low. Save those payments and buy a cheap car. Then save money, sell that car a year later, and buy a better one if you want to. That’s freedom.
Some people will say that educational debt is worth it, too. Maybe it is, but coming out of school owing hundreds of thousands of dollars seems like a complete catastrophe to me. For me to do that I would have to believe that my education was going to be the deciding force in me making a ton of money, and it doesn’t seem like that is very often the case.
Don’t get into credit card debt. I would never get into credit card debt unless I had sold every single possession I had first. And if I got to that point, well, I’d have some real tough self-examination to do. Move to a cheaper city, move to a smaller place, cook your own food, don’t buy new clothes, do whatever it takes. But don’t get into debt.
I really admire people who pull themselves out of debt, because even though I’ve never been there myself, I can imagine what it would feel like to have that hanging over your head. People claw their way out, even when it feels like they’re barely chipping away, and they make it after years of hard work. If you’re in debt now, resolve to become one of those people.
But if you’re not in debt, make it a very high priority to stay away from it. Don’t finance things. Don’t put anything non-essential on a credit card unless you have a proven track record of staying out of debt. Be careful. We get one life, and there’s a lot of freedom available to us. Debt is an instrument many people use to rob themselves of that freedom.
Photo is a Christmas tree in Prague.
Just arrived in Chiang Mai this morning. The sleeper train from Bangkok to here is amazing. $25 and you get a really comfortable bed.
Sorry I posted this a day late. I’m trying to stick to Monday and Thursday, but I didn’t plan ahead and couldn’t upload a photo on the train.