If the concept of this post sounds simple, it’s because it is… but that doesn’t mean anyone adheres to it. In a world where credit is readily available and normalized, maintaining any standard of debt aversion is totally weird. But it’s really the answer to avoiding financial headaches.
There’s a lot of discussion over what constitutes “good” and “bad” debt.
In my opinion, all debt is bad. But leverage is good.
Leverage is still debt, but it’s debt that is used in such a way to generate more money. I’m of the mind that it’s ok to go into debt for things that will make you money, assuming you manage that debt properly. This would include things like student loans, as more education typically correlates to higher earning potential, or a mortgage, as homes have historically increased in value.
It does not include things like cars, computers, clothes (though I LOL at every sincere advocate of the dress-for-success mantra that justifies a luxurious work wardrobe), pets, or weddings. Most things you purchase end up costing you more money in maintenance or accessories, such that you would have been better off not buying them in the first place.
This doesn’t mean you should never buy stuff, it just means you should never buy stuff with credit.
Getting out of the mindset of financing your life isn’t easy. Many of the things we want are very expensive, and funding them with debt is the norm. Opting to buy things in full rather than signing up for affordable monthly payment, means saying no to something you might really, really want.
I’ve said before that invisible wealth is more important than visible debt, but I’ve needed to remind myself of my own rules lately. A month into my new full-time job, I’m already feeling the itch to spend. But then I came to my senses and realized:
It’s dangerous to pledge your future income to a present purchase.
But I have friends that have gone into debt for their weddings, and nearly everyone I know has a car loan. I think most of us don’t want to admit how little we can really afford.
I’m happy I got off the consumer credit bandwagon in my early twenties, even if staying off the hedonistic, materialistic merry-go-ground isn’t easy now. Sometimes a bigger income just feels like you can afford bigger monthly payments, and you have to talk yourself out of your own eagerness to be an idiot (or at least I do).
I’m sticking to keeping credit out of my life, except in cases when it can be used as leverage to earn me more money.