This is a guest post by, well…we’ll just call him Mr. Joe for privacy reasons. Mr. Joe is a jack-of-all-trades, and writing happens to be one of the many. He’s been my mentor, and a very influential part of who I have become over the last 5 or so years.
When he asked me if he could write a guest post for EOD, I was honored, and considered it a privilege. Perhaps after reading this you will want to see more from Mr. Joe, because it is indeed a wonderful piece.
De-mythologizing the Language of Debt
You can use debt judiciously to build wealth. With today’s creative credit options, there is no need to deny yourself or delay getting the things you want today. You work hard; shouldn’t you reward yourself? A small monthly payment won’t affect you too much. Build a good credit score and choose a credit card that allows you to earn money or points. Box of candy- $12.00, a dozen roses- $ 36.00, taking that tropical vacation she’s always dreamed about- Priceless. A credit card can make your dreams come true now.
I hope I have your attention. Readers of this blog will find these admonitions very strange indeed, and that’s the point. The language of debt is all around us. It is part of the culture and our everyday lives. If you watch TV, you see numerous ads for things that are expected to be purchased with credit, like cars, vacations, and even super large TV’s. Take a ride down the highway and there will be billboards with many of the same things, all available by credit. Turn on the radio while you are on that ride and you will hear it too. Ever wonder where they get those fast speakers to give you all the financial details at the end of a car commercial?
Let’s take a look at some of these claims. Does debt build wealth? For the vast majority of people, the answer is a resounding NO! It is a well known fact that most entrepreneurial start-ups will fail. One of the major factors in start-up failures is lack of capital. But funding a start-up with debt most often saddles a budding company with obligations that make it even harder for them to be competitive, and it saps creativity when it is needed most. We will often read about the person who borrowed $30,000.00 and hit it big when their company took off. But there are thousands and thousands of small businesses that fail every year and we don’t usually hear about them. Would it be pressing the issue too much to suggest that we hear about the success stories precisely because they are so unusual?
This is not in any way meant to disparage or discourage entrepreneurial pursuits; small businesses are the lifeblood of our economy. Some people are particularly gifted in this area. I’m just pointing out that small business is tough and taking on debt to start a business doesn’t make it easier. Consider partnering or finding investors that will put up some funds in exchange for a stake in the business. Perhaps it’s possible to start part-time to test the waters and build funds.
Shouldn’t you use credit to get what you want now? Don’t you owe it to yourself, your family, etc.? I’m paraphrasing a line that comes through on many advertisements designed to play on your emotions. The message is saying “if you really cared about yourself, or (fill in the blank) you would buy this now” (using credit of course). Now imagine that you really want a bass boat. It’s springtime. You see yourself sitting or standing on the bass boat reelin’ them in. Your best friends are with you and everyone is having a great time. Any competent salesperson will help you with this visual picture as will the glossy brochures. (Funny that there are never any mosquitoes in these bass boat ads.) Anyway, you don’t want to wait. You don’t need a bass boat next fall and you don’t want to wait a year to save for it.
Actually, you learn that the payments really are not that bad; under $300.00 per month. You still have that visual in mind, not thinking that you will need to license the boat, store it, have it maintained, and that you can only use it 6 months out of the year if you are able to find the time. The shackles are being slipped on oh so delicately and this brings me to another point. We think that the ravages and desperation of debt are going to be readily apparent. We think that we will immediately put our guards up before putting ourselves in bondage, but in fact debt is a subtle enemy. We might even feel good about it at first. The shackles of debt bondage are not slammed onto our wrists and ankles, but gently slid on very carefully as we accept them.
It is after we have the debt that we begin to think of the downside. The boat loses value immediately. While its losing value, you are paying more, maybe much more than the sales price because you financed it. You can’t unload it for a reasonable price because its easier to buy a new one and there are other people trying to unload their used ones too. Then there are the other costs of ownership. In the end you realize that even if you use the boat every weekend for six months its costing you hundreds of dollars per outing. I hope you catch some fish!
Can you really “earn” money or rewards with a credit card? I thought I should check the dictionary on this one. The American Heritage Dictionary defines “earn” as follows:
1. To gain, especially for the performance of service, labor, or work.
2. To acquire as a result of effort or action.
3. To produce as returns or profit.
So there you have it. None of the definitions even remotely suggests that earning is something that comes in return for borrowing money or taking on debt. Many will say, “oh, but I always pay my credit card off every month, so it really costs me nothing and in return I get points, miles, rebates, etc.” This may be true for a very small percentage of people that do in fact, year to year, month to month, pay off their card with out running a balance. But c’mon people. The huge credit companies need to turn a profit. They don’t issue thousands upon thousands of credit cards expecting people to use their services for free.
It takes huge investments in buildings, computer systems, security systems, billing systems, and people to run them. The credit industry is sophisticated business. They know what they are doing and they certainly cannot operate by providing cards and services to people who never pay a fee. That’s where the other folks come in. There are plenty that are willing to accept the bondage of debt for short term fulfillment in exchange for long term pain and difficulty.
I think that there are some few exceptions to the “No debt” mindset. But that is precisely my point. We need to change our mindset so that we are not so easily enslaved. Don’t take the chance of stressing your marriage, your family, and yourself for something that, in the end, is really not that important.
Back to the bass boat scene. Imagine that you saved up some cash and then were able to drive a hard bargain with someone who needed to get out quick. You end up buying at a huge discount. You are not losing a lot of money everyday. You can actually enjoy using it without thinking what a fortune it is costing you. You might have to wait to enjoy that day on the boat that you had in mind. But it will be so much sweeter- even if the fish are not biting.
One more thing. Everyone knows the iconic advertisement that lists several things and their value leading up to the one (usually emotional) thing that is determined to be priceless. Before splurging on that priceless thing, imagine sitting down to think of the consequences either by yourself or with your family. Yes, the (trip, car, boat) would be great. You would have a great time at first. Perhaps there would be some wonderful memories. But try to see yourself 6 months, 12 months, 36 months later, cutting out things that enrich your day to day life so that you can make THE PAYMENT. Now that’s a picture that truly is PRICELESS!
So what do you think? Has Mr. Joe made his case? Please share your thoughts and leave a comment below.