America has fallen in love with debt. We borrow for everything. And, frequently, too much.
As a nation, we’re so overextended on debt that there’s a real debate on whether we’ll ever be able to climb out of the financial hole we’ve dug for ourselves, that is, without fist going through another depression or financial collapse with large write-offs (losses taken by debt holders). But even if we avoid those catastrophes, the debt will hang around our necks, depressing economic growth.
We’ve mortgaged our future. We’ve pulled future spending forward with little to no regard for the impact on tomorrow.
On an individual basis, often this means we’ve heaped a load of stress on our lives. Unnecessarily. Sometimes it results in bankruptcy. Sometimes, in depression or anxiety. Sometimes, in failed marriages or other ruptured family or work relationships. Often, it means a delay in retirement (less financial freedom). Rarely are there no adverse consequences.
Having lived nearly a lifetime, I’ve concluded there are only three good reasons to borrow. They are:
- to buy real estate
- to pay for valuable education or training
- to finance an ongoing profitable business
If I were given the opportunity to live life over, I’d never borrow to buy a car or to pay for a vacation or any other discretionary expense. Or borrow to buy stock (on margin), which I’ve never done. And I’d certainly never carry a balance on any credit card.
As for the three permissible reasons listed above, it would be important not to overpay.
That means not buying real estate at inflated values (such as a house in the mid-00s) or beyond what could be repaid with a margin of safety (not more house than I need or could afford).
And not overpaying for a college degree (such as borrowing to attend a mediocre school or to obtain a degree with little or no economic value).
Purpose and amount are key. Proportionality. Margin of safety.
One nice thing about being older is being debt-free. It’s actually quite liberating. I wonder why I didn’t do it sooner.
Next time, I will.