- Personal Finance
How to avoid getting in to debt
For many years people lived without borrowing money and by necessity lived within their means. Saving up for things was a way of life or one simply did without. The change in society’s attitude to that of a sense of entitlement has lead to many living on borrowed funds with no safety net in place. A large percentage of their income is used to service their acquired debt. Much of the nation has been conned into thinking they have to rely on borrowed money, this simply is not true.
The only major borrowing that is actually wise, is to purchase a home. A large down payment coupled with a short-term mortgage, which you can aim to pay off early, should ideally be the end of the necessity of borrowing. Once you can truly call your bricks and mortar your own, you should aim to live without borrowing as every borrowed dollar represents a debt that needs repaying with interest.
Why people need to drive with a massive car loan is astounding when the math is done. They have literally just given thousands of dollars away for the smell of new leather. Maybe the male midlife crisis won’t have its typical medicine if a reliable second-hand car was the purchase choice, but it makes far better financial sense. Instead of servicing loan repayments, the money saved can be invested to pay for a new car in cash if the desire to own one is there. The cash purchaser is bound to get a substantially better deal than the person reliant on loans.
Living a debt-free life is simply a case of living within one's means, and saving rather than spending frivolously. Those who have been caught out with credit card debt are realizing that some of that debt is a meal eaten three years ago, or a dress picked up in the sales and never worn. Saving and investing produces returns that enable your wealth to grow rather than be squandered, but there is little point in saving and servicing high-interest debt at the same time. It makes far more fiscal sense to carry zero debt and save, providing yourself with a safety net.
America has witnessed new financial turmoil with massive student loan debt, which now amounts to a total over $1 trillion. The availability of student loans to those who do not pursue a degree to the conclusion of a career which will earn enough to cover the repayments is short-sighted. There is now the beginning of a turn as people realize that perhaps investing money for retirement is a wiser choice than funding an overpriced college education.
Borrowing for a degree is only wise if there is forethought in planning, which allows for the repayment of the debt burden. Thus, potential dentists borrow prudently whilst philosophy majors could be out in the cold unable to repay their loans without a suitable income and repayment plan.
It is perfectly possible to live without borrowing and never even consider borrowing an option once the wise investment of a home is paid for. Our ancestors did it and millions of people across the world do it every day. It simply involves living within one's means, saving and becoming less materialistic.