Have you ever had the feeling that you work for everyone except yourself? Have you ever come to the end of a long work week only to find that your paycheck was gone before you had a chance to enjoy the fruits of your labor? If you are like a majority of people, you live your future in the present. In other words, you have committed to spend money that you have not yet earned on items that you will never really enjoy. When you use credit to artificially inflate your current income, to keep up with a life style that is far beyond your means, you have set yourself up to fail.
Your income is the most versatile tool you have in creating and sustaining wealth. However, like any tool, you need to understand the purpose of the tool in order to be able to properly use it. Many people believe that debt is also a tool. However, debt is an industry. A lucrative industry that favors the debt dealers more than the consumer. Home equity loans were not really designed to provide you with additional resources with which to enjoy life. Although this is a residual effect, the end result is that you have given the lending institutions access to your future earning regardless of how the housing markets preform.
Effectively, you have invited the debt dealers into your house and have given them a seat at your table. The truth is that when you take out a fifteen year home equity loan to pay down debt, buy a new car, or pay for that long desired vacation of a lifetime, you have committed fifteen years of your future earnings toward things that will cost you more than the initial outlay.
Consider this, in the case of using home equity for paying down debt. You have used debt to pay off debt, extend the payoff schedule, commit future earnings that are not guaranteed, and you’ve tied the impact of failure to your house; all of this simply because you failed to control your use of debt in the first place. If you used a home equity loan to purchasing a new car, you have again used debt to purchase an item that will lose about seventy percent of its value long before you even get to the point where you are paying more on the principle than you are on the interest.
You have also used debt to extend the payoff schedule of the vehicle from five to at least fifteen years, commit future earning that are not guaranteed, and you’ve tied the impact of failure to your house. Home equity loans used by you for that long awaited, once in a lifetime vacation that will be over in two weeks effectively results in the same outcome. You have used debt to extend the payoff schedule to at least fifteen years, commit future earning that are not guaranteed, and you’ve tied the impact of failure to your house. Do you see the pattern?
So ask yourself this question. “Is debt truly a tool or is it a product sold to consumers for the benefit of others?”
I believe that you, the consumer, need to understand that living without debt is completely possible. You, the consumer, also need to understand that you have to use financial tools to your advantage. However, you need to correctly identify financial tools and stay away from financial traps, such as consumer debt.
Looking at consumer debt as a financial product instead of a financial tool will revolutionize how you think about wealth building strategies. Debt is a wealth killer. It robs you of your future and enslaves you to those to whom you owe. But debt is not brought on by someone forcing you into the use of debt to achieve a desired lifestyle. Debt is seen today as a way of getting what you want, when you want it, even though you cannot afford it.
As obvious as it is to say, many lack the self-control required to put off pleasure until tomorrow. We live in a pleasure driven society. We just cannot seem to tell ourselves no. Therefore, I want to give you some pointers on staying out of debt.
First, resist the urge to want what you cannot afford. This might seem simplistically logical, but it is the number one driver for creating the wealth-trap of debt (and trust me, there are numerous entities out there who are more than willing to set the trap for you). Many years ago I was involved in coin collecting. I can remember that my desire to own higher priced coins was directly proportionate to the amount of time I spent reading coin periodicals. I was feeding my desire of own coins that I honestly could not afford.
In order to resist using debt to feed my desires, I decided to completely sell off my collection. I had to get to the place where I could resist my desire to be up there with the big boys of the coin world.
In addition to not desiring what you cannot afford, you must also learn the difference between needs and wants and learn to want only what you need. Needs are basic life sustaining expenses: food, clothing, shelter, transportation, and utilities. Beyond that, most of the purchases that are made with debt tend to be consumables, items that once consumed add no further value to life.
When you dine at a fine establishment, for the moment there is a temporary pleasure. However, doing this on a regular basis usually results in increased debt and painful repayments long after the pleasure has been extracted from the experience. I am not telling you that you should never eat at a nice restaurant, but I am telling you to save up and pay cash when you go.
When you are faced with an emergency, you can become financially overwhelmed. If your emergency requires more resources than your emergency fund contains, develop a payment plan that conforms to your financial restraints. A great mitigation plan for cost overruns is to have an emergency fund for the emergency fund. Telecommunication companies have redundancy built into their networks for the expressed purpose of an outage. Your emergency fund should have the same level of redundancy.
Living without debt is really about planning, living below your means, and equating the value of an experience against the cost of that experience. Do the things you have to do now so that later, you get to do the things you have always dreamed about doing. It starts with abolishing the debt that you have accumulated over the years. It ends with your commitment to never again fall for the trap of living your future in the present.