DEBT

I thought I’d try and flesh out some of the reasons why people go into debt.

What is Debt?

According to Wikipedia – ‘a sum of money that is owed or due’.

Imagine you want to buy a car. The car costs more than the available assets you have to buy it. What can you do? You can borrow the money from someone else and package the payments into small monthly payments over time. You are in debt to the person or the business that loaned you the money.  Interest is paid for the privilege of getting access to the money sooner than you could of without getting the loan.

So in essence, approved you have paid for the privilege of getting the money up front in exchange for future payments with interest (to compensate the lender for their risk).

If you buy something outright, discount you own it. If someone loans you the money to buy something, you may think you own it, but the lender actually owns it. Or if you don’t believe that the lender owns it, what do they own? Until the debt is paid off the lender will always own a piece of whatever you produce in the future.

It’s fair to say that if you get into debt you are selling your future production for now. Its a form of slavery.

So why do people go into debt in the first place?

Well it seems to me that most people want things they can’t afford. People feel like they need to impress other people. So they splurge on stuff that they probably don’t really need or, truly want.

Some people are more disciplined to wait and save up so they can afford what they want.

Mortgaging a house is another huge debt people take on. The costs involved in owning a house are enormous. Off the top of my head there are; taxes, repairs, buying costs, interest rates, maintenance…….But people actually think loaning 30 years of their life is a good thing. They believe that house prices will rise forever; interest rates will always stay this low and believe governments will solve everything. It’s ridiculous.

There are too many reasons to cover why people go into debt here. But be sure there will be more than I can ever imagine.

I’m not anti-debt by the way. I’m pro-choice. I’m pro-do what the hell you want to do, just be prepared to accept the consequences. If you want to borrow money to buy something (like a business) that produces more money faster than the interest and time you pay , then I’m all for it. But most people are not like that. They don’t think entrepreneurially or rationally. It’s mostly consumer items that people like want to own. Things that produce absolutely nothing. That actually depreciates in value.

What can you do about it?

So what can be done about this problem?

Well firstly you may not think it is a problem. And that’s totally fine – it’s your life.

But, if you agree with some of the things I said earlier, try this:

  • Get your needs sorted first. Things like food, water, shelter and social needs. The most important.
  • Then make a plan as to how to get what you want.
  • If you can’t afford what you want, discipline yourself to wait or provide some good or service so that you can.
  • Consider it a challenge over your own mind to control yourself.
  • Consider all the downsides. What happens if you lose your ability to produce in the future? It could be from a disability, accident, loss of job, mental state…
  • If you get the urge, read this post again and wait a few days to think it over.

Hopefully this will help you think a little more about the problems with debt.

 

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