The Seductive Allure (and Problem) of Debt Freedom
Question: “Shouldn’t I work to be debt free?”
The Principle: Know Where You Are Financially
You must know what your financial profile, position, and prospects in order to chart a path to where you want to be. This requires assessment. Your profile includes your demographics like parental support level, age, education, and locale. These reveal what options and timing you are faced with. For example, an 18 year old, college student with no parental support will need to incur debt in order to attend school. If a degree is the certain path to the desired career, the debt is a choice toward progress.
Your financial position includes your current credit profile, debt-to-income ratio, indebtedness, income, investments, and borrow ability (from friends and others at 0% interest). These inform your approach to managing your debt in the context of your goals. For example, if you can borrow the $4,500 closing costs from a friend or relative, pay $100 less per month for a mortgage compared to rent, and gain a 3 bedroom home versus your 2 bedroom apartment, the $115,000 in mortgage debt you incur makes sense overall. Your goal is to have a house. Your friend requests payback of $2100 when your taxes are filed, and $200 per month for 12 months.
Your financial prospects describe additional income, credit limits, discounts, bonuses, and gifts that you may receive throughout the year. These inform your debt plan—the decision to incur time-limited debt to be paid of sooner rather than later. You usually plan to receive the prospected income and pay off the debt in less than one month’s time. For example, you may purchase gas and groceries on a credit card and pay the balance off at the end of each month. The credit card offers points for use at the grocery store. The grocery store purchases offer discounts on gas purchases.
Pitfalls: Assessment is Not Always Easy
Individualized assessment is important. Easy information is not always the best information. You may need professional help to gather, analyze, and plan utilizing the information. Information is always best understood in the context of self-assessment and financial assessment.
Unlearn: Financial and other development duties do not have to be activities that you perform alone. Keeping other people out of your business is not an absolute principle.
Relearn: Determine who is trustworthy, competent, and inspired to guide YOU individually and specifically. Professional coaches and advisers can provide resources, inform your perspective, and increase your chances of sustainable success.
1. Determine your financial profile, position, and prospects. Are you the generation that will need to borrow in order to finance the success of the next generation?
2. Get Competent and Inspired Help. A book won’t do it. You need individualized information, assessment, and support.
3. Work systematically. Be true to your plan and your assessment of generational position.
4. Provide clear instruction to the next generation. For many, this means training kids to know the lean sacrifices and the wise investments. For all, this means sharing your knowledge by example, and socially.