Recently I saw someone post on Facebook that their kids were taking a Personal Finance class in high school....and that the teacher emphasized "building their credit score" as a cornerstone of good personal finance.
It got me thinking....how much wayward information is being passed around under the guise of smart personal finance? Are we being "scared" into taking on debt for fear of being looked at foolish and not financially savvy? Are we being peer pressured into playing the bank's game?
Here's 10 Myths About Debt...and another way of looking at things. Yes, you'll be "weird"....but in many cases....weird = debt free.
1. DEBT IS GOOD.
This is the biggest one. You'll hear people talking about "good" debt vs. "bad" debt. How having a mortgage is "good debt" because you get to deduct the interest every year.
Sure, that's true. But let's just pretend for one moment that you paid OFF your house (I know, weird right?). What could you do with that monthly payment? Think about it......
2. YOU CAN'T DO ANYTHING WITHOUT A CREDIT SCORE.
Ok, we've talked about this before....and it's STILL a prevalent argument on most of the personal finance groups: I keep my credit card because you can't do ANYTHING without a credit score.
You can't rent. You can't have insurance. You can't buy stuff.
Here's the lowdown: The only reason to have a high credit score is to take on more debt. You CAN rent without a credit score. You CAN get insurance. Might it take a bit more digging to find someone willing to actually LOOK at your financial fitness instead of just glancing quickly at some arbitrary debt number? Sure!
Is manual underwriting for a house do-able? Absolutely.
We've been conditioned to believe that we HAVE to take on debt in order to get anywhere in life and this is how the majority of us get into the debt-laden pickles we find ourselves in.
3. EVERYONE HAS A CAR PAYMENT.
False. Everyone does NOT have a car payment. This is where a restructure in thinking comes in. And believe me, I KNOW how hard this is. I love new cars. I really, really do. But, if you're walking around making $40,000 a year and driving a $30,000 car, that's a problem.
Cars sharply decrease in value. Doesn't matter WHAT kind of car you're driving around, if you're driving it....the value is tanking. They are not an investment in any way, shape or form. They are a tool. A tool to get from point A to point B. They are also money sucking vultures.
So, check your vanity at the door and as you're paying off debt....drive a hoopty. Trust me, most people won't even notice.
As far as paying OFF your car, debt repayment guru's say that if you can get the thing paid off within 18 months, you can keep it. If you can't.....it's sayonara Civic.
4. STORE CREDIT CARDS AND BUSINESS CREDIT CARDS ARE OK BECAUSE POINTS AND COUPONS.
No. Just no. We've been over this one too. People who use credit cards thinking they're "gaming" the system by racking up points simply SPEND more. It's proven. I don't care if you think you pay it off every month...you're one job loss away from that whole plan going straight out the window.
If you think spending $1000 to get $20 makes good financial sense....whoa nellie. I have a bridge I'd like to sell ya.
Points and coupons are never going to make you wealthy.
5. IF I CAN PAY THE MINIMUM, I CAN AFFORD IT.
Know what you get when you do the minimum amount on anything? Minimum results. Most people purchase things this way though: Can I swing the monthly payment? Cool, then I can afford the item!
I recently saw on Facebook where a young couple FINANCED A DOG. A DOG. $3000. FOR. A. DOG.
I'm guessing the pet store reeled them in with a "But it's only $25 a month!" spiel. Makes it sounds more than reasonable, doesn't it?
But it's not. That couple couldn't afford that dog, because they didn't have $3000. Again, this requires a restructure in thinking.
The more you tie up your income with "monthly payments", the less power it has.....and the thinner you are stretched every month. Until one day you look up and you have 15 revolving payment accounts on various items....some of which you may not even own anymore.
Sadly, the young couple's dog passed away shortly after they bought it. People on Facebook were aghast at the pet store selling super-expensive, sickly dogs (awful, yes). I was also aghast that they got taken for $3000 because "the payments were affordable".
6. I WILL NEVER NOT HAVE A STUDENT LOAN PAYMENT
Now, the whole "you have to have student loans" is a topic for another blog post, but let's just say you started off like I did thinking that. You took out a butt-load of loans and now you're sitting here at 36 looking at enough loans to buy yourself a Tesla. (And not one of those new everyman Teslas....I'm talking the nice, elite Teslas).
It can seem very disheartening. Believe me.
Once I graduated I was staring down the barrel of over $60,000 in student debt. I set up my payment plan and I resigned myself to the fact that I will ALWAYS have this payment. I'll take Sallie Mae to my grave.
This was "hope deferred"....which I referred to in my post the other day. I didn't have any reason to believe those loans could ever be paid off. Which is malarky.
What is needed in these cases is intensity. Anger at the debt. Get it out of your life any way you can. Work extra jobs, sell stuff, throw everything but the kitchen sink at Sallie Mae until she buggers off for good.
You CAN pay off your student loans. It can be done.
Mine are sitting at roughly $30,000 right now.....so over the years, since 2009, I've busted through half. Still seems daunting sometimes when I look at it.....but soon Sallie Mae will be dead and rotting. Good riddance.
7. ONLY THE RICH CAN BECOME DEBT FREE
You'll see this one a lot in the comment section of Dave Ramsey's You Tube when he shows Debt Free Screams.
"Yeah, that's all well and good, but that couple makes $100,000 a year! Of course they paid off their debt!"
Nevermind that the couple had $150,000 in debt that they slayed.
This is one of those "rich people are evil and I can't succeed" lines of thinking that is just bunk.
First of all, if you take any time to watch the bundle of Debt Free Screams on You Tube, you'll notice that the debt to income ratio runs the gamut.
Even if you're making $30,000 a year, you can be financially free. May it take a little longer? Probably? Will you have to sacrifice deeply? Probably. That's life. But it's not a given that only the rich can live debt free.
Quit complaining and get to work!
8. I'M TOO OLD TO SAVE FOR RETIREMENT
Ok, so if you're 80 years old and reading this (What's up!) .....then, well...yeah, the retirement savings ship may have started pulling away from the dock. This doesn't mean you can't sock away some stuff for your kids and grandkids if you feel so inclined.
HOWEVER, if you're in your 30's and have yet to invest a penny....dude, get on it. Seriously, you have about 35-40 more years of working to squirrel away that nest egg. All is not lost!
9. THE GOVERNMENT WILL SAVE ME.
No. No it won't.
Sorry guys, but the government is not going to make you financially fit. They're not going to swoop in and take the burden of your student loans away from you (despite what you may have read on a Facebook forwarded post) or make sure that you go from making $15,000 a year to $50,000 a year. The likelihood of the government doing anything that is going to vastly improve your financial foothold is slim to none.
So, you better get going on working on saving yourself. That way when the government DOES step in and do something monumentally stupid.....it won't affect your finances NEAR as much because you will have shored up your walls by being savvy, smart, and not taking on unnecessary payments.
YOU are more powerful than the politicians. Imagine that.
10. YOU ARE DOOMED.
You are NOT doomed. You may be down. You may have gotten beaten up pretty good. Your emotional reserves may be drained. But, you're still here. You're still sucking air. This means, you still have a choice. Let it beat you.....or get mad.
If it's all seeming ridiculously overwhelming....take each piece on its own. First debt.....first $1000 saved......First "no" to a money-spending opportunity. Take the first step....and then the next. Pretty soon, it'll be your lifestyle....and pretty soon you'll see the positive results.