Avoiding debt at all costs
If you want to achieve financial freedom then you need to avoid debt at all costs.
Debt means that you owe something else to someone. And when I talk about debt here, I mean money.
Owing money means you owe resources to someone or something else. That something else is usually a bank.
It’s in your best interest to avoid debt at all costs. As a man trying to get ahead, you can’t slow yourself down with the burden that debt will bring you.
Why people get into debt
People get into debt because they think they need to buy something they can’t afford.
Most common are societal pressures to buy a house or even go to college. These aren’t bad things on their own necessarily.
However, that’s if you can afford them.
If you need to take out a loan to go to school or buy a house that means you can’t afford it.
Most people fall into the debt trap because they want to fit in with everyone else. Doing what everyone else is doing means you’ll be spending a good chunk of your life trying to pay back the bank.
Spending less money so you avoid the debt trap will save you from a ton of misery.
Most common types of debt
Debt comes in many shapes and sizes. The most common are
- Student loans
- Credit card
Each of them are bad for the simple fact that you money and will be paying back more than you owe through interest. However, each also has it’s own unique pitfalls.
The mortgage. This is the biggest type of debt for most people. Usually people in their early 30’s will start to feel the pressure to get a house or condo.
It relationships with men and women it often comes from a girlfriend or wife who wants to settle down and get a home.
However, I also know some single people that take on mortgages as well. It’s not a smart move their way, but at least on your own you’re likely to take on an easier payment.
Mortgages usually involves putting 20% down and paying the rest off in 15 to 30 years. In the US, first time homeowners can often put even less down like 5%. The incentive is suppose to make it easier to buy a home. But in reality, you’re going to be spending more on interest.
Either way, you can’t actually afford what you’re trying to buy.
If a house is half a million dollars, aka $500,000.00, and you put 20% down, that’s $100,000.00. If you even have 100k, spending it as a down payment isn’t a smart move.
You could save half of that and spend the other 50k growing your business.
Then in 5 or 10 years from now you can buy that house in cash if you really wanted to.
No ROI on most single family houses
There’s basically no to little profit on most houses or properties when you consider inflation. If you’re already rich and you’re buying multi-unit rental properties in cash and making passive income, this is a different story.
But with the average single family home, the return on investment is minimal. Inflation will kill most of your gains. If that 500,000.00 is worth 1 million in 30 years, it seems like you’re doubling your money.
Technically, you’d be right.
In reality, though, you wouldn’t be making much money. Because the 1 million dollars in thirty years, will be worth the same or less than the $500,000 is right now.
When there is ROI, it takes too long
Real estate is a great way for rich people to try and get a little richer.
I’m assuming you’re not a rich man yet. Maybe you’re broke, or maybe you’re doing well for yourself. If you’re not rich and can’t afford to purchase property in cash, then any returns you do see will take too long.
Let’s say you pay off your debt for the home in 30 years. And let’s say you’re in a hot area and the prices rose at a higher rate than inflation.
Well, if you bought the house when you were 30, now you’re 60. You don’t see the return on your investment until it’s late in the game.
And that’s assuming you were able to make every payment, didn’t get married and therefore divorced and the house taken, and you were in fact in an area that got hot.
That’s also assuming there’s not another housing crash.
If you’re lucky enough to actually make money, the ROI takes too long, and in the end it won’t make you wealthy.
Going into debt to have property simply doesn’t make any sense. And unfortunately, one of the biggest myths that’s always pushed is that renting is a waste.
Renting is like anything else.
You’re paying for a service you find valuable. Which is having a roof over your head.
Owning property is fine… if you actually own it of course. If you need to go into debt to get a house then you don’t own it. The bank owns it and will be quick to take it and flip it when you can’t make your payments.
Student loans are common for those in their 20’s, but even still affect many into their 30’s.
Usually student loans aren’t the same level of debt as a mortgage. They can still be anywhere from 20k to 100k for bachelor (4 year) degrees though and can hold a lot of people back.
This a shit ton of debt for graduating college students who haven’t built any wealth or savings yet.
Doctor and lawyer debt
Advanced degrees in medical or law school can easily add up to 100-300k of student debt. In those fields you hopefully will get a job as a doctor or lawyer when you graduate and can make very good money… down the line that is.
It will still take a long time to pay back those loans.
Doctors will be just getting by with residency and lawyers will take a number of years to make partner at most law firms.
Not the best choice unless that’s absolutely what you want to do in life.
No student debt is ideal
Personally, I went to a 4 year school and got out with a bachelors.
Was it worth it financially? No, I can do what I did without a degree.
But, my parents paid for it. They wanted me to go and they were willing to pay. And at the time I thought it was the right thing to do. Or at least I didn’t mind. I thought that was the normal script.
But it definitely wasn’t needed when looking at my career choice of going into sales and then starting my own business.
My degree didn’t help me in sales and it didn’t help me start my business. I had a great time in college and made good connections, but that’s essentially what my parents put their money towards.
I was very lucky in that regard.
If you don’t have parents who can front the bill, it’s not worth to take on the debt. Especially if you have the DNA of an entrepreneur.
No degree needed
You don’t need a degree to start a business. You can learn skills from reading things online, watching videos, or even taking courses online at a fraction of the cost of the typical college tuition.
Are there any benefits to degrees?
Even if you don’t use it, many jobs require you have one. It helps on even the ones that don’t require it.
And if you want to be en employee for life than getting a degree is your best bet.
But if you’re my website you’re most likely an entrepreneur or have dreams of being one. The student debt that’s needed for most people to get through college will make it harder to start your own business.
You want to have as a little debt as possible holding you back. This will give you more wiggle room for your business.
There’s no degree needed to become a producer and provide value to people.
Should you go to college?
If you have parents who are willing to pay and are pushing you to go to college then you can consider it. Even if your parents are willing to pay, are they rich? If not, I wouldn’t push them through the struggle of paying with the knowledge I know now
I’d still think twice and make sure it’s worth it to you. And if you have to take on debt, avoid it all together.
Even if there’s pressure from friends or family, no amount of fitting in with society will make up for the debt you’ll be in.
If you’re in credit card debt then you have some serious problems. Having a credit card can be good to build credit in case of an emergency and get free flights.
Nevertheless, you need to have self control. You never spend more than you have.
You need to pay back your credit card every single month in full. Going to debt on your credit card means you’re simply buying shit you can’t afford and you have no will power.
In this case, get rid of your credit card and stick to a debit card.
Buying things with money you don’t have can be a very slippery slope. Just don’t do it. If you’re in credit card debt right now, pay if off and then get rid of your credit card until you get better control over your spending habits.
I trust most of you on this site don’t have this problem.
That being said, if you are, then this debt needs to be eliminated asap.
Treat your credit card like a debit card. As an individual, you simply can afford to go into debt buying shit you don’t have the money for.
The last major thing people go into debt for is cars. In fact a lot of people forget that a car payment is in fact a type of debt.
If you put a down payment for it and then have a monthly payment with interest then you’re in debt.
I’ve always bought the cars I’ve had in cash. I always wondered when other guys my age had corvette’s and porche’s.
I remember asking one of my buddies how you bought his $90,000.00 used porsche. He then told me how the payment was a bitch but how sick of a car he had.
Then I realized how many people buy cars like they buy houses.
Which is on debt and over the next few years. At least with cars it’s over 5 years or so, but still, you’re losing money.
The exceptions to getting property, going to college, and paying for a car is when you can do it with cash.
That means you own it, or basically. You still have to pay insurance on the house, the car, and have other fees for college.
But if you can afford to pay for those things in full then you can afford it. What you can’t afford is soul crushing interest.
If you can practice self control and pay back your credit card in full every month then you’re also good to go.
I’m not here to say property is evil, cars or evil, or college is always the bad move. It’s just the debt part that’s bad.
The one exception I’ll make is with a car. You might not have a ton of money but need a car for the city you live in, or lack of a city.
In your case, you can get a car. But you’ll want a fuel efficient, reliable, used car. This way your debt will be minimal and your car payment won’t kill you.
I lied. The second exception is if there’s a medical emergency for yourself or someone you’re responsible for.
While I never think going into debt is a good idea, it’s better than physical death. If you have good credit and need to borrow money for unforeseen medical bills than having that option is always better than the alternative.
Debt will slow you down
Debt will keep you from doing the things you love. Rich people buy things in cash not just because they can, but because they know it’s a better deal. And if they take a loan of any kind and don’t need to, it’s to avoid heavy taxes and save money in the end.
You’re not rich, so don’t take on debt. When it comes to your personal debt, there’s no good debt. Avoid it at all costs, be minimalistic, stack the cash.
Create your purpose, build your business + your wealth, and then buy the nice shit when you can finally afford it and you’re not a slave to it.
If you’re interested in getting ahead financially, check out my other post on how to build wealth in your 20’s.