Monday, July 23, 2018
Are We Addicted to Debt?
Debt is a big business. The average Canadian household has over 20K in consumer debt. That doesn’t include mortgages, where the number owed by Canadians is over 2.1 Trillion dollars. Kind of scary isn’t it. The question, “Are we addicted to debt,” is kind of redundant. We obviously are addicted to debt. I very seldom meet a young couple, or old couple for that matter, who doesn’t have some form of debt. I always smile and congratulate them when I find out. The question shouldn’t be, “Are we addicted to debt,” but “Why are we addicted to debt?” I want to explore that question a little bit and provide some solutions to our debt woes. I have said before that you must be debt free to achieve financial freedom, let’s explore my claim.
Everyone is doing it
Why are we so addicted to debt? It is because we are addicted to debt. Confusing right? When something is done so nonchalantly for so long it becomes commonplace. When it becomes commonplace it becomes acceptable for the non-indebted to become indebted. Then there is just one more person who thinks it is alright. I know all about this, I was there. You want the pair of sneakers, you don’t have the money, just charge it. Why wouldn’t you right? Almost everyone has a credit card, almost everyone has a mortgage who owns a home and almost everyone who graduates university does so with crippling student debt. It has become so normal that we have learned to live with it, like wartime rationing. That is a scary thought.
Our concept of money is faulty
For some reason, the concept of money has changed over time. Now I am not speaking of what money is worth or what we use it for. I am talking about the supply of money and how much we have available to us. If you go back 50 years the memories of the Great Depression and World War 2 were still fresh. During those times, scarcity reigned supreme. There was a serious worry that what you had could be gone as everything was being used for the greater good. Over time we have lost that mentality, which is a good thing, and replaced it with the notion that the supply of money is endless, which is a bad thing. There will always be another payday, another annual bonus, another opportunity to refinance. There will always be another until there isn’t. While it is good to believe you can always do and achieve more, not when it leads to the accumulation of debt. For most people, money is not infinite, it is a finite resource.
The advertisers got to us
Well maybe they have always gotten to us, but now it is a little extreme. I would like to think I cannot be swayed by advertising, but it’s hard to say. I have never bought anything after seeing a commercial for it, but I do buy things. Maybe by the time I buy something, it has already been planted into my subconscious. Why do I think the advertisers have gotten to us? We have gotten to a point where we are willing to sacrifice our hard work and most importantly, our time, for stuff. Useless stuff for the most part. Would you finance your hydro bill? Probably not because you pay your bills. Why then would you finance a television? Most people would admit that clean running water is a necessity and television is not. If television didn’t exist tomorrow, we would all still be alive. So why would we think at all that financing a non-necessity is ever a good idea? In the past, I have put groceries on my credit card when I was broke. It had to be done. So why would anyone finance something that they do not need to survive? That leads me to my next point….
The system is rigged
Companies are so very happy to give out credit cards or financing to literally anyone. HBC, Canadian Tire, Wal-Mart, Best Buy, The Brick, Tepperman’s, Home Depot, the list goes on and on. Don’t have any money? No problem, we will give you whatever you want. Credit is so readily available, and we are readily willing to take it. So why are we willing to pay $8,000 for something that costs only $5,000? The answer is simple: We deserve it. We deserve to have what we want when we want. What do we want? Everything, all at once. The nice house, the nice car, the gorgeous furniture, the stylish wardrobe, and the fancy night out. Why do we want all these things all at once? It’s simple: We have been told we deserve this type of life because we work hard. While that may be true, it is the timing that is off. I believe if you work hard you deserve a better life, but not all at once. Advertisers will have you believe you should have it now, not now, but right now. That is how the system is rigged. We have been made to believe we should have it all now, whether or not we have the money for it.
Where this whole pile of nonsense has led us is quite interesting. I don’t look at debt as a number, I look at it as lost opportunities. Every dollar we have servicing debt is less money we have to do other things. These things include enjoying our lives, planning for our children’s future and saving for our own retirement. Is it no wonder that more and more people are entering retirement without a penny saved? Is it no wonder that more and more people are reliant on government assistance when they are elderly? I apologize because this part might get a little deep but bear with me. Look at the chain reaction of debt:
- We work very hard and have a large portion of our money disappear with taxes
- We buy things we cannot afford, hurting our cash flow, all items that are taxed
- We don’t have enough free cash flow to get more things, so we finance them
- We hurt our cash flow even further by servicing the interest on our debt for our stuff
- The government gets their part, the banks get theirs, we are left with pennies
- We reach the age of retirement without enough money saved to live a comfortable life
- For the rest of our lives, we are reliant on government money to get through retirement
Every dollar we make is not a dollar. We only really walk home with about 1/3 of our money once taxes are implemented. What’s worse is that we further hurt ourselves by adding interest payments on top of our burden’s every month. It’s why your minimum payments aren’t even making a dent in that debt. Now we can’t avoid taxes, but we can avoid debt. There are a few simple facts people need to understand before I wrap this post up:
Taxes will never be lower, because why would they be? Which politician would lower them, therefore reducing the amount of money he/she can waste? Will they take a pay cut in order to lower them? Not a chance.
The bank is not your friend, because why would they be? The bank is a business and we need to stop looking at them as a friend who gives us money. They don’t give you anything, they take your money, lend it back to you with interest, and then charge you a fee for the privilege of the whole transaction. Nice little scam right?
We don’t deserve anything. We only deserve what we earn and that is what we can pay for. I am of the belief that we only deserve the basic necessities of life, beyond that we earn the rest. Never get caught thinking, “I deserve this.” Say instead, “I’ve earned this.” There is a big difference.
How to cut the addiction
It doesn’t have to be this way. I meet many people who vow off debt. I meet many who don’t have a credit card or line of credit or even a mortgage. I have met several more who have paid off homes and get to keep every dollar they make. It is possible, but it is not easy. Debt is easy, saving is not. Here is my simple strategy to coming out a winning in this rigged game:
- Spend less money than you make
I know it sounds simple, but it is lost on many. I don’t care if you make $500 a month, spend only $450 of it. There should always be more money than there is month. It must be that way.
- Avoid debt like the plague
It is far too easy to get into debt. In fact, you must make a conscious effort to not get into debt. Make that effort. Do not finance stuff, especially useless stuff. Never get a store brand credit card. Never carry a credit card balance. Be conscious of how you spend your money. Never feel like you deserve anything.
- Save, save, save
The funny thing about debt is that it perpetuates itself. The funny thing about savings is that it does too. Debt begets debt, savings begets savings. Find a way to save money every month and avoiding debt will be easy. Having your savings grow will be easy too. Remember that debt and savings are similar in one sense, their best friend is time. Over time your debt grows and over time your savings grow. Which one sounds better to you?
I recently went into the bank and made a deposit. The lady behind the counter asked me if I would like Over-Draft protection. I was kind of puzzled. I politely asked the teller, “Do you see my balance? Have I ever dropped below that level in the past 5 years?” She didn’t know what to say. Debt is like candy, they hand it out like that. Would you hop into a van driven by a guy in a trench coat offering you candy? The bank is the van and the credit cards are the candy. You don’t “deserve” that. Financial freedom is what we all “deserve.” It is also something we all must earn.
“There is scarcely anything that drags a person down like debt.” – P. T. Barnum
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