I suffer from contrarianism. The inclination to do and think the opposite of what society or those around me are doing. So, while the country is loading up on debt, I find ways to shed liability and operate with less and less financial obligation. It may also have to do with my age. I remember the decade of high interest rates. Though I was a young guy I have always been a little bit of a numbers geek, I saw the ultimate effect that one number or action had on life’s choices and freedoms for the future. The older I get the more I realize I have less and less opportunity to recover from big mistakes.
I understand the advantages of debt from a financial perspective (I do have an MBA in Financial Management). In business, there is an accelerated path of growth through debt when reasonable opportunities are available in some markets or industries. It is very popular and too easy to borrow/leverage for the possibility of higher market share or greater margins. From a business perspective it is often difficult to disprove the downside of financial debt. However, the advantages are only temporary as the debt will/should be paid down faster with the higher income. The goal of this “debt” is for it to be invested in such a way as to pay ITSELF down. What our society and country is experiencing is mostly consumption debt, not expansion debt. This collective consumer debt has no long term benefits, only temporary relief and long term stress/pressure.
I know I wrote about the government programs in the last couple months. I still hold to taking advantage of programs offered by the government to financially aid in this trying time. It’s no different than paying less taxes when our government lowers the rate. I’m certainly not going to send in more than they are asking for. However, debt is still debt even if its interest free. At some point it will have attached interest.
Dealing with debt is no different than driving a truck, our eyes must be focused far ahead, not ten feet from our front bumper. The interest on debt is the obstacle… the corner. Our eyes must follow the road long before our vehicle gets there. Debt is an obstacle, a barrier to future wealth and prosperity. Anyone who tries to convince you or those around them otherwise will eventually become road kill.
When the world loads up with debt, its probably a good idea to get out of it… behold my contrarianism. It’s not that I don’t have debt but if I do, I have committed myself to always be able to pay anything off within 24-36 months under current cash flow conditions minimum. From a business perspective that “policy” is ultra conservative, and I may be forgoing some opportunities by doing so. However, I now believe everyone should adopt this strategy. In fact, I wish I would have earlier in life. It would have saved ten years of re-cooping from a not so well executed opportunity. I’m too old to do that again… wait… not old… smart. Debt is like sugar to a diabetic, it must be managed, too much and it will kill you. Our country is pre-diabetic… and it can’t seem to stay away from the candy store.
This last month the estimated federal budget deficit was announced. It is without a doubt an astonishing figure. It places our National Debt at over a trillion dollars (over ten years of deficits packed into one). To place that into perspective its like earning $50,000 a year and having $200,000 in credit card debt. As long as the interest rate is near zero and the availability of borrowing is unlimited the effects may be negligible. But, unless your less than 25 or 30 years of age you know rates will eventually change. If it raises to 5% or 7% (which is reasonable some time in the future) our country will not be able to make its payments. Incidentally, what our national debt numbers do NOT include is the other jurisdictional debt that our country carries such as Provincial, City and municipal. The downward spiral will escalate fast. Different locations around the country will have different levels of debt held by it citizens. Not everyone will suffer at the same level. People will move to more tax friendly environments, adding the burden to those left behind.
Loading a country with collective debt, at the levels both Canada and US have chosen to display, has unavoidable long term consequences. At some time in the future the interest will be unsustainable. Though there are many means of countering this difficulty (such as printing more money) they also have limitations and consequences. The collective consequences of all jurisdictional choices will dramatically alter our future opportunities and financial security. We will not be able to count on: asset values, interest rates, stock market values (mutual funds), tax rates and even pension plans. Simple services such as policing, snow removal or road repair may drop drastically. There will be heavy burdens on our citizens and industries. If a concrete plan does not present itself to stave off the debt and interest, the consequences will be insurmountable for most. Our collective lifestyles will change dramatically, our assumptions of how to live and prepare for retirement forever altered.
All of this is our future unless we PERSONALLY prepare. Getting out of debt is the first and primary defense. Having an alternative income source is also a great. For most people this means immediate sacrifice and financially conservative behavior… and for our government…austerity. Fiscal restraint of government will eventually be forced upon them, if not by the electorate, than by some external force (friendly or hostile). Living well below our means before the crisis is the only way to survive long term. It will mean the difference between respectable retirement and humiliation.
Being a contrarian is certainly not popular and some times offensive to some, but it has its place. If your thinking about retirement, which most drivers are, debt free living must be in your sights of goals to achieve. As my readers know, I am a huge fan of Dave Ramsey and financial peace university. Check it out if you can. If you can’t find anything local, email me. I’ll see what I can find for you.