From a very young age I remember being told that debt was a bad thing. What I didn't observe back then and have observed now in hindsight is that all the people who told me debt was bad, had debt. And almost all of them still do! If debt is bad, why do we all have it? It wouldn't be that hard to just not participate. I know that drugs are bad and so I simply just don't use drugs. It seems like a very binary thing to me. So, is debt bad, or isn't it?
Two years ago, I would have told you that all debt was bad, there was no such thing as "good debt", and I would have even gone as far as to say, "God says don't get in debt" or "It goes against the Bible to have debt". (The Bible says no such thing and anyone who says that is reading from the book of Dave Ramsey and other media personalities who market their products and services via religious based financial postulates) 100+ years ago, debt was bad. The reason debt was bad back then is that money had value and was to be collected. If someone had a mortgage on their home, they were treated by their friends and family like they had a terminal illness. Because money had value it made sense not to commit to a long term, interest bearing obligation like debt.
So, what changed? Two words: currency devaluation. Because we left the gold backed currency, began artificially creating money, lowering interest rates, and building economies and wealth classes via government stimulation our currency now goes down in value. We call in inflation. Inflation does not refer to the inflation of prices of goods because they are more valuable or cost more. No, that was the false definition we were taught growing up. Inflation is the inflation of currency supply, which cheapens the value of our dollar, thus requiring more dollars to buy the same goods and services because of lessened buying power. The "reported" rate of devaluation of our currency is 3.15% per year over the last 100 years or so. The calculated actual rate of inflation has been calculated up to a devaluation rate of 12% per year. So, we can imagine that the rate of inflation lies somewhere between 3% and 12% per year.
Because my dollar goes down 3-12% in value annually, my dollar is a liability. I lose money by having dollars. Crazy right? So, let's picture ourselves floating in river with a very swift current that ranges 3-12 mph (or knots however you want to measure). We can agree that if I can't swim faster than the current, I am going to be swept away and experience a bad river ride, right? This is the same case with our money. So, when we make a dumb purchase with debt- buying a house, buying a car, buying furniture, etc.- financially why would we take our money (a devalued liability) to pay off the dumb thing we bought (also a devalued liability)? We already made the mistake of buying it. Don't make the mistake of putting more money into it. People who live with the "pay it off" mindset never out earn the currency devaluation rate. They are always chasing their own tale trying to earn more of the devalued currency so they can pay off the devalued item that they never end up owning assets.
Debt should only be used for creating income. Period. This is financial truth. If I can buy a 16-plex income property in 2017 and pay the mortgage company $4500/mo. in 2017 dollars on a 30-year note, by the time the note is paid off, my final payment of $4500 is only worth $1,751.22. I was able to lock in the buying power of a 2017 dollar for the next 30 years! Who won, me or the bank? "But what about all the interest you paid?" I am totally fine paying interest to secure an asset that will always cash flow, increase in value no matter what, and guard me against inflation at the bank's expense.
If a thing is not going to create income, is debt a good idea? No! Homes do not create income. Vehicles do not create income. College does not create income. Furniture does not create income. Recreational vehicles (snow machines, boats, 4-wheelers, etc.) do not create income. Obtaining debt on an item like this is either due to financial mis-education/un-education OR simple financial irresponsibility. Things should be rented and not owned. Other than my own pride and selfishness, why do I need to own any of these things? I can use them and reap all their benefits without owning them. The money I'd have to put in to owning these items and/or paying them off could be invested instead and allow me to create financial independence for myself, my family, my church, and my community.
"Rent what you are 'supposed' to own and own things you can rent to others." -Grant Cardone
Our economy doesn't work the same way it once did. We can't win the game of wealth building by playing with outdated rules. We can stick to our traditions and cultural programming all we want to but ultimately if we play by any rules other than what our currency and economy plays by we will lose before the game even starts.
If you're ready to play by the new rules and learn how you can win in this new economy, then click here to speak with a Wealth Coach. My team of Wealth Coaches are experts in how to create real wealth and passive income in affluent enough amounts for you to become truly financially free.
Be Free!
Jerry Fetta
Jerry Fetta is an Entrepreneur and Owner of A.G. Capital Group, the nation's first and foremost Real Estate based Wealth Coaching firm. We help our client's build a Life by Design.
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Well described
Gee! I guess I'm qualified to be a financial planner and life coach. These are (sort of) the principals I've been following all my life! I have a slightly different take on all of this, but the basics are more or less the same.
I'm now past that growth stage and am debt free and free of rental properties (they can be a real pain) and enjoying the fruits of my labours.
I got in at the right time, got out at the right time and feel very fortunate. God is looking after me.