Many people out there are lacking when it comes to money. (Not lacking in having it necessarily but in understanding it). It is not their fault. Who teaches us about money? NO ONE! (Unless your parents took it upon themselves to teach you. That is, if they were interested in the amount of interest you could one day accumulate.) We learn by trial and error, and every generation faces its own unique set of financial lessons.
You will hear many aphorisms about money:
It cannot buy happiness, love, peace of mind, etc.
A cynic might agree with Joel Grey and Liza Minnelli from "Cabaret".
Here are two basic money thoughts:
- Most debt is bad.
- Saving is good.
Pretty simple, don’t you think?
Then why are there so many people in debt? I do not mean in debt by $5,000 on a credit card, $20,000 on a car, or $550,000 on a house. I mean major, big-time debt. Look, for example, at student loan debt. I know college is a good thing but why go $100,000 in debt to land a $75,000 a year job? Oh, sure, they knew they were going to be in debt but hey, you get 200 years to pay it back. How bad can it be?
If you borrow $50,000 at 4% per year over 30 years, you will pay $35,934.75 in interest payments! That is almost 72% in interest. I know there are disclosures, etc. but when you are staring at two choices—work or school—it can be easy to opt for the less strenuous course, while convincing oneself that you will be better in the end. The debt will not be due, until later.
There are folks with credit card balances paying 19% interest. At least now, the statement tells you it will be 27 years of payments if you just pay the minimum. In that moment, you’re interested in paying the least amount possible. It does not seem to register how long or how much that is.
OK, I know many of you will argue about the debt thing. “How can anyone go through life without debt?” you ask. Agreed. Well, not that many years ago people did it all the time. Credit cards, 30-year mortgages, 96-month (does not sound as bad as 8-year) auto loans, and other forms of debt were not widely available.
Back then, people actually saved their money until they could afford to buy what they wanted.
“Hey Madge. Where is the sewing money jar? I need new tires for the pick-up.”
“If they ain’t flat, it ain’t time to buy new tires.”
Today we have many voices in our ears exhorting us to buy this to be beautiful, buy that to look successful, just one more drug, I mean supplement, to be healthy. Incessant television commercials and constant access to the world via digital devices in recent years have changed the way people think about and use money.
Is all debt bad? Some debt is less bad than other debt. Debt is less bad when it is used for leverage. Obtaining a mortgage is actually leveraging a down payment to acquire the use of a house or condominium. Notice I say “acquire the use of” rather than owning. Many people in 2008 and 2009 found out the difference between the two concepts.
How much do you think houses would cost if there were no 30-year mortgages, or if a 50% down payment was required? Less?
(Is it possible that the inflation we have seen in the last 50 years is due in large part to easy access to credit? One reason house prices went down in 2008 was because banks stopped lending.)
This is not a diatribe against debt. It is a call to educate yourself about the cost of debt. I want you to make informed decisions.
Here are the Beatles live. For those of you who were not around for the phenomenon, it is hard to believe the hysteria was real and not Memorex.
“Money” (That’s What I Want) THE BEATLES!
If money is what you want, and if you—like Sally Bowles—would rather hear the “clinking, clanking sound of money” than hunger tapping at your door, give me a call and let’s make sure you have enough “coal in your stove.” Winter is on its way.
Adron Krekeler
703-740-4671