What Kind of Debt Is Acceptable?

What Kind of Debt Is Acceptable?

Acceptable Forms of Personal Debt Although I have been harsh on debt and believe we should pay cash for as many things as possible, I acknowledge that some forms of debt may be the best way to meet some of our most critical spending needs. When used wisely and sparingly, it can provide tremendous opportunities for economic improvement that may never be available otherwise. In my opinion, the most responsible use of personal debt would be limited to reasonable amounts for education, a modest home, and basic transportation. It may also be prudent for businesses to incur certain forms of debt at sensible levels for expansion that would be impossible otherwise, but we will limit our discussion here to personal debt. Why am I okay with debt for these purposes? Since higher education often dramatically improves potential earning power, and since our ability to earn an income is typically our greatest asset throughout most of our life, student loans may produce a higher long-term return than any other investment we could make. If a student’s parents or grandparents cannot afford to pay higher education costs for her, she may never be able to save up enough money on her own to pay for the schooling required to increase her earning power so substantially. In this case, student loans can be a very valuable tool. Still, we must be careful not to spend more on education than we can reasonably expect to be able to pay back based on the earning potential of employment opportunities related to our field of study. We can minimize the use of student loans by...
Creating a Spending Plan

Creating a Spending Plan

Whether they make a lot of money or squeak by on a meager salary, most people shiver when they hear the word “budget.” Since the “B word” typically evokes such negative emotions, I prefer to call it a Spending Plan. I enjoy thinking about how I am going to spend my money much more than I enjoy contemplating how to restrict myself by living within a budget. After all, money is ultimately meant to be spent, right? Creating a spending plan is a beautiful thing because it is the only way to ensure that our money will go to the things we want most, not just to the things we want now. This is a critical distinction, because the two are often mutually exclusive. We can never have enough money to buy everything we want. Therefore, we should think of our spending plan as a friend who helps us get what we want most, not as an enemy to all happiness. If we have already allocated the proper amounts to taxes, tithing, insurance, and savings, then we are most of the way there. In fact, we do not even have to keep track of where the rest of it goes if we do not want to. The most important thing is to distinguish between fixed, totally necessary expenses (such as mortgage payments and utilities) and discretionary expenses (such as eating out and taking vacations). We must be sure we have enough to cover the fixed expenses first, and then we can spend whatever is left on the extras. In our family, as we have learned to discipline ourselves we...