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...
Debt: Self-Imposed Slavery

Debt: Self-Imposed Slavery

Perhaps the most severe cost of going into debt is the resulting loss of freedom. It truly is a form of self-imposed slavery. Too few of us enjoy the level of freedom our founding fathe24rs intended for us. We may not be oppressed by political dictators, but we often voluntarily submit ourselves to dictatorial creditors. Many of us lock ourselves into huge long-term commitments without knowing whether our future circumstances will allow us to honor these obligations. We may barely be able to qualify for the payments on a large new home, but we want it so badly that we buy it anyway, in hopes that the payment will feel more affordable as our income goes up. Then the unthinkable happens: our income actually goes down, or stops completely, and we lose everything. Consider the following observation by J. Reuben Clark, Jr: “Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; …it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”[i] Maybe part of the reason so many people readily incur excessive amounts of debt is that the penalty today for failing to meet...
The Best Gifts

The Best Gifts

Giving gifts during the holidays is a wonderful tradition that can help unite families and friends. When we give in the right spirit, we remember that giving can be even more joyous than receiving. With all this love and generosity in the air, why do we often feel so much stress and financial strain this time of year? Could it be that we focus a little too much on trying to fulfill everyone’s expectations – or at least our perception of their expectations – rather than truly giving from our hearts? Of course, we all want to find the perfect gifts for our loved ones because we want to maximize their happiness and minimize their disappointment. It’s nice to have some idea of what people would like, but where’s the fun in simply picking from a list of never-ending “pre-ordered” items, especially when you know there’s no way you could buy even half of what’s on the list and still call yourself a prudent parent or grandparent! Be a Detective Giving meaningful gifts doesn’t have to cost a fortune, and can be a lot more fun if you think of yourself more as a detective than an order taker. If we pay enough attention over time, we can easily discover on our own what would be the perfect gifts for our loved ones without even asking them. Then they will be a lot more surprised (and hopefully more delighted) at what they get, and we might even get away with not spending so much money on junk they don’t need, and probably won’t even want after the holidays. Just...