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Quote by: 5010  Is the philosophy of "acting your wage" universally good? Many of us begin our adult lives in a process of growth. It seems reasonable to me that taking debt to increase growth would improve our chances of attaining a higher income. But then later on, so many find ourselves regretting those previous choices to use debt.
The ease of credit and borrowing makes it possible to enjoy the lifestyle of others who are possibly doing the same. This can entice us into living beyond our means and becoming addicted to the higher level until the reality of pay-back slaps us in the face.
So it seems to me that using debt only for growth is just a nice theory that doesn't pan out in reality except for few individuals. But still, that indicates to me that "acting your wage" is not universally good, just commonly good.
Later in life, once we've established our skills and are commanding a good wage, is there any benefit to living beyond it? I don't think so. Maybe you know otherwise.
Personally, I've been implementing Dave Ramsey's "Total Money Makover" to fix the excesses of my past. This philosophy attacks debt by baby steps that focus more on psychology than mathematical perfection. You begin by stopping acrual of debt, then setting up an emergency fun by stopping all investing, selling all non-vital assets (garage sale/ebay usually), downsizing expensive vital assets (usually replacing expensive house/car with older but useful ones), and working an extra job if that's what it takes (usually delivering pizza). Then you set up a frugal budget (usually budgetting cash into envelopes labveled for specific needs, allowing a little "blow money" for your sanity) and organize debts from smallest balance to highest, then holding everything but the smallest at minimum to pay off the smallest as soon as possible. Once you are debt free (including the mortgage!), you then increase the emergency fund to several months, start investing in things like college (if you have kids) and retirement by at least 15% of income, and then you can go ahead and adopt a more expensive lifestyle as long as it fits within your budget without any debt.
What other systems/philosophies of finance do you know of and how would you compare them to this?
Discuss... ? |
I have two types of debt. Only one personal for a home mortgage because it is tax deductible. I pay off all credit cards at the end of the 30 day cycle. I encourage my kids to do the same to establish credit. People must have credit in the American society today unless how else could they afford big ticket items like homes, cars, and adult "toys". Even if I can afford to pay cash, I use a credit card and once again, pay in full at the end of the month. If I purchase a refrigerator, and I can take advantage of a 24 month no interest "loan", I do it, even if I could pay cash. This is because I get to bank my money and collect interest on it while paying off the interest free loan. Automobiles, boats, and other "adult toys" are financed with home equity loans that are once again, tax dedcutible. The danger to this is that they are collaterlized by your home but the interest is dedcutible. If you finance these things through a bank, the worst that can happen is you hand the keys to the car back to the bank, they don't forclose on your home. You must be absolutely sure of your income if you finance through home equity loans. I further encourage savings in money markets and CD's and other "safe" investements, as well as retirement plans. If you are self employed use the SEP. (Self employed pension)
I also encourage sensible business loans but in doing so recommend that one form a corporation to protect oneself personally. If your business goes belly up, Chapter 7, you can walk away and protect your personal assets. I think it best to lease as much of ones assets as one can in certain circumstances because you can write off the monthly charges whereas anything over $100 in cost must be depreciated if you own it.
In business, it is best to seek the counsel of finance and tax experts.