EMAIL #27 - 15TH, APRIL, 2019 - YOUR ATTITUDE TO MONEY
Hi Team,
Today I want to discuss something that greatly affects how you live your life and it has a lot to do with
"your attitude to money." (Loans and credit cards)
"If you want to know the true value of money, go and try to borrow some", Benjamin Franklin.
To have a positive attitude to money you must be able to manage your money and you must avoid money managing you. Your attitude to money and your attitude to borrowing money are one in the same and borrowing money is a necessary and vital part of how well you managing your money. At a very basic level, there is good debt and bad debt. Good debt at the =
right time and for the right reason can greatly accelerate your financial progress but bad debt at the wrong time can send you down a slippery slope that it is extremely hard to climb back up from.
The golden rule of borrowing money is "You should only borrow money to buy things that increase in value."
But in today's consumer society this is easier said than done! "Borrowing money is often a temporary solution for a permanent problem", C.A. Ciby.
Examples of good debt are, a mortgage to buy a house, HECS debt 3D government loan for tertiary education, a business loan to start or grow a business or an investment loan to purchase an investment property. Examples of bad debt are, personal loans to buy furniture or go on a holiday, car loans, six month interest free loans from retailers, short-term on line credit such as "nimble or ozmoney" and of course credit cards.
The bad debt that almost everyone gets affected by at present is credit card debt. This form of debt is now firmly embedded in our culture and society and because the banks make billions of dollars each year from credit cards this is not about to change any time soon. Credit cards are easy to obtain from an early age and like a shiny new phone, every teenager wants one. They offer enticing incentives and bonuses to spend money and are very good at separating you from the reality of the debt that is accumulating behind the scene
"Getting a credit card is like buying a dog. Once you get it home it's rare that you are going to give it up. It can bite you and urinate all over your carpet and you'll still keep it", Scott Pape.
Credit cards are engineered to work as "compound interest in reverse". The debt is designed to grow bigger and bigger over time even if you stop spending. In chapter 3 of the Barefoot Investor, Scot Pape has an excellent commentary on the insidious problem of credit card debt and he cites the following example; "If you only pay the minimum monthly payment on a $4400.00 credit card debt, it will take you 31 years to completely pay it off and $12924.00 in interest."
The good news is that credit cards, if used correctly, are not all bad and can have significant lifestyle advantages. I have used numerous credit cards for over 30 years and I have paid next to no interest and my family has gone on several cheap holidays thanks to frequent flyer points from these credit cards. The only way to stay on top of credit card debt is to pay off 100% of the card debt every single month (WITHOUT EXCEPTION). If you cannot commit to doing this my advice is, do not get a credit card.
Finally, if you do find yourself under stress from bad debts the Barefoot Investor on page 91, has an good 5 step process for reducing and ultimately eliminating your bad debt.
A reminder about the April DDB Team Meeting at 12.00 this Wednesday and don't forget to bring your journal.
Thanks for reading,
David
