Dear daughter,
The more I talk to people and listen to them about debt, the more I see how many myths are there about debt.
Please allow me to explain what I mean by myths about debt.
Some people believe that without debt you cannot get rich.
Others might tell you that you are missing great opportunities because you don’t want to get into debt.
Someone else will tell you that the only way they can have what they “need” is by using debt.
Without debt, you cannot be rich
This one is very common. Some people think that the only way to invest and get rich (or become a millionaire) is to use debt to invest for a profit.
According to some, it is the fastest way and if you don’t do it, it will either take too long for you to become a millionaire or you will never make it.
From my point of view, they cannot be farther from the truth.
There are several studies in the US, that shows many self-made millionaires who don’t have debt or didn’t use debt to become a millionaire. Dave Ramsey shows that in his book “The Total Money Makeover: a proven plan for financial fitness”. Dave interviewed many millionaires to document what they did.
What did they do?
They have an account for emergencies, they spend less than what they earn, and they invest 15% or more from their household income. Easy-peasy.
But let me tell you this, it is not as easy as it looks.
There are two words you need to remember and apply every day to achieve it: discipline and consistency.
In this way, this myth is proven to be wrong.
You will miss great opportunities if you don’t get into debt
Sometimes, a “great opportunity” will come your way. It seems that most people are not prepared when this opportunity comes.
Then, they will hear something like why don’t you borrow money, so you don’t miss this great opportunity?
Here, I want to remind you that sometimes debt is worth it, and sometimes is not.
It is fine to borrow to take advantage of a certain opportunity, as sometimes debt is good.
However, it is wrong to think that if you don’t get into debt you are going to miss all opportunities and you will never be financially free.
Did you notice I didn’t say millionaire or rich, but financially free?
I did it with all intention.
I couldn’t care less if I become a millionaire or rich. What matters to me is to be financially free.
And you don’t need to be in debt to be financially free. There are many examples, starting with the ones in Dave Ramsey’s book.
Debt is the only way to buy things you “need”
This is the number 1 excuse to borrow money from poor and middle-class people (this refers to the income they have).
Just a quick stop, some say there are no middle-class people. They are poor people with good salaries and a lot of debt.
When a person cannot afford something (when cannot pay in cash without borrowing), you will hear something like “but this is the only way I can get it and I need it”.
And they are wrong, it is not the only way they can get it and they probably don’t need it.
Just to give you an example: people with a clothing account.
They will use debt to buy new and expensive clothing they cannot afford.
Do they really need that clothing?
Or do they just want to have something new?
See the difference? Need or want?
This applies to every type of debt, not only the clothing accounts.
Think about it and let me know what your conclusions are.
People with low income, and poor people, are the ones that need more financial control in their lives, this is just common sense.
However, common sense is very uncommon these days.
If you see what happened to me in this social encounter and this one, you will see how people think about spending when they get some extra money, instead of investing in their future.
They are the type of people that can tell you a few days after getting paid “my salary is gone, and I don’t know how I spent it or what I bought”.
As always, I only want what is best for you.
So, I ask you to think about this, apply it to your current situation, and please let me know what you think.
Love you, dad.