This isn’t your typical anti-debt rant. In fact, I hope it’s not a rant at all. Over the weekend I watched a Tedx talk (embedded below) that offered one of the freshest, most practical perspectives on borrowing I’ve ever heard:
When you borrow to buy anything that depreciates, you’re negotiating a paycut with your future self. The problem is, you’re not giving your future self a place at the negotiating table. So you’re saying to your future self “I choose to take some of your income to buy this thing I’ve decided is more important than anything you might need.”
I know the blog has been on a debt kick lately, and it’s not intentional. It just happens that debt is the story of the last several budgets I’ve reviewed.
Last week featured Mike on Monday and Amy on Friday. Mike was already throwing an extra 17% of his take-home income at his debt. I told him I thought he could ramp it up more, but at least he was accelerating things. Amy had buried herself in student loans, credit cards, back taxes and a car loan, but she’d created a five-year debt freedom plan and resolved never to borrow again.
In the next couple of weeks, you’ll see me feature three budgets where my major concern is the budgeters’ willingness to continue borrowing:
Jane and her husband, in spite of having (stressful) variable income, credit card debt, and a car loan, borrowed nearly $10,000 last year to increase their time-share credits.
Jenny and her husband Aaron, having run out of room on the credit cards, borrowed several thousand dollars against Aaron’s 401k to buy furniture for a new home (when they already had functional furniture in the old home).
Chase and his wife, Beth, have added $5,000 to their credit card balances since February. Were they borrowing to cover emergencies? No; the debt paid for a tropical vacation, braces, and a $600 per month restaurant habit.
I cringe to think about these families reading this and feeling judged or criticized. They didn’t share their budgets with me so I could trash them on the YNAB blog.
What they (and you) need to realize is that I’m not criticizing or judging – I’m simply observing the reality that none of these families hate debt. None of them have resolved to create more – not less – income for their future selves. And apparently none of them have fully acknowledged the financial, emotional, mental, and relationship consequences of borrowing.
We’ll work through each of these budgets individually, but their stories offer us all a reminder to take stock of the cost of borrowing to our current and future happiness. Many of us (me included) need to admit to ourselves that borrowing is almost always the result of an incorrect definition of “necessary.”
Take 14 minutes to watch this talk, and see if his comments change your mind about borrowing money: