Personal Finance 101 – Debt



I don’t have lots of money. I don’t have lots of savings. But, what I do have, is financial freedom.


What is financial freedom?


Two words for you – debt free. I could die right now and nobody would be knocking on my family’s door and making them pay for my debts. I could loose my job, my house (rented), everything, and yet, I would be free. I owe nothing. To nobody. This gives me peace, great peace.


In a world where consumerism and credit is shoved down everyone’s throats, it is a great position to be in. Can’t afford it? Don’t buy it. People seemed to have lost this basic principle of personal finance.


Now, I must say that I am not the most qualified person in the world when it comes to financial advice, but I know this: I cannot spend what I don’t have, so I won’t.


By using a credit card, a loan, or any other type of borrowing, you are not using your own money, you are using theirs (banks, government, etc.), and sooner or later you will have to pay back. And pay hard. If not you, your children or grandchildren or anyone else in your family who inherits your debt.


It is interesting how personal credit ratings work. If you have no loans whatsoever, you automatically have a poor credit rating. Yes, that is right – the fact that you have never had to borrow money, or decided not to get into a contract with a phone operator or cable TV provider, apparently, makes you pretty bad with money. A particularly interesting fact is that, if you own a credit card and choose to pay 100% of your debt the following month, it does not help your credit rating. You have to be able to prove that you are good at repaying debt in instalments, with interest, for a considerable amount of time.


As with everything in life, you have a choice. Understand the system above all. If you want to buy your own house or a car you will most likely need credit. Play the game. There is no way around it. However, if you don’t, then there is no reason to be tied up to a fantasy money which you do not have, just for the sake of acquiring some superfluous luxuries. Do not forget – you or your family will pay back any money you borrow. So, next time you ask your bank for a loan to go on holiday to that exotic destination, or think about buying that expensive sports car that you don’t really need, think twice.


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