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Staying Out Of Debt

The average American does not understand their relationship to money and debt. The impact was felt very directly during the dot com and mortgage bubbles, forcing many for the first time to recognize that debt is not their friend. And once you have a broader understanding of what money actually is, the idea of being in debt is foolish to the extreme. There is power in being educated on how money works and how you should be using it to your advantage. Don’t let momentary pleasures blind you, throwing you down a rabbit hole of debt that keeps you bound in slavery.

Yes. Slavery. There’s no other way to refer to it. Sounds very much like The Matrix, right? (Watch that Matrix clip again and put it in context to today’s world, how control is everything.)

Sidenote: If you don’t know what ‘fiat currency’ is, the real value of every dollar or the monetary bamboozling that’s going on around the world, do a search on Google (or the search engine of your choice) or YouTube for “fiat currency explained” I’m not going into the nuances of the difference between currency and money when so many others have done it so eloquently.

All that said, does it make any sense for us to being debt to banks, paying interest on currency that has debt attached to every dollar… and in essence, paying interest multiple times over? Each time we pay interest on something, we are being directly taxed. The dollar as we know it can lose or gain value, resulting in inflation or deflation — the situation where the purchase of all goods becomes easier or more difficult based on value. As it is, we work for a wage or commission, that ordinary income is taxed and paid to various government agencies. It’s just foolish to give those funds away when we could either get something with real value out of it.

However, there is a Catch-22 to this: Our society in its current configuration is dependent on debt to keep the status quo going. If there is no debt, there is no money supply. So it’s a matter of choosing the best of two evils: do we personally stay in debt to keep our standard of living up? Or do we live debt-free lives and face the potential of full economic collapse because of it? That is the tremendously tough question to answer.

I, for one, am not in favor of the unsustainable nature of how our system is currently. It’s difficult to cosign on a debt-based system when we can do it in other legitimate ways. I’d rather not owe anyone, especially banks, as a means to force them answer those hard questions and change their way of business. It doesn’t have to be this way. An individual can only control their own actions, so I choose to stay out of debt — and I think you should too.

Point #1: If You Must Use Debt, Prioritize The Payoff

There are times where it is unavoidable to use debt. Buying a house or a car, higher education (university, college) and similar are situations where it may be warranted. MAY. However, borrow only what you can manage. If you’re going to school, work hard for scholarships or grants… and if you have to take out student loans, make sure what you’re going to school for will help you get a job or lead into entrepreneurship that will pay things off. (For the record, I’m not in favor of student loans PERIOD, but understand it is a major barrier to higher education. Choose your loans wisely and always vie for FIXED interest percentages, NEVER variable.) If you cannot afford a house, don’t get one. Same goes with a car.

Don’t even think of being extravagant until you have that debt off your back. Think about how you FEEL knowing you owe someone money. Horrible, right? Also, think of it this way: each time we borrow money from a bank, we are unknowingly contributing to the overall debt problem. Banks use those loans to create more unsustainable currency. There’s very little actual money on reserve at a bank relative to the deposits it claims it has. This is why the banks absolutely freaked out when the credit markets in 2008 came to a screeching halt and why the Federal Reserve continues its “quantitative easing” (a.k.a. “cash printing”) programs. (See the really good overview of “fractional reserve banking” from Khan Academy.) These days, anytime the Federal Reserve chairman speaks, the stock market freaks out. This is a not free-market anymore. There are puppeteers aplenty pulling the strings, and not in our favor.

Point #2: Live Within Your Means

Don’t spend more than you actually have. It’s that simple. Be conservative. You honestly don’t need that new TV or new computer or new game console. We are a wasteful, consumption society that doesn’t appreciate the things we have. We live for instant gratification. All of us – myself included – could stand to subsist on less.

That means, your wedding doesn’t need to cost $50,000, or even $10,000. Do you need to go on a vacation to Fiji that costs $5,000? Probably not. Do you need to have the latest gaming console? Doubtful. Your life will not end if you don’t buy these nonessentials. If you enjoy an active life, there’s plenty of ways to do it on the cheap. That’s why discount retailers like LivingSocial or Groupon are so popular these days.

Point #3: Save Smartly

There will come a day when the unexpected occurs and you are forced into an expense you did not anticipate. That’s called Life. You should have some liquid reserves or emergency cash readily available. Take for instance the crazy run on banks that happened after Cyprus declared a bank holiday, then quickly thereafter, outright STOLE monies on deposit from the people. It was NOT theirs. (Just in case your memory is THAT short, here’s a link.) It is smart to keep abreast of what is going on in the world, not just from mainstream media, but from alternative media sources that give you a lot more of the truth of the situation. Moral of the story: keep cash on hand. If you wait until the last minute, you will be plumb out of luck and likely all accounts will be frozen.

While I’m not an investment advisor and no one should construe my personal suggestions as advice for what you should do for your specific situation, you should use your common sense. Conventional wisdom says to save money in your retirement account for the future (401k, 403b, IRAs, etc). Remember: you can’t count on Social Security OR Medicare to help you out in your olden years. However, most people are not financial savvy enough to know where they should put their dollars, euros and the like. Get educated. I say it again: GET EDUCATED. Understand the difference between stocks, mutual funds, bonds, commodities, etc… and think of what those financial vehicles are relative to your specific financial situation. Understand that your age plays a major role in how you should diversify your portfolio and whether you should be hedging against inflation by using commodities like precious metals, or if you have time to ride out the storm so that you can build equity over your working years.

Do not wait for ANYONE to save you. It’s just not coming. 

I’LL be the first to admit that I’m not anyone’s paragon of virtue. I’ve had my own fair share of financial flare-ups over the years and only in recent times have I been able to take real definitive action to position myself where I want to be. I regret some of the choices and decisions I’ve made in my financial life, but I’m now aggressively correcting it. I accomplished that by learning as much as I could about the financial world and my place in it. I did it by paying attention to the impact politics has on the market, by looking at the deeper meaning for my things occur.

I don’t watch reality TV or any of that crap… heck, I don’t even have Cable TV and haven’t had it for almost 3 years. I spend my time learning about how to improve my personal situation.

We need a mental shift in the United States, heck, around the world. It is paramount that we don’t let the younger generation make our mistakes. I think it will be up to THEM to fix this mess that we created with our out of control greed and lack of moral compass. We can blame the “powers that be”, but it is ultimately each individual that has to take responsibility for what they do.