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Living Life Debt Free VS Progressing With Credit

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Kind of a neat topic this was that I heard of today. Essentially there were two polar opposites of the way one views finances and success in life where the debate revolved around what one has to show for their successes financially. In one corner you have the person that doesn’t have any debt such as outstanding credit card balances. In the other corner you have typical guy that has thousands of dollars in debt but at the same time seems to own a lot.

Now in the debt man’s way of life he has everything one would normally expect while using credit to buy various goodies. In the other person’s side he is more cautious where he doesn’t buy what he can’t pay off immediately and therefore saves a lot of his money and only buys when he feels when he really needs it. In fact, he is still using the home that was purchased by his parents and so technically it is not his.

Now visibly if you look at it the debt guy looks way more successful in life. He has his own house, a lot of high end electronics, etc. Whereas the other person seems like he has nothing in one of those “Still living in the parent’s basement” type of scenario. The main distinction is that his bank account is way bigger than the other person’s.

That made me think. The first was I personally don’t think you can judge financial success necessarily by what you have. Example, a large business that owns a gigantic office while swimming in thousands of dollars in debt doesn’t necessarily mean it is better than the guy who is in his little home office while still using things like a rotary phone. In those specific case it comes down to who is more profitable

Although, which direction is more sensible? Like with the debt example, the guy with the big office can continue to live the big image life with all the fixings until say the bank says “No more”. Or, you can be the debt free guy that just keeps strolling along while never really getting those bigger things that most people would relate success with.

If you think about it, there is a possibility too where with the guy who was running mostly off credit could just begin selling off all of his assets which can possibly put him in the same position as the debt free guy if he wants to get out of that cycle. The main difficulty I’d say is maintaining the lifestyle since he is more used to the lavish one and most likely wouldn’t last as a result. At the same time, you can argue that the debt free guy could always just convert to that lavish lifestyle mode too by racking up his credit. Was an interesting debate about financial direction in life I thought with no real one size fits all answer to it.

Comments to Living Life Debt Free VS Progressing With Credit

  • Most likely, the best answer is to live somewhere in between. Some debt, but not too much debt. Save, but don’t save too much. There is an economic theory called “consumption smoothing” that says spending and saving should be balanced out to live the highest standard of living consistently across your life.

    joewatch 7/7/2009 5:09 am
  • I think the debate personal attitude’s to debt is a good one. However, you almost slip into a debate about businesses and their debt and to me, that is whole different thing.

    On the personal side, I always found it odd that many people feel they ‘own’ their own house, when in fact they still have a mortgage. Once this is paid off then you truly own the house. Until then you have a big amount of debt that is secured on the asset.

    Is this not what the concept of Net Worth is all about. I.e if I ‘owned’ a house valued at $500K, but had a mortgage of $400K, my net worth would be $100K. Another person who didn’t own a house, might have $100K in savings. Amounts to a draw?

    Perhaps, but then how liquid are the assets. There is whether you could, if you chose to, sell them and convert them into cash. I call this the practical side. There is also the emotional side. I.e. Would I sell them even if I knew I could?

    The problem in all this comes of course in the details. Many people can’t be responsible with debt, buy all sorts of stuff with multiple credit cards, then realise they can’t pay them off – or worse – even the minimum payments!

    If you have a solid income (does anyone these days?) then you might be happy with your level of debt and that you can service it.

    So much comes back to money in today’s world. That is the real shame.

    Stewart 7/7/2009 10:25 pm

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