Saturday, April 8, 2017

Why Get Out Of Debt?

There are a number of reasons for people to get out of debt, some societal, some macroeconomic, some personal.

My top reasons:

1.  To take care of myself - I'm pretty independent and do not want to have to depend on others (Church, Government, Family) to keep me fed and housed.  People in debt may find, particularly as they get older, that being able to live while keeping up with all of those debt payments is going to become extremely hard if not impossible.

Having worked jobs in various industries - for various amounts of pay - I found I had to drastically cut my expenses in order to make minimum payments on debt when my paychecks were either cut off or reduced significantly.  People living above the poverty line cannot expect to continually stay there forever, jobs change, companies change management or ownership, living conditions and the economy can change all of that.  The only way for people to continue to be in a position of being able to take care of themselves is to have money saved up - and a reduced lifestyle so that it doesn't jeopardize the savings.

2.  To take care of Mom - My mother is now at an age where her being able to go to work is not going to happen.  I need to be out of debt so that my paychecks are being used in ways to enhance both our lives, not paying someone else.

The new federal administration - coupled with my state's administration - doesn't give me much confidence that Mom will be in a position to live off of what she has for the remainder of her life.  The cuts to services for seniors - including medical coverage - is going to place an increased burden of cost on her, so I need to be prepared to assist with this burden.

3.  Macroeconomics - Our society is one that is built on spending money.  It used to be that debt was never used other than a home or vehicle.  With the advent of the credit card, this changed.  Unfortunately, the curriculum in elementary and middle schools regarding money hasn't changed.  As a result, a lot of high school students have to catch up, if they enroll in the few classes offered about personal finance, in order to understand what they need to know when they start getting summer and after school jobs, as well as how to handle money when they graduate.

Kids don't understand savings because there are a lot of parents out there who weren't taught about compound interest and don't understand how it can make you (with interest being paid to you for your saved money) or break you (with increased interest being charged against you for debt).  Personally, I would like to see financial institutions make a better effort to hold small classes on personal finance - starting with how to reconcile a checkbook, calculate debt, calculate living expenses and payment on debt and basic budgeting.

The other piece of macroeconomics is the fact that interest rates are on the rise.  This makes any debt more expensive and a lot harder to pay off.

4.  Personal sanity - I don't like being in debt, I was raised by parents who had debt, but who overcame a lot and saved and invested.  They were also very forward in their thinking, my parents both have had their burial expenses paid for in advance for several years.  One short term goal is to get our wills updated set up some sort of estate planning to better manage what we do have.

Have you ever heard of debt slavery?  Those who have been up to your eyeballs in debt, you understand this term.  With debt, people lose the freedom to spend what they earn towards what they want, because they are having to spend that money to pay for something they financed.  In many cases, what they financed has depreciated in value, so people find themselves under water in their debts, or have nothing to show for their debt.  Getting out of debt cuts those chains of bondage and allows for people to have choices about how they want to live - provided it is within the means of what they are earning.

Secular history and biblical history both give examples regarding debt:  "Go, sell the oil, and pay thy debt, and live thou and thy children of the rest."  (2 Kings 4:1-7)

5.  Personal goals - People can't have too many goals if they can't afford to pay for them.  Reaching limits on debt requires that the goals be changed to meet the demands of the debt, rather than for a life well lived.

I've already stated my goals for this year, what are your goals?

If you could live off of 50% of what you currently earn, what would you do with the extra 50%?

6.  Giving back - One of the reasons I like the different plans for getting out of debt that I've mentioned on previous blogs is that there is a part of this plan at the end to specifically talk about giving back.  Dave Ramsey talks about "live like no one else so later you can live and give like no one else".

Within the Church of Jesus Christ of Latter-day Saints, giving doesn't just come in the form of callings, but also of your increase, with the options for ways in giving more money if the individual chooses to.  There are funds for missionaries, education and providing assistance for temple attendance for those who live far and must make extreme travels in order to reach the closest temple.

Even within some companies, the opportunity for giving back can be done directly from your paycheck (in the U.S., many companies offer the opportunity to contribute to charities under the umbrella of The United Way and have it taken directly out of your paycheck).

7.  Preparedness - part of emergency preparedness is to have alternatives regarding how people will live in the event of a financial crisis (we have seen this several times in the United States with several stock market crashes and crashes in other commodities (housing) over the centuries).  There are also the preparedness that must be done in the event of a natural disaster or war, which preparations require money.

Again, there is that aspect of independence, of having an alternative place to live, alternative forms of "money" for bartering, alternative forms of producing your own food and clothing.

8.  Providing For The Family - It has recently been released in the news that more people in the U.S. are dying with debts, some of which will come back on the family left behind.

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