MSC004 Debt Is Not Normal

What’s important in life?

Money, Life, or Status Symbols

People often equate THINGS they purchase with Net Worth

Cars
Jobs
Houses
Boats
Jewelry

Often, people acquire these THINGS with debt.

What debt does?
Debt...

Erodes Net Worth
Erodes Spending / Buying Power
Destroys marriages
Creates hardships
Creates instability

People have come to thing of debt as normal in life
How much debt do you have? People will compare debts by THINGS they’ve accumulated with debt.
It’s similar to comparing houses and cars.

Debt for most people becomes an expense similar to utilities, food, and the other necessities in life. In fact most people when face with decisions involving buying the necessities will often chose to pay the debt over the necessities because of many reasons.

1. It could be the credit score
2. Don’t want the collector’s to call them
3. Being able to continue to use that credit to buy additional things on credit

Millionaires do not create debt. They create wealth through managing their finances and building wealth.

But, getting back to net worth, income builds wealth, credit and debt destroys wealth.

If you have a quarter of a million dollar ($250,000) home but you still own $225,000 you’re equity or net worth in that home is $25,000 not $250,000. The other $225,000 is owned by the bank. Your bank still owns the house you until pay them back. Think of it has rent to own with the bank. If you don’t pay the bank back, the bank will repossess the property.

On an personal balance sheet, the $250,000 would be listed as an asset. Assets are good. In this case; however, the debt would be listed as a liability against your Net Worth which decreases your net worth on your personal balance sheet by $225,000.

It’s like student loans. The average student loan debt is $35,000. You might have gotten a degree but you also left college or another school with something you didn’t have when you first went in - Debt that takes years to pay for. Not only that; but, the government owes most of the student loans which means you are working for the government until it’s paid for.

Note that students loans are not bankruptable unless the government believes there was a case for fraud by the school misleading you. In most of these cases even then, the government won’t forgive the debt.

Most of us have monthly expenses that include debt.

Usual monthly expenses are

Rent/Mortgage
Food
Utilities
Gas
Phone
Car
Insurance
Clothing
Debt
Other

Modern debt has become no big thing and has become normal in most cases. For most people, debt is just a fact of life they pass on to their children.

Isn’t it time to break the circle of considering debt normal? Isn’t it time to start managing your money.