There’s an attitude about finances that I really dislike. I’ve heard it from a few people and have seen even more people living it. Perhaps I’m unrealistic, but my family has lived on one income for many years now so I don’t think I am. It’s the thought that your financial life is not possible without having debt. That ugly word “debt”. I’ve heard from people I know “What’s adult life without starting out with a little debt?” Really? Shouldn’t we be thinking, I don’t want to start my adult life with debt? Why is this notion forced upon us by banks, financial lenders, advertising, and even our own family and friends.
It’s true that there is some debt that may be necessary. The number one debt that comes to mind is a mortgage on your home. That is the one true debt that you can’t afford not to have. Sounds like I’m contradicting myself, right? It’s the only debt that will truly put you ahead. Let’s face it, most of us can’t afford to buy a house outright. Most of us need the bank to loan us money to purchase a home. Once you have bought a home, and as long as you continue to pay your mortgage every month, you will never live on rent again. Real estate usually increases in value and so selling that first home puts you in a good position to buy another.
Another debt that may be necessary when you are young is to pay for a higher education. Most of us don’t have thousands of dollars to put up front for tuition and most of us don’t receive scholarships to do so as well. Now, I know tuition today is a lot more than when I went to school, but having a part-time job while in school will help to pay down that loan. It also helps if you put so much away every month in a separate account that is used to only pay for tuition. So, let’s say for arguments’ sake that you can afford to put $500.00 away each and every month, separate from your regular savings or chequing account, at the end of the year you would have $6,000.00 saved to put toward paying down your tuition.
My issue about debt is when we incur debt for things that are not truly necessary in our life. One of them is a car loan. When you are twenty, a car is not something that is a necessary item. Sure, it makes it easier to get around and it’s fun to have, but not a necessity. The use of buses, subways, and trains can get expensive on a daily basis but will be less than purchasing a car. When I began my first full-time career job, I used the bus and subway every day. I didn’t have the money to purchase a car. It was not something I even thought of doing because I didn’t want a loan to repay and put me even further behind. As of today, in Toronto, a monthly pass to use the TTC, otherwise known as the Toronto Transit Commission or public transportation is $146.25. A monthly cost of a loan on a car? Let’s for interest’s sake say you buy a $20,000.00 car and want to pay it over 60 months at 4.99% with no cash down or trade-in value but a good credit rating, you would be paying approximately $405.00 monthly. (http://www.autotrader.ca/finance/calculator) That’s almost 3 months of taking public transportation. I know, it’s not fun to get on a bus that’s crowded with smells coming at you from everywhere, but taking public transportation for a few years, while putting even half of that potential car payment in the bank, will allow you to buy your own car soon enough.
Change your mindset and think of debt as something that you don’t need to incur. Ask yourself, is this necessary for me to live and do my job? Yes, it means you may have to give up something to get something down the road, but I can’t stress enough that after a few years pass and you keep the money you would have used on an item you didn’t need, you will be able to buy that item later on. Let’s say for 5 years you took public transportation and saved the difference you would have paid on a car loan. I know prices will change over the years, but for fun, using our monthly car loan of $405.00 and our public transportation of $146.25 monthly, the difference in cost is $258.75. That amount multiplied by 5 years or 60 months is $15,525.00. That’s enough to buy quite the good used car! Patience and time will enable you to have the things you don’t need to buy right now.