I suffer from contrarianism; the inclination to do and think the opposite of what society or those around me are doing. So, while the country is loading up on debt, I find ways to shed liability and operate with less and less financial obligation. It may also have to do with my age. I remember the decade of high-interest rates and although I was a young guy, I have always been a little bit of a numbers geek; I saw the ultimate effect that interest and debt had on life’s choices and freedoms for the future. The older I get, the more I realize I have less and less opportunity to recover from big mistakes.
I understand the advantages of debt from a financial perspective as I have an MBA in Financial Management. In business, there is an accelerated path of growth through debt when reasonable opportunities are available in some markets or industries. It is very popular and too easy to borrow/leverage for the possibility of higher market share or greater margins. From a business perspective, it is often difficult to disprove the downside of financial debt. However, the advantages are only temporary as the debt will/should be paid down faster with the higher income. The goal of this “debt” is for it to be invested in such a way as to pay ITSELF down. What our society and country is experiencing is mostly consumption debt, not expansion debt. This collective consumer debt has no long-term benefits, only temporary relief, and long-term stress/pressure.
I know I have written about the government programs over the last couple of months and I still hold to taking advantage of programs offered by the government to obtain financial aid in this trying time. It is no different than paying less taxes when our government lowers the rate. I am certainly not going to send in more than they are asking for. However, debt is still debt, even if it’s interest-free. At some point, it will have attached interest.
Dealing with debt is no different than driving a truck. Our eyes must be focused far ahead, not ten feet from our front bumper. The interest on debt is the obstacle… the corner. Our eyes must follow the road long before our vehicle gets there. Debt is an obstacle, a barrier to future wealth and prosperity. Anyone who tries to convince you otherwise will eventually become roadkill.
When the world loads up with debt, it is probably a good idea to get out of it… behold my contrarianism! It is not that I don’t have debt but if I do, I have committed myself to always be able to pay anything off within a minimum of 24-36 months under current cash flow conditions. From a business perspective, that “policy” is ultra conservative, and I may be forgoing some opportunities by doing so. However, I now believe everyone should adopt this strategy. In fact, I wish I would have done so earlier in life. It would have saved ten years of recouping from a not so well executed opportunity. I am too old to do that again… wait… not old… smart. Debt is like sugar to a diabetic, it must be managed; too much and it will kill you. Our country is pre-diabetic… and it cannot seem to stay away from the candy store.
This past month the estimated federal budget deficit was announced. It is without a doubt an astonishing figure. It places our National Debt at over a trillion dollars (over ten years of deficits packed into one). To place that into perspective, it is like earning $50,000 a year and having $200,000 in credit card debt. If the interest rate is near zero and the availability of borrowing is unlimited, the effects may be negligible. But, unless you are under 25 or 30 years of age, you know rates will eventually change. If it raises to 5% or 7% (which is reasonable at some time in the future) our country will not be able to make its payments. Incidentally, what our national debt numbers do NOT include is the other jurisdictional debt that our country carries such as Provincial, City and Municipal debt. The downward spiral will escalate fast. Different locations around the country will have different levels of debt held by its citizens. Not everyone will suffer at the same level. People will move to more tax-friendly environments, adding the burden to those left behind.
Loading a country with collective debt, at the levels both Canada and the USA have chosen to display, has unavoidable long-term consequences. At some time in the future, the interest will be unsustainable. Though there are many means of countering this difficulty (such as printing more money) they also have limitations and consequences. The collective consequences of all jurisdictional choices will dramatically alter our future opportunities and financial security. We will not be able to count on asset values, interest rates, stock market values (mutual funds), tax rates and even pension plans. Simple services such as policing, snow removal or road repair may drop drastically. There will be heavy burdens on our citizens and industries. If a real and workable plan does not present itself to stave off the debt and interest, the consequences will be insurmountable for most. Our collective lifestyles will change dramatically, our assumptions of how to live and prepare for retirement forever altered.
All of this is our future unless we PERSONALLY prepare. Getting out of debt is the first and primary defence. Having an alternative income source is also great. For most people, this means immediate sacrifice and financially conservative behavior… and for our government… austerity. Fiscal restraint of government will eventually be forced upon them, if not by the electorate, then by some external force (friendly or hostile). Living well below our means is the only way to survive long-term. It will mean the difference between respectable retirement and humiliation.
Being a contrarian is certainly not popular and sometimes offensive to some, but it has its place. If you are thinking about retirement, which most drivers are, debt-free living must be in your sights of goals to achieve. As my readers know, I am a huge fan of Dave Ramsey and financial peace university. Check it out if you can. If you cannot find anything local, e-mail me. I will see what I can find for you.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.
You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at firstname.lastname@example.org.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: email@example.com.