(03) 9020 2905“EX-TER-MI-NATE! Debt is the devil! It will kill you! You must not relax until all debt has been eliminated! Cancel worldly pleasures until debt is destroyed!”
Um … you’re not a dalek. No, it’s not. No, it won’t. Yes you can. And the only person you’ll be punishing is yourself.
Seriously, enough of this rubbish about debt being a death sentence. Ridiculous bollocks. “Stupid is as stupid does,” said Forrest Gump. Yup. And that applies even more so to people who suffer severe anaphylactic shock when the word “debt” gets a run.
Debt is a tool, like a mobile phone or a hammer. It’s not dissimilar to a car (but far less dangerous to your physical health).
Cars, like debt, will get you to where you want to go faster than walking. But cars are far more likely to kill you than debt. At 200kmh, cars can travel about 40 times faster than the 5kmh you can walk.
Walk into a big ol’ gum tree at 5kmh an hour and you’ll have a bump on your forehead. You will feel like a tool for not missing the tree trunk. Hit that gum at 200kmh in a car and you won’t feel anything. At all. Ever again.
Tools can be used well. Tools can be used badly. But bad workmen blame their tools.
Too much of the wrong sort of debt can be as dangerous to your wealth as that gum tree at 200kmh is to your health.
But a pathological fear of debt is crazy. Debt is a necessary evil. And like alcohol, salt, fatty foods and lazy Sundays, moderation is required. Way too much of a good thing can be harmful to your health.
Who buys their first home by plonking down the purchase price in cash on the buyer’s table? No one. Not in the history of the modern world. (Unless your parents were BRW Rich Listers.)
You have to take on debt to buy your first home.
But then you get told that a “home loan” is bad debt and must be eliminated. Seriously? It’s how most people get started on the track to wealth. And it’s pretty much undisputed that when people retire, their homes will be their biggest financial asset, with super second.
Too many people see success in life as paying off the home loan. They put off enjoyment, investment, opportunities, until that task is ticked off. Then they think it’s time to invest.
I’ve got a saying: “Manage your mortgage, then manage your wealth”. What does that mean? It means that when your mortgage is under control – and only you know that – that is the time to start your investment strategy.
The first few years with your first mortgage tend to be financially stressful. You probably have to make adjustments to your social life. You rein in spending. Any spare cash is probably spent painting and decorating your sparse surrounds.
But there comes a point … after a few years in your now comfy home, the mortgage no longer fills you with dread.
You’ve adjusted your spending and you’ve had a few pay rises.
You’re not on easy street. But you’re no longer stressing about that monthly commitment. You’re beginning to save again, and probably spend more again. You’ve lifted yourself above the minimum mortgage repayments. Another overseas holiday is on the cards.
Are you there yet? Only you can really know.
NOW is the time to start your investment strategy. Perhaps something small. Perhaps something with some tax efficiency. But something.
Or … you could wait another 10 years until your mortgage is paid down to nothing and then start.
You’ll have missed 10 years of compound growth. Ten years of investing. Ten years of opportunities. Potentially hundreds of thousands of dollars.
Debt is not evil. Some debt, such as credit cards, furniture loans and debt for cars, is dumb and should be exterminated.
But focussing on the killing of your home loan is to not see the forest for the trees. Manage your mortgage, then manage your wealth.
Understand that debt, used properly, by people with a little common sense, is an effective means of wealth creation. Learn how to use this tool properly and it should be your trusty sidekick for life.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .