I just discovered the David Ramsey show now that AM780 KXNT is syndicating it at the 7PM slot during my commute home. He said something really interesting that I really want to harp on.
In responding to a question about types of debt, he said the following:
I don't think there is such a thing as "good debt" to have, I really don't. Debt does two things. First, it increases risk and, second, it robs you of cash flow. Both these things affect your ability to invest and become wealthy. It doesn't make sense to trade prolonged debt and interest payments in return for a little bit of a tax-break -- and folks we're talking a little tax break here. If you pay out $10,000 in interest and you're in the 25 percent tax bracket, it only saves you $2,500 in taxes. Well, when I trade a dollar for a quarter, I wouldn't call that a good deal
If you do the calculations for a $200,000 mortgage at 6% amortized over 25 years, it ends up costing you $368000, or 1.6 times the original price. Granted most people can’t buy homes for cash, but I heard that Jay Leno has only one credit card and stays out of debt. He’s the exception, bytheway, since most famous people spend to the threshold of their earnings. Shoot, most of my neighbors pulling down dual incomes are living at the edge of their means.
People who know me well know I preach personal fiscal restraint. Among my peers I am not the highest paid, but I save 20% of what I earn gross. I sock it away and rarely mention it to anyone (I’m no millionaire mind you), which the folks at WaMu think is really funny since that’s my “Buy a Home” account. The truth is that the rising generation has no concept of money. It’s no wonder why: their parents, who are also in charge of the government, have no concept of it either. We spend money we don’t have to buy things we don’t need to impress people we don’t like. We lavish gifts upon others trying to win their favor (yes, I do date, and I hate when I catch myself trying to curry up favor through purchases). And our government does it too.
Not to be outdone by President Bush, Congresswoman Pelosi proposes a 2nd stimulous package, in the midst of money crisis. If you don’t believe me, consider that the stock market has dropped 1500 points this year (or about 11%). Government’s poor fiscal policy puts a damper on everything. They created the credit crisis by requiring banks to lend money to people who can’t pay it back because that’s what the government does- it never honors its debts. When they run out of money, they simply print more, since it’s not backed with commodities, devaluing our currency even more. When money grows tight, they raise taxes, since government rarely if ever “cuts” anything. Government, like entropy, always increases.
Money mismanagement in the form of a spendthrift trend stems from two reasons, being people’s gullibility, and as a means to buy favor/votes. Although I took classes in finance and economics in college (I was a Biochemistry major), most of the people I knew who weren’t business majors didn’t, and therefore they may not rightly understand. Like Senator Obama, they know only what other people tell them. Other people use money to buy friends or favors.
Money in its best state is a necessary evil and at its worst an intolerable one. For when we make it the object of our pursuit or a means of aggrandizement it enslaves all of those it touches. Poor fiscal policy hurts the majority, who always end up footing the bill regardless of their total wealth. Interest, if it’s in your favor, is a good servant, but if it’s your enemy it’s a horrific taskmaster, for no matter how they try to sell it, it places an awful burden upon the debtor. Consider how in the state of NV law enforcement proposed building a multimillion dollar building to save thousands in utilities. You can’t use debt to make wealth. Debt is like spending a dollar to save a dime.
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