This morning I sent an email out to everyone in my family. I’ve never sent a single email to all of them as I’ve never found anything so important and so relevant that they all need to pay attention.
Today’s email was an exception.
After I sent it I thought, there’s nothing that email contained of a deeply personal nature, so why not pass it along to my readers?
So below is the exact email they received.
(Consider yourself ‘family’ for a day.)
Hey guys:
Allow me to share something with you that is both simple and profound.
It is a very short blog post written by Seth Godin, the man I consider to be the smartest living human on the face of the planet. He’s a former marketing professor at Stanford and a bestselling author of 12 books. Three million people read his advice every single day making his the most read blog in the world by a large margin. I’ve had the great privilege to meet him and spend a half hour of one-on-one time with him, and I am a raving fan.
Seth’s topic today concerns when to borrow and when not to borrow. He gives a brilliant, but very simple rule for using credit. If the 9 word rule (given at the end) had been engrained into the head of every 16-year-old in America for the past 30 years, our country would not be on it’s way to being owned by China, and our nation’s economic future would be secure.
We’ve all seen too many friends and loved ones go down in flames because they either didn’t know–or didn’t follow this simple rule:
Debt is Not Your Friend by Seth Godin
Here’s a simple MBA lesson: borrow money to buy things that go up in value. Borrow money if it improves your productivity and makes you more money. Leverage multiplies the power of your business because with leverage, every dollar you make in profit is multiplied.
That’s very different from the consumer version of this lesson: borrow money to buy things that go down in value. This is wrongheaded, short-term and irrational.
A few decades ago, mass marketers had a problem: American consumers had bought all they could buy. It was hard to grow because dispensable income was spoken for. The only way to grow was to steal market share, and that’s difficult. Enter consumer debt.
Why fight for a bigger piece of pie when you can make the whole pie bigger, the marketers think. Charge it, they say. Put it on your card. Pay now, why not, it’s like it’s free, because you don’t have to repay it until later. Why buy a Honda for cash when you can buy a Lexus with credit?
One argument is income shifting: you’re going to make a lot of money later, so borrow now so you can have a nicer car, etc. Then, when money is worth less to you, you can pay it back. This idea is actually reasonably new–fifty years or so–and it’s not borne out by what actually happens. Debt creates stress, stress creates behaviors that don’t lead to happiness…
The other argument is that it’s been around so long, it’s like a trusted friend. Debt seems like fun for a long time, until it’s not. And everyone does it. We’ve been sold very hard on acquisition = happiness, and consumer debt is the engine that permits this. Until it doesn’t.
The thing is, debt has become a marketed product in and of itself. It’s not a free service or a convenience, it’s a massive industry. And that industry works with all the other players in the system to grow, because (at least for now) when they grow, other marketers benefit as well. As soon as you get into serious consumer debt, you work for them, not for you.
It’s simple: when the utility of what you want (however you measure it) is less than the cost of the debt, don’t buy it.
Debt is expensive, it compounds, it punishes you. Stuff now is rarely better than stuff later, because stuff now costs you forever if you go into debt to purchase it.
It takes discipline to forego pleasure now to avoid a lifetime of pain and fees.
Resist. Smart people work at keeping their monthly consumer debt burden to zero. Borrow only for things that go up in value.
Easy to say, hard to do.
Eric Chester |
Uncategorized |
05 5th, 2010 |
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