Notes From Gordon ~ Debt Or Alive?

Dear Friends,

I am in a cranky mood this morning. Snarky and sardonic. Petulant and peevish. And I love it. It’s so much fun getting old. You can get away with murder.

Let’s talk about debt. Unless used and understood strategically, as in the case of short-term real estate investing, debt is anti-wealth.

Debt is like a cancer on your money. Every dollar spent servicing debt is a dollar that cannot provide for your future. A dollar spent servicing debt does not go out the front door and into your future. It goes out the back door and into someone else’s future.

Karen graduated from Barack Obama Regional High School. She is 25 years old and already carries a $10,000 balance on her credit cards. Her minimum monthly payments average roughly 3%, or $300. If she continues to make minimum monthly payments it will take her 30 years to pay the balance down to zero.

Three years ago Karen bought a brand new, wide-screen plasma TV, complete with spectacular surround sound, for $1,000 and charged it on a credit card.

This year she sold it at a $500 loss and paid $1,000 for a brand new, wide-screen plasma TV, complete with even more spectacular surround sound, using that same credit card.

In each month’s minimum payment Karen is still paying off the original TV and she doesn’t even own it any more. Did I mention that she graduated from Barack Obama Regional High School?

Sarah was home schooled and, in case you were concerned, is fully socialized. She is 25 years old and doesn’t have any credit card debt. She sets aside $300 a month and invests it an average annual return of 12%. Each month’s investment of $300 will have grown to $899 in 30 years. Same $300.

Why do people use debt? Debt is convenient. Debt is a time machine. Debt is the ultimate lifestyle short cut. Debt is the antithesis of delayed gratification.

Banks are like candy stores. Gumballs and jelly beans for the children. Credit cards and mortgages for the parents.

Debt is like a time machine. It allows you to reach into the future and have something, right now, that otherwise you could not have. Then pay off that debt with tomorrow’s uncertain income.

When you borrow money you are, in effect, renting those funds from their owner. They have money, and you don’t. So you rent their money from them and they charge you a rental fee to use it.

We call this rental fee “interest.” Sounds so soft, so polite. Reminds me of “inflation.” So soft, so gentle. Nothing at all like purchasing power destruction.

Money is nothing more than stored productivity. When you take out a loan you borrow some of your future productivity, then pray that you will be productive.

Many young people today have awakened to the debt trap. There are numerous YouTube channels on which a young couple travel and work for a number of years from an RV, while saving several thousand dollars each month.

Not for the down payment on a home, but to buy their first home outright, with no mortgage. Some buy a two-family and rent out the other side. Then invest that cash flow. Smart.

Buy a home with a mortgage and, over the course of 30 years, you will buy one home for yourself and the equivalent of a second home for the lender.

The total amount of interest (money rental fees) that you will pay over the course of three decades, if invested in hard assets instead, might otherwise allow you to retire. Smart squared.

PLAN A: Take out a mortgage, move into the house of your dreams and sacrifice your future to the god of usury. Sure, you may be broke when you hit retirement, but at least you’ll have a nice house to show for it.

PLAN B: Do as your ancestors did. Save up until you can afford the home. Avoid banks. Save cash and coins in jars. Guarded with a shotgun. Like your ancestors did.

OK, thanks for letting me get that off my chest. I feel so much better.

This Thursday night (May 05, 2024) at 08:00PM ET (on www.ZoomWithGordon.com) I will illustrate the power of scientific cash flow redirection to pay off debt as rapidly as possible.

This is handy stuff to teach the youngsters in your life.

Especially considering that you may need to move in with them some day.