Debt is so tied up with shame for me. For everyone? “I’m debt free except for a mortgage!” people say. “Is it good debt or bad debt?” they’ll ask. “The average American household has $8,000 in credit card debt,” the judgment is pointed and laser-like, directly into my soul.
I think it was Planet Money that explained debt leverage to me (and me alone, right? When I have podcasts in my ear, that’s somebody just having a conversation with me?). In business, it makes sense to take on debts, because if you take on debts, you can leverage your assets to make a shit-ton more money. If you have $10K in your pocket, you can buy a shack, and rent it out for $15 a month. But if you take out $90K on top of that, you can buy a regular house, and then make $1000 a month in rent and only pay back $850 a month or whatever, and ta-da! Your debt is making you richer.
You leverage your assets, through debt, to increase your income.
In the FI world, though, debt status is tied up with pride, and “debt-free” is a badge of honor. There’s this implicit assumption, or perhaps explicit, that debt is shitty, only stupid people have debt, and you are morally superior if you don’t have it at all, or at least if you don’t have the shitty kind.
I’m here to disagree.
Don’t get me wrong, I am trying very hard to get rid of our debts, because we are tied down by the payments. I look at how much we are paying each month toward debt (thankfully, we aren’t paying that much toward interest, because almost all of our debts right now are low or 0% interest), and I think “jeez we would be rich if we didn’t have to make those payments.” We’re trying not to take on any more.
But I’m not ashamed of the debt we have, even the consumer debt. It would have been great to have saved up cash for our house, for our cars, for our family vacations, for our clothing and our groceries and preschool and gymnastics classes and our solar panels. Our debt, though, was used as leverage. Not as leverage to get more income, for the most part, but leverage against time.
For most of my twenties and thirties, we just didn’t have money. It’s only been in the past 3 years that we’ve been making enough to really meet our needs, with three kids and a dependent adult living with us. We could have saved up, we could have waited.
But if I’d have waited until just now to have kids, I’d have no kids, because that stupid biological clock actually does matter. We could have waited a few more years to bring my MIL to live with us, but her health was failing, not in insignificant ways, and we didn’t have the luxury of the time. We didn’t need to buy a house, but we were going to get kicked out of our 1-bedroom apartment once we had two kids and a dog; besides, I’ve been playing around with those “should I rent or should I buy” calculators and in our situation, we 100% should have bought when we did.
So we were constrained by time more than money (as well as huge money constraints), which got us to where we are today. Okay, fine. Now that we have more money, time to pay off all the debts and never take on any more!
Except the kids are only kids for a teeny tiny bit of time, and the debt we have incurred, and will probably incur here and there, allowed us to take advantage of time that, once lost, is gone forever.
Our mortgage debt allowed us to give our children a stable, comfortable home for their whole (so far!) childhoods.
Our car loan allowed us to buy a soccer-mom van, which means we can drive them, easily and without worry about breaking down, all over the damn country. They go to see my parents and siblings multiple times a year. We could have gotten a used Geo Metro, and only taken it to work and home, and not incurred the debt. But our used Honda Odyssey has given us leverage over the time when the kids are small. What is the point of saving up and buying a soccer mom van when the kids are all already grown?
Our home improvement loan let us waterproof the basement. Strictly necessary? No. But it allowed us to leverage the space we have in this 1300-ish square foot house that holds three adults and three children, meaning we can more easily save hand-me-down clothing and Christmas decorations, saving us money and time in the long run.
Our solar panel loan gave us solar panels, which will eventually pay themselves off. That was a want, not a need, and I think it’s a good investment. But it’s also showing our kids that there are ways to be more sustainable, which are lessons that I want to teach them now, and not when they are…in their 20s.
We took out a loan to fix my husband’s teeth. After decades of sub-par dental care, they were in bad shape. We could have waited. It’s made a huge difference in the quality of his life. When you are improving somebody’s life, do you put it off for decades?
We put my MIL’s CPAP machine on a payment plan. Her sleep apnea was severe – according to the tests, she was choking and waking herself up SIXTY TIMES PER HOUR. Maybe we should have saved up for that. Maybe that would have taken decades – literally – off of her life.
We bought me a new laptop, because my current one was on its last legs (okay, its last legs happened about a year ago). We could save up. But increasing my speed by 10%, which I am certain is possible, will give us an extra $250 a month on top of reducing my stress. This is leveraging debt to make more money.
We put my brain surgery on a payment plan. We could have waited, but then I’d be dead. The ultimate leverage.
Our student loans allowed us to get into professions that we love. We leveraged that debt to give us fulfilling lives. “But trade school would have been a better ROI!” Yes, but it’s not always about ROI, or, at least, financial ROI.
We have credit card debt that built up over time, because we were not living within our means. We were not living within our means because we were taking care of my MIL – is the “debt-free” badge more important than taking care of family? We were not living within our means because we let our kids do all sorts of activities – should we hinder their development and then tell them when they are 25 and we are more financially stable that sure, now they can think about taking piano lessons? We were not living within our means because we wanted to have pets – should we have our kids grow up without learning about loving and being responsible for animals? “Yes, you can get that puppy, after I’ve retired early”?
I saw a post where somebody was asking for advice for travel, and the typical FI advice is “if you have debt, do not do it.” Screw that noise. It’s great if you can save up until you have enough to get those experiences without debt. But people should not be barred from experiencing their lives because their circumstances have not set them up to save.
We incurred debt taking my kids to Ukraine to see their great-grandmother, who isn’t going to live forever.
We incurred debt going on summer vacations with my family. I am guessing I have 60 or fewer summers left in my life. Screw you, responsible FI people. Spending time with my family is more important than being 100% debt free.
We incurred debt taking my kids to Disney World four years ago. No regrets.
I have a plan that in two years, we will be debt-free other than home, car, and student loans. Two years after that, home and student loans. Two years after that, only home. Two years after that, nothing. If that happens, it will be because we have been able to increase our income to cover our needs – and our wants. I’m not saying it’s important to go to fancy restaurants all the time, but guess what? It’s not important to me. Maybe that’s important to somebody else.
Debt in business is used to leverage income; debt in our personal lives can be used to leverage time. I don’t regret any of the debt we have. Especially the brain surgery, but that’s just because my brain is in charge of typing out this text, and my brain has decided it’s been the most important debt of all. Brains, man.
Should we all take a look to see if what we are buying is of value to us? Sure. Should we maybe lighten up about all debt being evil? This brain thinks so.