Accepting debt

Why do so many people struggle financially? In the wealthiest country in the world, the vast majority of people, including most of the lower and middle class, struggle to merely pay their bills. Very few have the ability to build any real wealth at all. 

Unfortunately, many people choose to pay more for goods and services than they need to, whether they realize they're doing it or not. Rather than building an investment portfolio that will pay for goods and services, most Americans choose to allow debt to be part of their life. Accepting debt means we pay interest instead of earning it, and when we pay interest we pay more than we need to. 

 If accepting debt creates requires us to pay more and work more, why do so many people do it? There are a number of reasons; 

 
 Family 

Debt acceptance is often hereditary. It's not part of our DNA (at least I don't think), but we model the financial behavior of our parents and other family members. When we see others borrow for anything from houses and cars, to big screen TVs, we often do the same and write it off as how life works. Some people are even 'educated' by family members that this is the way to manage money.  
 

Culture of Consumption  

Everything everywhere tells us to spend money. Credit card commercials, models in fancy clothes and Matthew McConaughey driving a Lincoln MKX all make us want to spend more money. Few have the willpower to prioritize what they need and can afford. Most of us buy whatever we want because people are there willing to help us find the money. Banks, car dealerships and credit card companies make it easy to buy things we can't afford. They make it easy because it makes them rich while making us poor.   
 

Government's Fine Example 

Just as our family members don't always model good behavior, it certainly doesn't help that our government doesn't either. With a national debt around $29 trillion or about $87,000 for every person in the country, our leaders, who lack financial education just as much as our citizens, can't help themselves from digging a deeper and deeper hole every day.   
  

What if we accepted equity instead? 

The ramifications of accepting debt are severe in terms of financial, psychological and physical health for millions of people. Money problems are also the primary reason for divorce, and it's safe to assume debt plays a large role in creating those financial challenges.

If accepting debt creates lifelong financial struggles, let's think about what would happen if we did the opposite. What if we avoided debt and instead built investment portfolios that could help us buy goods and services. Rather than allowing compound interest to be our worst enemy, we'd be using it as our best friend. Instead of needing to earn $30,000 to pay for a $25,000 car, we'd use $20,000 and the balance we'd get from investment returns.

We would struggle less, our physical and mental health would improve, the divorce rate would decrease and fewer people would need to rely on the government for assistance.  Speaking of the government, just imagine if our $29 trillion in debt were instead a $29 trillion surplus. The interest alone could subsidize the cost of tuition at a private college for every student in America. That is what happens when compounding interest is used in your favor.  

While this may sound pie-in-the-sky, I know people that choose to accept equity and shun debt. Many of them leave the workforce decades early, worry less about money, and they would tell you that it's not very hard. Live below your means, invest the difference, and don't borrow money. Following this process will bring you the ultimate financial reward. Peace.