March 5, 2024 by Dymphna

T-Bomb: How debt saved his life

Truth Bomb Tuesday: I wouldn’t normally recommend this, but it works.

Want to know a secret wealth hack you can do with debt?

Use a heavy debt load to force change in your attitudes to money.

Now, this isn’t for everyone. This isn’t even for most people.

And generally, I would say that if debt is not giving you access to an income generating asset then you just want to avoid it.

This is the classic distinction between good debt and bad debt. Good debt buys productive assets that make you wealthier in the long run. Bad debt buys you consumables you can’t afford and it makes you poorer in the long run.

But sometimes even that doesn’t matter. Simply having a debt hanging over your head forces you to live differently.

I’m thinking about a friend of my son’s. He was a capable guy, and handy on the tools.

But like a lot of young men he was living in the moment. He worked odd jobs, worked hard for a bit and made good money.

He then hit the road, hit the beaches and hit the bars. When the money would run out, he would skip meals and lay a swag down in the back of his ute. Sometimes he would pop back home if he was really hungry.

He learnt to get by on very little money and he was happy.

But it can’t go on forever.

And so at one point, his dad, who I think could see where things were going, got him a good job on a good worksite, with a solid contract.

A few weeks later, when his rego was coming due, his father said, why don’t we get you a proper ute?

I think they ended up spending about 25 to 30 grand. But they put it on finance.

Now, for the first time in his life, he had financial commitments he couldn’t just walk away from.

He was locked in.

And that meant he had to take his work a bit more seriously. He had to be a bit more committed.

At first it was tough. It was a decent chunk of money to come up with each week.

But in time it just became part of his life, like brushing his teeth.

He built a good habit. And when he gets around to getting a mortgage, he’s going to know how to manage it … And the school fees, and the repayments on the investment property, and so on.

And that’s why I say that normally taking on that that stretches you, particularly for something you don’t really need, isn’t a great idea.

But sometimes a serious financial commitment is what’s required for someone to get serious.

It’s also why I say that buying a house for your kids is almost never a good idea. You’re denying them an opportunity to build strength in their financial muscles.

And it’s why I think we need a new category of debt. There’s good debt, bad debt, and getting your crap together debt.