I have thought a lot about debt over the last several years. Probably because I graduated college with about $20,000 of student loan debt, then I spent another $20,000 on a car that I couldn’t afford. So by the time I was 23 years old with I had accumulated roughly $40,000 in total consumer debt.
Then I got a job with a company, worked for a year and quit. From that point forward I have done a mix things, from starting my own businesses to working in a small family business. Through all the ups and downs of small business life, and my previous and current attempts at entrepreneurship, I know what I have really been looking for – freedom.
Until recently I didn’t realize that one of the main problems or obstacles to achieving freedom is debt. Currently discussions center around productive debt non-productive. Generally speaking, productive debt is debt you use to make more money, it could be taking out a business line of credit to invest in inventory, pay your vendors, or your employees. In real estate you use debt to purchase new homes or commercial properties, or build a new homes and commercial property.
Conversely, there is non-productive debt, or consumer debt which is taking out a loan to buy a luxury car, using your credit cards to buy things you can’t afford, using loans and credit cards to go on vacations, etc..
Depending on who you follow on Twitter or what articles you read, many people advocate taking on debt to increase your wealth, or to increase your cash flow and to eventually build a large net worth over time. However there are some entrepreneurs and businessmen that believe do not advocate using debt to build wealth, or at least relying on it.
One of my favorite doers, thinkers and writers is Nassim Taleb, another one is Gary Vaynerchuk. These guys have been advocates of not using debt, but paying off your debts. Only doing things you can afford to do. There are also many clever people in the world who would would disagree. However, there is an element to taking on debt that many people will overlook, that is the element of freedom or optionality.
As somebody who has almost paid off all of his debt over a period of seven years, since graduating college, I now fully understand the possibilities of my life with no debt – I can do whatever I want.
If I want to travel across the world, I can do that. If I want to quit my job and start a new one, I owe no money so there is no problem. If I want to start a business, I don’t need to worry about my cash flow being diverted to a car payment, mortgage payment, or my credit card bills. The freedom and peace of mind you achieve when becoming debt free is not talked about enough.
Many people would advocate a young person buy a house as soon as possible, however if you don’t have the money to buy the house you are borrowing money to pay for your house. What are you going to do if you don’t like your job but you owe $200,000 on a mortgage, plus you have a car payment, insurance on your house, insurance on your car, property taxes. Making quick decisions is not easy when you have so many financial obligations.
However, if you understand how much money you really need to live, you could end up living at a much lower expense rate, gain valuable life experience through taking different jobs, starting a business, moving to a new part of the country or world. Hell, maybe you want to take a year off and go through a work program in another country, in which case you would spend no money but could potentially gain valuable life experience. You can only make these decisions if you do not owe other people your money, which translates into owing someone your time. Therefore, if you don’t owe anyone your time and you don’t owe anyone your money, then you have control over your life, you have as much control over your life as you will ever have.
There is nothing like freedom.