Step 3: Never take on debt (unless it’s part of your plan)

To start with, let’s consider that taking on debt often means that you are paying extra for the money you are using (interest). You are also borrowing from your future self, which means that you will have less flexibility when it comes to taking advantages of opportunities which present themselves (luck). While is generally ok to use debt to fund the purchase of wealth building assets, such as a house. It is less advisable to spend it on consumer goods, such as cars or TVs.

You probably agree that this is a no-brainer, yet we find ourselves in a country where the average household is $137,063 in debt and yet the median income is $59,039.

Here is a great quote which outlines what we’re talking about here (source):

…when debt is used in excess, it steals from the future since it must be repaid. This is because a dollar borrowed today necessitates that a dollar plus interest be repaid in the future. This reduces the amount of money available for future spending.

And so, as a final step in phase 1 of our plan, we ask that you really think about what causes the irrational self-talk you use to justify making purchases you cannot afford. Whether it’s “keeping up with the Jones’”, that you’ve become accustomed to a lifestyle that you can’t afford, or that you are easily influenced by advertisements, it’s time for you to STOP.

Remember, money is a completely rational concept, and it’s time you started treating it rationally. There is no secret inheritance, no lottery winnings, nor does money just fall into your lap.

When you can’t afford a fancy new car, or a flashy TV… that is exactly it. You can’t afford it.

But when tell yourself that it’s ok to go out and get a loan to finance it, you are delaying your journey to wealth for months or even years. You have made a choice to spend the money you could have saved each month paying off the debt, instead of being able to invest it.

It is time for you to stop solving your spending problems using loans (this includes credit cards). From now on, you should ask yourself “how can I afford this?” and work to figure out ways to make more money, or adjust your budget to save more money, so you can buy the things you want.

Taking on debt without a plan does not solve any real problems (generally), it does cause many more. So stop taking on debt for things you don’t need!