In this day and age, and especially living in the United States, we are born as free of obligations as possible compared to the vast majority of people throughout history. With few limitations, we are free to live whatever life we choose. In the Middle Ages, if you were born as a serf, you were obligated to work for a feudal landowner, and you really didn’t have a choice in the matter.
Today in the United States, you have to make an effort to get yourself into the position of a Middle Ages serf. And unfortunately, many people do. In my opinion, the effects of borrowing money and going into debt is similar to being a serf in the Middle Ages. If you have to pay a certain amount of money per month to service your debt (whether it’s for car payments, student loans or credit cards), you have to generate income. So if you are working a job with a boss you dislike, you might be stuck because you need the income. Whether you work for a feudal landowner because you were born a serf, or work for an overbearing boss because you need the money to pay debts, either way, you’re stuck. Your freedom is limited.
Remember when we all walked into the recruiter’s office and they were so friendly trying to get us to sign on the dotted line? Remember how all that changed once we were locked into a four or eight year military contract? There is a reason why the military gets you to sign away many of your freedoms. The organization wouldn’t operate properly if you could just walk away at any time. I feel the same about society in general. If there wasn’t a method to compel people to get into the workforce and engage in an activity so many of them dislike (commuting to work every morning to earn a salary), society would cease to function.
Convincing a portion of the population to cripple their finances, thus forcing them to engage in the workforce, is one way society achieves functionality. So everywhere you turn, there are temptations to “buy a house with a mortgage”, “get a car lease”, “open credit cards for free airline points”, or “borrow $160,000.00 for college”. Many of these options are readily available. But there is a price to pay on the back end.
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Many people have their ultimate dream car. Mine is an Aston Martin. I love looking at pictures of Aston Martins online, and imagining what it would be like to own one, driving down the Pacific Coast Highway on a sunny day. An Aston Martin would be a nice upgrade from the car I currently drive, a 1999 Pontiac Junk Box (Blue Book Value: 662 dollars). Looking on Cars.com, I see a gorgeous Mariana-blue 2016 Aston Martin Vantage 8 for $167,802.00. Let’s just say I won’t be getting one of those in this lifetime. Why am I so confident that I will never make such a purchase?
Because you are looking at the fool who borrowed $167,900.00 to finance the costs of a worthless law degree. And what was the end result of me borrowing all that money? Years at a miserable law firm job, doing work I hated, surrounded by many people I didn’t like. And was I able to leave? Absolutely not. There were student loans to pay off. And it took over a decade of my life to crawl out from under that rock.
Keep in mind, this was a self-inflicted mistake.
Absolutely. Suppose you have a net worth of 10 Million Dollars. And from that net worth, you have $1,000,000 in liquid cash sitting around. Is there much risk in taking a portion of that money to buy a luxury sports car? Of course not. Taking a fraction of your net worth to indulge in certain purchases, whether it be a nice restaurant, world travel, or expensive cars, will not put you in a place of indentured servitude.
On the other hand, borrowing money to finance these purchases is the road that leads to ruin.
I want to introduce a new concept. It’s the notion that buying anything (such as a car) with your leftover change is much more fun than taking out a massive loan to do so. This is what I refer to as fractional spending. Whatever amount of money you earn per month, if you find a way to survive by only spending a small portion of your earnings, you will achieve the ultimate freedom.
Fractional spending accomplishes two goals. First, fractional spending allows you to save a large portion of your monthly income for your Freedom Fund and capital for future passive income. Second, fractional spending develops the day-to-day habits of living a life that is not dependent on lots of money. Those habits, the ability to live with only a certain amount of money (no matter how much you earn), toughens you up and makes you resilient to all kinds of challenges in life.