Should I Ever Borrow Money if Cash is King?

Problem #52: I’ve Heard that Cash is King, but Debt is Necessary to Live.

If you think you need a loan, I’ve got news for you. You probably don’t. There is almost no scenario that requires you to borrow money. You don’t need a home-equity-line-of-credit, car loan, or student loan. (A mortgage is the only debt that I would consider plausible.)

But . . . You’re thinking “I do, it’s impossible to live without debt.” This can be a PROBLEM.

We’ve already talked about how debt puts you in bondage. Having debt comes down to priorities. It’s all about prioritizing what you spend your money on. Let me show you.

Assuming you have a job – you don’t need to borrow money . . . you already have all you need. Seriously!

Prioritize Your Budget

Food

From your income, the first thing you should be buying is food. You must eat. You will eat. Even if you buy a ton of other crap, you will still eat. So, if you have no money left over after buying all that other stuff you will end up going in to debt . . . for groceries. This is not a good plan. Buy food first.



Utilities

After you buy food, buy electricity and water. In other words, pay your utilities. Don’t keep your Nordstrom’s account current while you’re three months behind paying your electric bill. This is a case of messed up priorities.

Housing

Once you have a full belly, with lights and heat/AC you will be much more comfortable than if you didn’t have those things. Now is the time to pay your rent/mortgage. You want to keep living inside – right? I could handle some extended time outside in a tent or otherwise, but my wife and kids could not. So keep current on your rent or mortgage.

Transportation

Once you have food, lights, heat/AC, and housing covered, then you pay for your transportation. If you have a car payment, this is the time to pay. Pay for your gasoline. Keep your car running. After-all, it does get you to your money-making-job.

don't borrow money, cash is king

Anyone with a job can buy those basic necessities. A low skill job paying $10/hour will net you about $1300/month or $17800/year give or take. Granted, this is not a lot of money here in the US. Can you live on this? Yes! Will it be hard and unpleasant? Most likely. Check out the budget below. There is no wiggle room. And you would not be able to buy anything extra. But you can survive until you get your income up.

  • Food – $275
  • Utilities – $300
  • Rent – $600
  • Transportation – $125

For more info on prioritizing your budget categories, check out this post.

Don’t Borrow Money For Luxuries

The above budget items are needs. Obviously if you have a family you will need more food, electricity, etc. But if you prioritize your budget, you will find that you have room for the above listed basics. And you will be able to afford other things also. Everything above the basics is luxury. Seriously. It is.

Let’s get back to the topic of loans and borrowing money. You don’t need to borrow money on something that would be considered a luxury in most of the world. Such as home remodeling, a second car or vacation. You want to borrow money so you don’t miss out. FOMO (fear of missing out), am I right? This is foolish “now” thinking. You aren’t thinking in the “future”. You may get what you want today, but you’ll pay for it tomorrow and the next day, and the day after that. And for many more days.

Seriously, Stop borrowing money for “extras”!

YOLO and FOMO are for MOFOs (Millennials withOut Future Options). Live Your Life! Click To Tweet

Compare Your Income to the Rest of the World

I know, we shouldn’t compare ourselves to others. But just bear with me for a minute.man and donkey mountain pass

If you have a job netting $17800/year, and you can cover the necessities in the United States, you are richer than 95% of the world based solely on your income. (Check out this calculator to see where you actually rank)

95%!! – let that sink in for a minute. And that’s with a $10/hour job. Sure, living expenses are higher in the US, but we’ve already established that it can be done. It’s not the standard of living we might be accustomed to or even want, but it’s doable. It all comes down to perspective.

You don’t need to borrow money to live, so don’t. We seem to blur the line between a need and a luxury purchase.

I’ve been guilty of this mentality in my own life. I need a new car or a house. I need a 10th shirt, because I don’t have that color.

Check out my story. I made some of these mistakes myself. We borrowed money on education, cars, and a house. But currently, the only debt I have is a mortgage.

And I’m not saying that we can’t have or buy luxury items. Just save up and pay cash. Cash is always cheaper anyway.

It’s always cheaper to pay with cash. Interest is expensive. Click To Tweet

Enjoy that luxury item today while paying for it today . . . with cash.

Conclusions

Too often we lose sight of our true needs while we chase instant gratification. Check this out: In Zimbabwe, the average laborer earns around $1050 per year. Per year! And they still live. When I was little, I used to complain about my skinned knee to my Dad. He would nonchalantly say, “You’ll live.” And you know what? I did. It wasn’t that big of a deal. I had made it important in my own mind.

Remember, if your needs are covered – “You’ll live.”

If you can put it in this perspective, you might come to the same conclusion I did. I don’t ever want to borrow money again.

How about you? What’s your take on borrowing money?

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-Chris

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5 Comments

  1. Makes me think about Aaron’s Rent A Center. All those luxury items that people have to rent because they don’t have the perseverance to wait until they save enough to pay in full.
    I agree with you. But I guess that doesn’t count since I am your wife. 😉
    Kate

  2. “There is almost no scenario that requires you to borrow money. You don’t need a home-equity-line-of-credit, car loan, or student loan.”

    I appreciate the article, and completely agree that paying cash rather than incurring debt is a smart choice…but I was disappointed with the opening above.

    There are always exceptions (if I didn’t take out student loans, I didn’t go to college), and this seems to imply nobody should take on debt of any kind for any reason…even if that’s not what you intended 😉

    • Thanks for the comment, and honest feedback.

      I think that debt has been used too much as an easy alternative to acquire things that we want. And it’s costing us our future.

      There are always exceptions. (I had debt) But my point was that if you decide not to borrow money, you don’t have to. It’s not required. And you can actually do quite well without debt no matter what your income is.

  3. Pingback: Is the Average American in Trouble Without Knowing It? - CYinnovations

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