For any given middle-class family today, promising that living ‘loan-free’ is nearly impossible sounds almost utopian. That’s because living with debt — whether it be from student loans, a mortgage, or perhaps a few credit cards — can make borrowing money feel like an inevitable fact of life.
But is this the case? Was it always this way? And is it really not possible to escape living with debt?
A Historical Perspective on Borrowing
While loans of all types are as old as human history, widespread, non-commercial personal loans and consumer credit began to build authority only as the modern consumer society began to emerge. Traditional loans in early agricultural and mercantile societies were for the most part practical: farmers or merchants applied to wealthy landowners or merchants for help financing their operations. The emergence of consumer credit as a distinct institution began only with the rise of the department store in the 19th and early 20th centuries through the emergence of installment buying and credit systems.
After the Second World War, consumer credit expanded dramatically. Rising incomes and the growing middle class meant that credit was used to acquire homes, automobiles, and consumer durables. The invention of credit cards in the mid-20th century revolutionized consumer credit by making it easy for people to spend far more than they earned.
The Modern Dilemma
Our economy is such that free of loans seems out of the question. Buying a home without a mortgage seems impossible to many people. This is unavoidable, to an extent, given the realities of today’s economy. Take the average wage and the current price of a home, for example, and saving up just to buy a property will certainly take you a long time without a loan. This isn’t down to one person’s bad luck; it’s a sign of a broader economic shortcoming in which wages don’t grow as quickly as the costs of living and prices of goods such as property.
My math, I need 30 years to save enough for a house, shows the nub of the problem: the gap between the pace of rising incomes and the pace of rising property prices. It might be an implausible extreme case, but it points to the difficulties of building up a sizable nest egg when costs accumulate so quickly.
The Case for a Debt-Free Life
There is no need for anyone to end up in debt, although there’s no doubt that getting and staying debt-free is much harder than living with loans. Some do avoid borrowing and, with reasonable planning, it is possible to navigate your financial life without resorting to debt at all, although it takes effort, discipline, and, often, major changes to your lifestyle. Here are some tips:
- Budgeting and Saving: Draw up a budget and stick to it. Save a specified percentage (at least 10 percent) of your total income before spending a penny on yourself.
- Living within means: Staying out of high-interest debt and buying something when cash is available. It may mean driving an older car, apartment renting, and other sacrifices.
- Priority spending: pay yourself first on your bigger ticket items first (post-secondary education, your home etc) and ways to mitigate cost (think used items, or when items go on sale/discount).
- Emergency fund: I started to save an emergency fund in case of unexpected expenses so I wouldn’t have to borrow.
- Cost-effective education: University courses online now are a lot more cost-effective than going to a university in person.
- Sacrifice the idea of buying a house: Just forget about that, either living in an apartment for rent or maybe a well-equipped van?
This is one of my dreams 🙂
The Reality of Borrowing:
In many cases, though, borrowing is virtually unavoidable. Purchasing a home, paying for higher education, or starting a business may require large upfront investments that might be out of reach otherwise. When necessary, borrowing responsibly can be a sensible choice that enables people to meet their important goals over the long term.
What’s your view?
Not borrowing at all is undoubtedly a worthy objective and largely possible if one is careful with one’s finances. It is also clear that borrowing is inevitable and unavoidable in some instances, which is both necessary and beneficial. The best way away to go is to balance the aspiration not to be in debt and good financial management. Borrowings should only be made where they really serve a good purpose ingrained in a diagnosis of the need to borrow backed by a sound repayment mechanism.
The bottom line is to decide if one wants to be in debt or not, be in whatever would guarantee financial stability and mental peace.
Am I planning to live Debt-Free?
Yes, I am planning to live debt-free. For me, the aspiration to live without the burden of debt is a crucial part of my financial journey.
The freedom and peace of mind that come with being debt-free are invaluable, and I am committed to making the necessary sacrifices and strategic financial decisions to achieve this goal.
While it can be challenging in a world where borrowing is often seen as a norm, I believe that with careful budgeting, disciplined saving, and prudent spending, a debt-free life is entirely attainable.
I look forward to sharing my story and the lessons I’ve learned along the way when it can provide valuable insights and inspiration to others.