I have said many times at my other blog that the number one killer of men in the modern era is oneitis. Today I’m going to talk about the second biggest killer: debt.
Debt can and will seriously screw up or even destroy your life. Debt can and will, easily, murder entire decades of your life in terms of wasted time and productivity.
Debt is a threat to the poor, the middle class, and the high-income alike. It’s an equal opportunity killer. If you’ve read my book, you know that in my twenties I got in big trouble with debt even though I was making a six-figure income. I teetered on bankruptcy because of it. It took me years of very hard work and utter wasted time and wasted life to crawl out from under that mountain of debt. It was horrible. Many people who get into serious debt like this aren’t that lucky.
Today I have literally no debt. After taxes, 100% of my income goes right into my pocket, not to a bank, credit card company, student loan company, car finance company, or whatever. I sleep very well at night.
I have no credit cards, no car loan, no student loans (never went to college, thank god), no home mortgage, no personal loans, no medical loans, no back taxes (which is a debt), no alimony (which is also a debt), no nothing. 100% of my net worth is nothing but assets (with the exception of a little real estate stuff).
There are two, and only two, times debt is valid.
One is if you use a credit card and pay it off in its entirety every month. Most human beings don’t have the discipline to do this. Yet I know that some do, and many of these guys use the points on the cards to get frequent flyer miles and things like that. That’s fine… provided you really do pay that bastard off in full every 30 days.
The second is if you have debt secured by an appreciating asset that actually produces monthly positive cash flow. An example would be rental real estate that you’re actually making a profit on every month. Your own home mortgage does not qualify (unless that mortgage was used to purchase an income-producing rental property). Nor does your car or a boat or anything like that. Having debt on that kind of thing is insane, because they’re depreciating assets that suck money out of you instead of paying you, as well as cost you debt and interest.
However, even if you own cash flow rental properties, you should never have more than 50% loan to value on those properties. If you own a rental property where the mortgage is 70% or 90% of the value, you’re doing something I would never do. When the next real estate crash comes (and it’s coming soon), you’re going to be fucked. You’ll be underwater in that property just like millions of other idiots were in 2008.
If you only have a loan on the property that is 50% or less, you’ll be just fine. I have a hard and fast rule that I will not own any real estate if I have to borrow more than 50% of the value to own it. Period. This means I can sleep at night, every night, regardless of what the economy or the marketplace does.
If you have any debt whatsoever (besides perhaps a mortgage payment), after saving $1000 – $2000 in an emergency fund somewhere, you need to stop spending money, stop all investing and saving, stop doing everything except working, and start paying down that debt as fast as humanly possible. Dump as much money per month on your debt, starting with the lowest balance loan first. Most normal people can become debt free in just a few years if they do this.
Otherwise, you will be a slave, probably forever. Being a slave is not freedom.
The Alpha Male 2.0 financial baseline is at least $75,000 per year income. However, the Alpha Male 2.0 also has zero or near-zero debt (other than the two exceptions above). You are not free if you owe a bunch of banks, people, or governments money.