Debt

     I have always considered debt to be a four letter word. It is something that I avoided at all costs. My philosophy has always been that debt was the bane of the working class. Getting out of debt is the single most financially liberating experience of my life. I am proud to say that I have never financed a car and made my last mortgage payment in 1986. Just these two things have saved me many thousands of dollars over the years. These are dollars that I have and can invest, or use to fund my retirement or other cash purchases. Taking out a mortgage on a home that fits your lifestyle and is within your budget is something that is reasonable and often necessary. The difference between a mortgage and financing a new car is that the house you buy is usually going to hold its value or increase in value over the years. Financing a car is an automatic money loser. The value of that car, boat , ATV, camper, or any other toy is going to start depreciating as soon as it is driven or pulled off the lot. This means that you are making payments on the full value of an asset but you actually own something of lesser value. Not my idea of a good investment! Even banks that make a lot of auto loans are suffering now. Why? Every time large purchase incentives are offered for a model or make of a new car, the value of recently sold cars of the same model declines. Those cars are often held as collateral on the loans and the bank has less collateral in case of a default. When the default occurs and the bank has to repossess the vehicle and sell it at auction, there is usually a capital loss. Unlike a house, which often times holds its value, cars are usually an automatic loss. Housing is not always in a bull market but autos never are. If I could buy a new truck every year and drive it for 12 months, then sell it for a profit, I probably would. This is why I drive a 15 year old Chevy truck. A program of  "deferred gratification" will keep a person out of hoc and allow any new purchases to be made in cash. Make payments to yourself and earn interest on the money until you spend it, instead of paying interest on a loan for an asset that declines in value. You will find it harder to justify that new purchase if your hard earned cash is on the line.