No Debts vs Ownership

You might think that "no debt" and "ownership" are the same thing, but, you can have no debt and still own nothing. We are 'trained' from birth to 'want' things, it's the nature of the economy we live in. It is so ingrained into Australian society (among others) that credit is easy to get, and constant credit is a way of life. "Buy now, pay later" is the swan song of the banks and credit agents.

When you 'pay off' a loan you are then in an ownership stage. Big business doesn't encourage this, that's why we have redraw loans and credit cards. They are designed to create a perpetual state of credit, and from what I can see a large percentage of people are in this perpetual state.

So what is the difference. Well, we'd all like to own our car, own our house and have some money left over. This is ownership. But ownership comes with costs as well. A house needs painting every 10 to 15 years, gutters rust, windows break, property needs maintaining - you get my drift. These hidden costs are built into rental prices even if the landlord doesn't do the maintenance. Also, if you own a home it's not so easy to pull up stumps and move on - much easier when renting a property.

So what's the best scenario. Truth is that each persons needs differ markedly, but there are some absolutes to be aware of.

  1. Credit costs money. Saving to purchase an item won't give you instant gratification, but when you have saved enough to buy a car for instance, you also get the benefit of being able to bargain for a better price. Also, second hand cars normally aren't offered with credit so the range of vehicles available with cash is larger. Once you purchase the car, instead of having to budget to pay off a loan, you can immediately begin saving for the next big ticket item. This can potentially save you 30 to 50 percent of the cost of credit. Some home loans require a pay back of over 200% of the original loan amount.
  2. Insurance is cheaper. Yes it's true, insurance is cheaper if you own your car than if it's on hire purchase or lease. Also, if you own a home then insurance is optional whereas under a contract you must by law have full house and fire insurace.
  3. A positive saving habit always ensures that you have money for emergencies. Remember how easy going life was when you left school? You probably didn't own much, which meant you were free to move around and do as you please, and somehow you always had some cash on you.
  4. Perpetual credit encourages the mindset of perpetual updating. How many items have you 'trashed' that were still in good working order, but were not so 'up to date' like televisions, games consoles, clothes, shoes etc. We eat the same way. Shopping consists of filling our pantry with food we can not possibly eat, but is there just in case we feel like it. If you only bought food as you ate it your shopping budget would probably drop in half.
  5. Ownership feels good, debt feels bad. Yes it's true. Your mood is attached to yuor debt level. If you owe $2000 per month just to live then you can't 'drop out' or take a 'sabbatical'. Everyone is relying on you, relying on you to go to work each day, to perform adequately so you don't get sacked. The money has to come from somewhere, and you're it!! That must put you in a more stressed frame of mind.
  6. Ownership allows freedom. You can rent your house out when you go on holidays, you can paint it any colour you want, you can even put screws in the wall to hang a painting. I used to find this the most frustrating part of renting - no pictures on the walls.
  7. You can't sell what you don't own. No, you have to pay it off first, well legally you should pay it off first.
I wish that the wiser members of my family instilled in me the benefits of saving money and creating a saving habit. I think we were so poor that any money we had was quickly used up. Also, credit in the 1970's wasn't easy to get so it didn't become an issue until later. But it's not the 1970's and credit is easy, and it's a trap. So beware, or be wary, either way think about the big picture and don't put yourself at the end of the line...

Ray
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