A bigger house, a safer car, a better school — there are hundreds of ways that you could spend money to benefit your family. But if your spending patterns drive you in to debt, you’re actually doing more harm to your family than good.
The needs of our families can be some of the heaviest financial burdens that we bear in life. Certainly, seeing one of you children go without something they need is a crushing, terrible feeling. And because we care about our families so much, we often feel the need to make sure that we provide whatever we think they need, or give them access to the best things available in life… no matter what the cost. Unfortunately, this attitude can be a major factor in sending your spending into the debt zone.
The problem is that borrowing money turns good intentions into bad ideas. All debt is financial slavery, and while it can seem attractive at first, debt always pulls us down in the long run. And as we’ve said before, noble aspirations don’t turn a bad financial strategy into a good one. You may think that borrowing money will help you meet your family’s financial needs, but the reverse is true: Debt is financially harmful to your family.
Here are five ways that debt hurts your family:
1) Debt dominates your budget
Whenever you borrow money, you make a promise to pay that money back (with interest) in regular installments over a period of time. Once you’ve made that commitment, you’re forced to allocate a certain amount of your monthly budget to paying the debt back — and if you stop paying, you’ll end up with huge fees, jacked credit, and lawsuits. This commitment is dangerous because it ties up portions of your monthly budget that could be better used for other things.
The fact is that you can’t see the future, and a monthly payment that seems affordable now may be unattainable if you have some other financial setback in life. Borrowing money ties up funds in your cash flow that you could be diverting to other things. And the interest that you pay can add up to substantial amounts, drastically reducing your buying power over time. In the end, borrowing means that you are able to buy less for your family, not more.
2) Debt creates false safety nets
Many people who don’t use debt to finance a spending lifestyle still consider borrowing money as the best option for getting through some kind of emergency. The availability of credit can seem like a safety net, and unfortunately too many people forego emergency savings because they think that borrowed money will get them through a crisis. But it’s all a myth: Credit is no safety net. In fact, borrowing money compounds financial problems.
Debt always adds risk to life. If you’re borrowing money, you’re actually creating a more dangerous financial environment for your family. And if you don’t have a real safety net (made up of good insurance and a bunch of cash that you’ve saved), you’re doubling down on a losing bet. A load of interest and payments can ruin your family financially. So much for the safety net.
3) Debt inhibits your long-term goals
It’s pretty simple: The more money that you spend on debt payments, the less money you have available to do other things. That means that if you have a habit of borrowing money and paying it back over time, you’re limiting the amount of cash that you have to dedicate to things like emergency savings, college savings, investing and giving. That leaves your family underfunded for some of the most important events in life
Most desirable long-term financial goals, from owning a home to paying for a wedding, require long-term, diligent saving. If you’re constantly paying interests on your debts, though, you’re not going to get nearly as far on those goals as you would if you applied all of that same money to savings. And when you consider the opportunity costs, it gets even worse: The money that you spend paying interest on credit cards and car payments throughout your lifetime could have been worth a million dollars or more if you had invested it well throughout your career.
4) Debt ruins inheritance
Our society doesn’t talk about inheritance enough, which is a shame, because building an inheritance for the next generation is part of God’s Master Plan for your finances. And if you’re like most parents, you want to leave the best inheritance possible to your children when you die. But if you live a lifestyle of debt, you’re all but assuring that a good inheritance doesn’t happen.
Debt ruins inheritances in two ways: First, the money that you spend paying off debt throughout your lifetime is money that doesn’t grow your net worth. Borrowing and paying limits your ability to save and invest, therefore limiting the size of your estate when you die. Secondly, debt can take a bite out of your estate. If you owe anybody any money when you die, those creditors get first crack at the money and assets that you own, leaving your heirs with whatever is left. If you’ve borrowed a lot of money, your children may end up with nothing at all.
5) Debt establishes bad patterns
Beyond the your financial assets, your memory and legacy may be the most important things that you leave to your children when you’re gone. If you’ve lived your life borrowing money from people, there’s a good chance that your kids will grow up thinking that that’s what they should do too.
Like most everything else in families, financial habits are cyclical. When you establish a pattern of debt in your life, you’re teaching your children to do the same thing, whether you intend to or not. The way that you behave during your lifetime can send ripples through many generations that come after you. Establishing a pattern of borrowing can send your descendants into a pattern of bondage and poverty.
Establish a pattern of wisdom and discipline, however, and you’re setting your family up for long-term success.
Photo by miggslives. Used under Creative Commons License.