If you’re old enough to remember “Back to the Future,” you probably know two things: First of all, time travel is entirely fictional. Secondly, if you ever could go back in time, you’d find that any change you made to the past could have dramatic and undesirable consequences “back” in the future.
Thankfully, time travel is only the stuff of science-fiction fantasy: God hasn’t given us the ability to mess with things that happened in the past, or to bend the space-time continuum in order to see into the future. But that doesn’t mean that we don’t try. Because there’s a little bit of time travel involved every time you borrow money.
In case you’re just joining us, here’s where things stand: We’re no fans of debt — we believe that it’s a form of financial slavery that brings us a lot more harm than good in life. The best way to live in financial freedom is to rid yourself of debt, and then never to go back. We’ve studied all sorts of reasons why debt is bad for you. Today, we’re going to have some fun with the concept and attempt to explain it in terms of time travel.
Let’s set the stage here. You don’t need a flux capacitor to travel through time; in a lot of ways, where you exist in time is a function of your heart and mind. We’ve all talked about people who are “living in the past” or “nervous about the future.” Although we can’t physically alter what has happened before, or see clearly what the future holds before it comes to pass, our thoughts, attitudes and behaviors can impact both the way that the past affects us and the way that our lives will go in the future.
Money and time
How does all of this apply to personal finance? Here’s where it ties in: Money is a tool that transfers work that we’ve done in the past into value that we can hold in the future. If you do work for someone, the reality of that service ends the moment that your work is complete. But when they pay you for that work, the instrument of money allows you to take the value of that work and carry it into the future. When I spend money today that I earned yesterday, I am using part of my past to impact my present.
The good news is that the instrument of money allows us a way to reach into the past; the bad news is that the instrument of debt allows us a way to reach into the future. But there’s a danger here: Just like Marty McFly risked the present by messing with the past, borrowing money puts your future at risk.
Why is borrowing money like reaching into the future? An old financial teacher of mine once put it like this: “Saving money is using your past to pay for the future. Borrowing money is using the future to pay for your past.”
A world without debt?
Picture, for a moment, a world in which debt doesn’t exist. in this hypothetical world, you can only buy things that you can pay cash for. If you don’t have enough money to buy a new car yet, then you can’t have the car. If you continue to save money, you’ll eventually be able to buy the car. But that car exists in the future, when you have all of the cash you need. It does not exist in the present.
Now, enter debt. Debt tells us that we can reach into the future, grab that car and bring it into the present. All we need to do borrow the money to buy the car now. Although we don’t have the money now, we anticipate that we’ll have the money in the future. And so, in a nifty bit of time traveling, we take our money from the future and use it to buy what we want in the present.
There is, of course, a problem with all of this: Time travel is not really possible. That means that we can’t really know what the future holds. No matter how confident we may be about how much money we’ll have in the future, we simply cannot predict what challenges may befall us in the days to come, or what expenses we will have to pay for other things. When we borrow money, we’re simply guessing about the future at best, and robbing our own futures at worst.
Borrowing obligates you to make payments on a loan in the future. When you get to the future, you find that you don’t really “have” all of the money that you should have, because some of your money has been taken by the past and appropriated for debt. Not only are you paying back the money that you borrowed, but you are also paying interest on the loan, which takes even more cash out of your pocket. You lose your flexibility and your autonomy. Borrowing money today makes a slave of your future self.
When we borrow money, we buy into the dangerous myth of time travel that says we can tinker around with time without messing anything up. But we know that’s not true. Trying to have the things now that you should have in the future actually messes up your future.
Don’t spend your future regretting financial decisions that you made in the past. Skip the time travel altogether and live debt-free in the present.
Photo by JD Hancock. Used under Creative Commons License.