Is investing optional?

I owe, I owe

We've all seen this bumper sticker, haven't we?

Other than singing the Disney song from “Snow White,” how does it make you feel? “Wouldn't it be great if I didn't HAVE to…?”

And isn't that most people's fantasy: not having to go to work? Other than most fantasies, this one is actually achievable.

How? The top line of that bumper sticker contains the first part of the answer: paying off all your debt.

The second part of the answer is less obvious. Even after paying off your debt, you will still have living expenses, such as utilities, gas, all kinds of insurance, food and others like those. With what do you cover those?

In life, there are only two sources of income: a job or investments. If you don't want to work, the obvious solution is to transition from job income to investment income.

Sounds simple, doesn't it? I thought so, too. I was wrong.

What I discovered after mailing my last car payment was nothing short of an identity shift. I'll save the gory details for another time, but here's where it ends up:

Whether we know it or not, all of us have to choose whether to be a debtor to an investor.

Which one would you rather be? To answer the question, let's look at the two identities a little closer.

Investor

There are two basic ways of making a living: you receive income from a job, or you receive income from your investments. Economists would say all sources of income boil down to either labor or capital (investments).

When most people state their financial dream, a core element of that dream is “I don't have to work.” Many don't actually say that explicitly, but it's always there. Some people want to work, others want to lie by a pool in Cancun and sip piña coladas.

An investor is someone who has that choice. A debtor is someone who hasn't.

When you're an investor you derive your income from money you invested. This simple definition has three elements:

  • You have money
  • You invest that money
  • Those investments produce an income from which you live

Debtor

The superficial definition of a debtor is someone who owes money to someone else, but the true definition of a debtor is something deeper, a mind-set… an identity, if you will. The best way to understand this is to consider the debtors' paradox: nobody likes owing money and making payments, yet millions sign up for this fate daily without a gun to their heads. And most people who sign up already have payments, and so ignorance (“Oh no! I didn't know I was signing up for this!”) is not a reason people ensnare themselves in debt. Millions do it knowingly and willingly… and repeatedly.

Why? Why do people consign themselves to a fate they hate? It's because they are debtors.

They are not debtors because they have debt. They have debt because they are debtors.

A debtor is someone:

  • who wants stuff without having to wait
  • who therefore elects to owe money to others
  • who therefore HAS to work to make the payments, and
  • who doesn't want the responsibility of making serious financial decisions,

Most people will probably accept the first three parts of that definition barely bristling. The last part might be a little more contentious. “How can you say I have a car payment because I don't want the responsibility for making serious financial decisions?”

Let's look at that. The visible manifestation of being a debtor is “making payments.” Most people are good at making payments — the elaborate system of consumer debt wouldn't exist today if the majority of consumers didn't make their payments on time.

As years pass by, debtors get used to parceling their incomes into the various bills and payments they need to make, to the point where they tend to think of every major purchase in terms of “can I make this payment?”

And so, when Danny Debtor's car payment ends, he buys another car, one with a new set of payments. Is this because the car he just paid off happened to just die on him? No, it's because he's used to making payments. If he had to stop making car payments, he wouldn't know what to do with the money that went into the payment. Maybe I lived in Orange County for too long, but almost everyone around us had this mind-set. And that probably accounts for the popularity for car leases. (If you're going to always be making payments…)

Figuring out what to do with the monthly car payment when there is no longer a debt can actually be unsettling and unnerving. It's much easier to keep doing what we know to do, therefore taking on a new set of payments is a natural and easy thing to do. Without knowing it, debtors acquire an identity; it's more than just a habit. Their identity is wrapped up in the two words “making payments.”

And to make the payments, a debtor needs a job to provide an income. What other way is there?

Which do you want to be?

Investors don't have to work, because their income comes from their investments. Those who work do so by choice. Others sing the bumper sticker song because they have to work to make payments. (By the way, to whom do those payments go? Investors, of course. Think about that for a bit.)

Most readers here seem to agree getting rid of debt is a high priority. Once the debt is paid off, what will you do with the income you used to pay off the debt? Is there any other option but to become an investor?

You'd be surprised how many times I hear people say they don't want to become investors. (And let's just state for the record that an investor is not a Wall Street gambler. Holly Johnson is a perfectly fine investor without even thinking of Wall Street.)

Why do people say they don't want to exchange their debtor identity for that of an investor? Here are four possible reasons:

I have no money to invest.

The money that went toward debt payments is a good start. If that's not enough, save, sell as much of your stuff as you can, and earn more (preferably all three). There are as many strategies and techniques to save as there are rocks in the Rockies. Likewise, there are many strategies to sell stuff and earn extra income.

Listen to your response. If you find yourself presenting reasons why you can't save, sell stuff, or earn more money, you are a debtor. An investor will find ways to invest, a debtor will find ways to remain a debtor.

A person is as a person does. (This was an “ouch” revelation to me.)

I don't know anything about investing.

Investing is not rocket science. Millions of people less smart than you have figured it out; you can too. It's not an overnight thing, but there are thousands of free resources online to teach you how to invest in real estate, stocks, bonds, anything that produces an income.

And you can start learning before your debt is paid off, so when the big day arrives you're ready.

I don't have time.

Let's say I approached you to be the ghost writer for my new book. I'll pay you $1 million for the project and I show you the money so you know this is for real. All you have to do is read off the questions and transcribe my answers. The project will last about six months and it will take you an hour a day, two days a week. For $1 million, would you squeeze out some time? Thought so.

Then you have the time to learn about investing, and to “do it.”

I'm afraid I'll lose everything.

That's a reasonable fear, but hardly a reason to not invest. It's called risk, and you take it every day. You run the risk every day that your employer (any employer) will eliminate your job. Does that risk make you not get a job? No, you find a job with risks you can handle. You manage those risks with your knowledge, hard work, networking, and so forth. The same applies to investing. There will be a few investments that will do well, some that won't. The wonderful thing about investments is you can recover, and even sell them any time. The moment they look like they might go south, sell, just like you find another job if you see your company's about to go out of business.

If you are determined not to become an investor, you no doubt can find other reasons not to.

Who are you?

Here's the bottom line: You are what you do and you do what you are. In personal money terms, you can't be anything but a debtor or an investor. Investor is the identity with all the options and goodies. Like anything of value, it's not cheap and it's not fast… but it's worth it. It's more achievable than you might think.

But you won't be motivated to learn until you change your identity.

Becoming an investor begins on the inside. Your identity shapes your actions, thoughts and choices. If you're a golfer, you practice and read a lot about playing golf. If you're a shopper, you track down deals… fearlessly, diligently and relentlessly. If you're a recreational chef (like my wife), you are always on the lookout for a new flavor, cooking technique and recipe.

Likewise, being an investor starts with a shift inside. Like the shopper, you relentlessly track down investment opportunities, whether you actually buy or not. Like the golfer or chef, you track down articles, books and blogs about your interest, always with an eye to improving your game.

But you will do none of these things until you sit down and have a meeting with the mirror about who you are and who you want to be.

Once you make the shift, it will be natural to start learning and reading. In the beginning it might all seem foreign, but after a while it will begin to make sense. And when you enter the realm where you can start small, well, there's nothing like the smell of impending freedom in the morning.

The only alternative is living paycheck to paycheck, car loan to car loan… singing the bumper sticker song.

So… do you think becoming an investor is optional?

More about...Investing, Psychology

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Rick Lee
Rick Lee
7 years ago

I am glad this article was written. Years ago I planted a seed of an idea in my mind to become a successful investor. I hired the best teacher – Warren Buffett – at the cost of a trip to the library. Many trips, actually!

Since 2009 I have collected over CAD $50,000 in dividends from stocks, realized over $70,000 in capital gains.

I can choose to work at a job – or keep reading, learning, and doing the work of an investor.

Student Loans Worked Out
Student Loans Worked Out
7 years ago
Reply to  Rick Lee

Wow that’s impressive .. how much capital did it take? What books do you recommend?

So far, I just invest in Index Funds, and my returns are nowhere close to spectacular. But at least positive …

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago
Reply to  Rick Lee

Candidate for Reader Stories?

Elizabeth
Elizabeth
7 years ago

I second that! Rick, I’d love to here your story.

Elizabeth
Elizabeth
7 years ago

I like this post, but I’ve never been a big fan of dichotomies. PF people seem to talk about “debt” as if its all non-necessities like car loans and consumer goods — but what about homes? I don’t know anyone who has been able to purchase a home paying cash. A mortgage is a debt, yet these people still manage to invest and save for retirement. I don’t currently have debt — mortgage or otherwise — but am I in debtor mode because I’m saying for a big downpayment? In order to truly be an investor, should I be putting… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
7 years ago
Reply to  Elizabeth

Your actions say you are an investor. A savings account is an investment. You’re saving for a purpose and you’re already out of debt. Hard to beat that — well done! As for “non-necessity debt” — I think we all have it at some point. It’s not the unpardonable sin or anything like that. Our mind about it is the key: is it entrapping us into a lifestyle and mindset, or is our goal to get rid of it and move on to become investors? Different people have different views on mortgage debt. Personally, I don’t look at a first… Read more »

Elizabeth
Elizabeth
7 years ago

Thanks for the response 🙂 At the moment, it’s somewhat evil for me because I’m seeing housing prices “correcting” (i.e. dropping!) throughout Canada. I can’t stomach the thought of going into debt for something that’s likely to drop in price. I don’t “need” to get into the market – I can wait it out.

I think you’re right about it boiling down people’s mindset. If debt is “normal” among your friends and family, then it’s hard to get around it.

Samantha
Samantha
7 years ago
Reply to  Elizabeth

Real estate is an investment.

Student Loans Worked Out
Student Loans Worked Out
7 years ago
Reply to  Samantha

There are different opinions about this. In my mind, your home is NOT an investment, and should not be regarded as such. It’s a shelter, a home.

Jacq
Jacq
7 years ago

My house is both an investment and a home. And sometimes a white elephant.

Elizabeth
Elizabeth
7 years ago

I agree. I want to buy a home to have a place to live — especially one that is paid off long before retirement. I expect it will hold its value or increase in value in the long run, but I wouldn’t buy a home if I couldn’t afford to invest and save for retirement as well.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago
Reply to  Elizabeth

Mortgage debt is a better type of debt than most, but it’s still debt. We’ve been taught here in America that homes are ipso facto a good investment. A home depreciates, just like any other asset. It requires maintenance and upkeep. Home prices, for most of our history, tracked inflation, meaning your home didn’t actually appreciate, and in fact you likely lost money by paying for new wall paper and new rugs, roofs, furnaces, etc. It’s value is not fixed, and can drop. It’s true that you build equity and you don’t lose all of the money on rent, but… Read more »

Jamie
Jamie
7 years ago
Reply to  Elizabeth

As long as you can pay your mortgage, I think it’s a great type of debt because if you didn’t have that debt, you would still be making monthly payments (They would just be called “rent” instead of “mortgage” and you would never see that money again). Once that debt is paid off you will have a better monthly cash flow and a good financial asset, but your better monthly cash flow would not exist if you hadn’t had that debt in the first place.

I think that’s what makes it a very unique debt.

Elizabeth
Elizabeth
7 years ago
Reply to  Jamie

True, but even when your mortgage, utilities and taxes equal your rent, there are additional costs like repairs, renovations, furniture, decorating, etc. that make homeownership more expensive. When I’m looking at homes (condos, in my case), I’m trying to picture the total cost of ownership, not the monthly payment. I understand why some people think rent is “money you never get back”, but so is mortgage interest, utilities on a larger home, decorating, repairs, etc. All the time people spend raking leaves and mowing the lawn is time they’ll never get back either. It’s a puzzle, to be sure! So… Read more »

Rya @ bulgarian money blog
Rya @ bulgarian money blog
7 years ago

“A debtor is someone:” – I don’t agree with your definition. Sometimes you get into debt to buy thing which you can’t afford but which you NEED. If you have two kids, living without a car will make your life very tough. So even if you can’t afford it (i.e. pay cash for it), it is okay to buy it. We’ve all heard that “the rich buy assets, the poor buy liabilities”. A car is a liability. But why do the poor keep buying liabilities? Because they NEED them. You need a car and a laptop and a cell phone.… Read more »

Emily @ evolvingPF
Emily @ evolvingPF
7 years ago

My husband has been without a cellphone for 2 months, and I “only” have a dumbphone… You’d be surprised what’s possible when it becomes necessary.

Plenty of people live without cars, too, even in places where you’d think it would be impossible. I believe that a car is essential in our town, but I know many international students who can’t have one because they don’t have driver’s licenses, and they get along somehow.

Katie
Katie
7 years ago

I agree to a point, but there’s also a point where you’re going to be better off taking out a car loan and having much more flexibility in the jobs you can take (and thus possibly get a much higher paying job) then you are to just do without based on the idea that debt = evil. That’s where I think black-and-white dichotomies are an issue.

Mom of five
Mom of five
7 years ago

But wouldn’t you agree that a student living without a car is quite a bit different from a family with children living without one in less walkable areas? As far as cell phones go, I’m sure there are people who don’t need one. I don’t personally need a smartphone, although it certainly comes in handy and makes my job easier and more mobile. My husband absolutely does need a smartphone for his job (and he is reimbursed for it). I do, however, need at least a cellphone for my current lifestyle as do our older children. Not having phones would… Read more »

Emily @ evolvingPF
Emily @ evolvingPF
7 years ago
Reply to  Mom of five

The previous commenter didn’t ask how a family can live without a car. I was answering the question “who can?” by saying that there are people in my life without one or the other. I think we tend to get stuck in boxes of thinking about needs vs. wants and turn a blind eye to the people among us who live without our “needs” every day. I did the same thing before my husband embarked on this cellphone-less existence and before we consolidated to one car, which taught me about the bus system in my city. We should just admit… Read more »

Rya
Rya
7 years ago
Reply to  Mom of five

@Emily Yes, in some cases it’s possible to get through your day without a laptop or cell phone. No one’s DIED of not owning a piece of technology 🙂 And by saying you need a cell phone and laptop I am not saying you need an expensive one! Also, owning such devices is becoming more and more of a nessecity these days. Once, when electricity was new to the world, I’m sure many people said “We could do without that!” – but nowadays it’s unthinkable. So my point was that sometimes you go into debt to buy a car or… Read more »

Student Loans Worked Out
Student Loans Worked Out
7 years ago

I was an international student without a car. For me – then single, and living in a shared housing 15 min from the university – it was easy! Now, married, with children, with needs to commute to/from jobs, and have a quick method of transportation in emergencies – I think living without one would be much MUCH more difficult. Priorities are different for single people vs. people that have dependents, I think. I do believe, the common thing is looking for the best VALUE for the money. Debts are products, same as everything else, and one has to look for… Read more »

Samantha
Samantha
7 years ago

No one on this planet needs a laptop. Are you kidding me?

KevinM
KevinM
7 years ago
Reply to  Samantha

I’m self-employed. A laptop is required for presentations to clients, as well as getting work done between meetings. Now, you’re right, I could go without and find a different job. But I’d make a lot less money.

I’ll put a laptop in the ‘need’ category.

Samantha
Samantha
7 years ago
Reply to  KevinM

Fine… put it in the need category for your job. But get a loan for it? No way!!! You better be making enough money to actually PAY for a laptop, if its a need, and not go into debt. Thats the issue here. And if you can’t buy it, you need to get a different job.

justin@thefrugalpath
7 years ago

Our culture has a mentality of not wanting to wait to buy stuff. Using debt to purchase a house can be a great way to leverage your finances. However, using debt to buy a new tv, living room furniture and stuff is just bad money skills.
And you’re right about the car payment. Once many people pay off their car one of the first things they do is drive it onto the lot to trade it in.

TB at BlueCollarWorkman
TB at BlueCollarWorkman
7 years ago

I agree totally, dude. Our culture is one of debt. And when so many people are in debt and that’s the mentality, it’s hard to think a different way. AFter reading this I realized that my mind works in ‘debtor’ mode. It does. But a great way to go from debtor to investor probably actually starts with changing that mindset!

William @ Drop Dead Money
William @ Drop Dead Money
7 years ago

Bingo!

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago

It doesn’t help that our government actually encourages this because it, and most Americans, think that spending and debt grow the economy (when in reality it’s production and savings that grow an economy).

justin@thefrugalpath
7 years ago

I hate when I hear that consumer spending went up so the economy is on the upswing. To me that means people are going further into debt and the people at the top, who don’t do debt, are getting richer.

Holly@ClubThrifty
7 years ago

This article kind’ve reminds me of “Rich Dad, Poor Dad” in the sense that you are saying that investors buy things that help them create wealth and debtors buy things that make them look wealthy (even though they are not). It’s kind’ve cliche’ but all you have to do is look around you to see that it’s true. I like your article, William. Have a great day!

Lincoln
Lincoln
7 years ago

I think William’s article is good, but if there’s a low percentage of “investors” among single-parents and people with debilitating medical conditions, it’s not necessarily because they love working.

Getting enough capital so you can invest and not have to work usually takes a lot of time, and often a lot of luck. It even took Warren Buffett until his late 20’s or early 30’s to get there, and he was obviously way ahead of the curve.

Laura
Laura
7 years ago
Reply to  Lincoln

As the old saying goes, “It takes money to make money.” You have to have it before you can invest it.

Emily @ evolvingPF
Emily @ evolvingPF
7 years ago

What about the people who do both, though? There are plenty of people who invest despite having debt (good or bad). Technically I have student loan debt, but we have invested the cash we’ll use to pay it off while they are in deferment (and subsidized) – how does that action fit into your worldview?

I guess I’m neither of these yet. I’m not independently wealthy so I’m not an investor, but I don’t have the mindset of a debtor, either. I’m a burgeoning something – hopefully investor!

Short arms long pockets
Short arms long pockets
7 years ago

I like the article, but agree with some of the other posters that there is more to it than a black/white dichotomy. In my view there is a continuum between debtor and investor. Your position on that continuum can change depending on many things. Attitude/mindset is certainly one of them, but as other posters have pointed out, personal circumstances, life stages, and obligations to others can affect where we stand as debtors/investors.

Samantha
Samantha
7 years ago

I agree that whether you have debt or investments is a continuum, but the mindset is pretty much one or the other. Are you getting out of debt, or are you digging yourself further down?

We have a mortgage, but we’re paying it off aggressively and can’t wait to become investors!

ShackleMeNot
ShackleMeNot
7 years ago

I enjoyed this article.

People want to make finance about numbers. It is really about psychology. In several ways your article illustrates that. Debtors and investors have a different psychology and that dictates their behavior which leads to unequal outcomes.

I’ve already seen several excuses written above for why people can’t change what they do. “Debt is a tool.” “Laptops are a need.” 10 years from now those same people will be in the same situation because they have the same Mindset.

Student Loans Worked Out
Student Loans Worked Out
7 years ago
Reply to  ShackleMeNot

Nevertheless, debt IS a tool, and can be used wisely to change one’s circumstances for better.

Michael
Michael
7 years ago
Reply to  ShackleMeNot

Doesn’t it depend on the specifics though? I’m an IT consultant. I just ordered a $1700 laptop because that’s what I need to do my work efficiently. My vehicle on the other hand is a 1993 Cadillac DeVille hand-me-down from my sister with transmission, AC and battery problems. Turned around, my uncle owns a dozen crew-cab trucks with plow attachments on front. He owns a snow plowing and yard care business in Alaska. His computer is a Walmart special and several years old. For me, if I didn’t have liquid cash (or a CC float for the month) I would… Read more »

Ross Williams
Ross Williams
7 years ago
Reply to  Michael

I think this hits the key point. Debt is a tool. It can be misused and it can be used badly. But hitting your thumb with a hammer doesn’t make the hammer a lousy tool. Nor that you should throw it out of your tool box. But there is another side to this. The consumer lending industry is a very lucrative business with lots of very smart people. They have developed credit ratings to identify people who will continue to make payments even when it is no longer in their interest. They have focus groups and market tests to see… Read more »

Matt
Matt
7 years ago

I think this article is pretty good (and in general I agree), but one thing it misses is opportunity cost. Sometimes it can be worth it to go into debt for a time if that can be regarded as an investment in yourself, and sometime choosing not to go into debt means reducing potential earnings (or savings) later on. Education costs come to mind, and so do mortgages (both of those with caveats, of course). Am I happy about having student loans still? No, but I don’t think I could have made enough even working full-time through college to pay… Read more »

CincyCat
CincyCat
7 years ago
Reply to  Matt

Personally, I view education “debt” as a type of investment with the payoff (hopefully) of higher earning potential down the road. Whether or not I pay cash or borrow the funds, it’s still a calculated risk, just like any other investment. Not much different than getting a capital financier or angel investor for a new business venture, in my mind.

Ross Williams
Ross Williams
7 years ago
Reply to  CincyCat

“Not much different than getting a capital financier or angel investor for a new business venture, in my mind.” I think that pretty much sums up the confusion between debt and investment in this article. They aren’t really related in the fashion described. When you pay for your education you are investing your own money, whether you borrow it or not. You use debt because you want the education to help earn money to both pay for the education and make even more money. When your business gets an angel investor or capital financier, the investors are sharing the risk.… Read more »

Lance @ Money Life and More
Lance @ Money Life and More
7 years ago

I do think being an investor is optional, because there are so many people who haven’t done it. That said, investors definitely seem to live a more independent life. It is optional, but not optimal.

victoria
victoria
7 years ago

The person I’ve known with the biggest debt problem (at least the biggest debt problem that I’ve known about) was there because he had no health insurance, ended up in the ICU with a nasty infection, and was there for about a week. This is someone who’d paid his own way through college and was debt-free because he’d been planning to move out of the country.

I’m not sure how something like that fits into your dichotomy.

EXK
EXK
7 years ago

Is this article seriously arguing that having to work for a living = being a debtor? That not having accumulated enough independent wealth to pay for your food, shelter, and medical care for the rest of your life = being a debtor? That working is for suckers? Maybe it’s not actually that extreme. Isn’t there a huge amount of space between people who are in debt to others, and people who are wealthy enough to not need to work? People who have an “investing” mindset, but simply don’t earn enough extra money to stop working? Where do you put all… Read more »

Ramblin' Ma'am
Ramblin' Ma'am
7 years ago
Reply to  EXK

Agreed. I live debt free, but on a modest income. I cannot afford to stop working (nor would I want to).

And if everyone thought working a 9-5 job was for suckers, how would our society function?

WWII Kid
WWII Kid
7 years ago

Have you ever watched The Andy Griffith Show episode where Howard Sprague retires early to a little tropical island for his eagerly awaited end to working? After a short time, he’s found at the local watering hole, ripping newspaper into strips like all the other islanders. What the writer fails to cover is that, once one has invested “enough” through working, how does one stop working and sit on that beach all day with the tall drink watching native girls wearing coconuts for tops? One doesn’t. Not working loses its allure fairly quickly, especially if you are used to working… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
7 years ago
Reply to  WWII Kid

The point is that an investor has the option to work or to not work. A debtor doesn’t have the luxury of that option.

CincyCat
CincyCat
7 years ago

I think a lot of people are missing the point of this article. He’s pointing out the *mindset* of people who have made a “habit” of putting themselves into debt – without thinking through the decision. A credit card offer comes in the mail, so they sign up. (Woo hoo! Someone wants to “give” me $10,000!) Two weeks later when the ad for a new furniture set comes in the mail, they charge it. There was nothing wrong with the furniture they had, but the decision to become a debtor drove the later decision to buy new furniture (never mind… Read more »

ImJuniperNow
ImJuniperNow
7 years ago
Reply to  CincyCat

Cars are an addiction to most people. Everyone I work with – from the Boss to the Managers to the Receptionists – leases a new car every three years. It’s one of the ways I can remember dates. (Oh, let’s see, Mary had the Lexus so it was 2003…) And they’re all top of the line vehicles, no $99 Hondas here.

Why have a car payment every month for your entire life?

CincyCat
CincyCat
7 years ago
Reply to  ImJuniperNow

We’ve been car payment free for a few months now, and it’s seriously like one of us got a hefty raise at work! We have extra cash flow to put some on our snowball plan, and some in a “depreciation/replacement” fund (the cars will wear out eventually…).

Shawn G
Shawn G
7 years ago
Reply to  CincyCat

You are spot on with your comment. As I read these other comments, what I’m seeing is justification for taking on debt. Sure there is “good” debt and there is “bad” debt, but that is not what I think the author is implying. What it comes down to is the mindset that you discussed. Having debt is not a way of life if you want to get ahead. If you continue to rely on debt, you are a debtor. My wife and I had student loans. As we look at purchasing a rental property we are going to have to… Read more »

Jenne
Jenne
7 years ago
Reply to  Shawn G

The author is absolutely saying that there is no such thing as good debt, in their moral characterization of ‘a debtor’.

Which is their right. It’s certainly the right of GRS writers and readers to look down their noses at people who have debt and/or who find themselves needing to take on debt that they can’t afford to wait for or work around.

In the wake of Hurricane Sandy, though, I’ve got less than no sympathy for that black-and-white Calvinistic judgement.

Wes
Wes
7 years ago

Regarding the negative-dichotomy comments: Buying a car that drives with cash is a smart move, buying a brand new car that represents over half of your income (or whatever %) is not so smart. Same with a home in terms of buying something that is reasonable for your income and needs. In both of those cases though, I think the important distinction between investment and debt is a return on investment or cost of money (debt). If you are weighing those things when you make these choices you are very likely an “investor” and if you are making choices without… Read more »

Neel Kumar
Neel Kumar
7 years ago

Many commentators have talked about dichotomies and I am in somewhat agreement with them. To me, debt can be good or bad. If you are buying assets with your debt (such as a house) and not overleveraged, then great. Education is another capital expense for which debt can be good. But if you are borrowing to pay for furniture (that loses 20% of the value the first day) or worse yet, paying for vacation or meals with debt, you are already trapped in the sinkhole of lifelong debt. But the primary thrust of the article is that in order to… Read more »

Katie
Katie
7 years ago

I really like this article. The one question I have is the difference between saving and investing. I have investment accounts for retirement savings, but for house, car, travel funds, I use savings accounts (ING Direct if anyone is curious). One thing that this article made me realize is that, once I paid off my student loan debt, I started saving, but it was all saving for additional stuff (car, house, etc.). Beyond a 401K (which I don’t max out) and a Roth IRA, I don’t have any “future” savings. By this I mean general savings that would help me… Read more »

Cortney
Cortney
7 years ago
Reply to  Katie

Hi Katie, I’m sort of in the same boat as you – I have retirement savings, no debt, and savings towards a house/car, but no “mid-life” savings, as it were. I’d look into something like a non-qualified account. It’s still investing, but without the tax benefits of the 401k/IRA. Once that’s established, start throwing some money into it each money and see how it goes. I also think it’s harder to be without debt. With debt, you know exactly where all your money is going. Without it, you have all these possible things to save for and you can always… Read more »

SavvyFinancialLatina
SavvyFinancialLatina
7 years ago

I understand your mentality. It’s very similar to the leader vs. follower mentality.

My ultimate idol is Warren Buffett. I hope to be like him one day! He still lives in the same Nebraska house he purchased when he was on a modest salary.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
7 years ago

This may be my favorite GRS article. It’s funny how we think investing is too complicated. Sports fans can rattle off the rules and the stats of their favorite teams and athletes without even thinking, girls know more styles of and designers of shoes than I know exist, but P/E ratios, cumulative preferred shares, and cash flow are too much? Come on! Another thing to keep in mind is that consumer debt is bad for the economy. When you borrow to buy a car, that car’s value goes to zero. When an entrepreneur borrows to buy capital goods, like a… Read more »

Carlos@FinancialTales
7 years ago

I’m not sure about all this mindset talk. Sure, investing is optional if success is not a priority. It’s important to get started investing as early as possible. Make mistakes when your capital is small and you’ll avoid them later on in life.

Student Loans Worked Out
Student Loans Worked Out
7 years ago

I thought the article was extremely general. Yeah, of course, debts make you far less flexible, taking away a lot of choices. Yet, sometimes it is wise to takle on debts (I aam glad I took out my student loans – without my degree I would not be able to get the excellent job I have now, and degree lasts a lifetime!). Having a mortgage smetimes pays off, allowing one much better accomodation for cheaper price, accumulating equity along the way. Borrowing money to develop one’s business frequently pays off too. Heck, even borrowing to buy a SAFER car for… Read more »

Laura
Laura
7 years ago

Great article, William. You’re right – it’s all about the attitude. And I think some of the commentators missed that. You’re not a debtor because you have debt; you’re a debtor because the first thought that comes to mind when you want to buy something is that you can buy it with debt, rather than waiting and saving. An investor may not be debt free, but someone with that mindset is certainly trying to figure out how to be debt free, and how and where to invest their money so that it makes money for them. It’s all in the… Read more »

El Nerdo
El Nerdo
7 years ago

I like this article and I like it a lot.

Yes as Holly says it’s reminiscent of Kiyosaki, except that William doesn’t try to convince you to start flipping houses in Phoenix or Nevada (oh, the laughs of reading “Rich Dad” in retrospective).

And as CincyCat says, it’s about the mentality of a person, not their actual financial position.

I’m staunchly pro-work and I don’t think this article is anti-work at all. This article is only against the indentured servitude of the monthly payment lifestyle.

Great job William– looking forward to reading more articles from you. Very inspiring.

KSR
KSR
7 years ago

Some here understand the overlying principle you have conveyed. Good! If it helps just one 20 something/ recent grad to think about it, embrace or adjust their position and understand the difference–your work has had tremendous impact. Savers v. Spenders, Investors v. Debtors, Owners v. Renters, Necessity v. Convenience, Freedom v. Burden… A mindset that a person needs to intuitively extrapolate early on, to mingle in an economy that absolutely requires both.

Peter
Peter
7 years ago

The problem with most of the responses (attributed to the negative tone to being a “debtor” in the article) is that being a debtor is not necessarily bad. The author chooses to create the dichotomy for a greater contrast. The problem with this is that a person can be a “debtor” but in reality have no real debt (maybe a mortage, but according to article thats an investment). But he goes on to classify debtors as continually buying new cars. So am I an investor if I drive the same rust bucket for 20 years? Working every day for a… Read more »

Tracey H
Tracey H
7 years ago

“You need a car and a laptop and a cell phone” and if you can’t afford them, buy them on credit. Yes, that’s the voice of a person with debtor-mentality. Seriously. Some people need a car (those who can’t either use public transit or pay someone to get them to a job). Anyone who needs a laptop for work has it paid for. Anyone who needs a cellphone for work has it paid for (or should–complain to your workplace if they require you to have either and won’t pay for it). My husband makes well into 6 figures and doesn’t… Read more »

Jon @ MoneySmartGuides
Jon @ MoneySmartGuides
7 years ago

Great article! I always try to think like an investor because I want to retire early and work if I want to, not because I have to.

Kelly@Financial-Lessons
7 years ago

Investing is of course optional, it is a matter of whether or not you want to live on a budget for the rest of your life, or have financial freedom and build wealth. I think the idea that you are what you do is true in may areas of life, especially relating to what you talk about here.

Samantha
Samantha
7 years ago

I greatly enjoyed this article and it is certainly one of the best I’ve read here in a long while. I’ve never thought about this idea in such concrete terms, but you’ve hit the nail on the head. Dave Ramsey helped turn my mindset from a debtor to an investor. It sounds ridiculous to say it, but it never occurred to me that I could buy a car without getting a loan. Now we are debt-free except the mortgage, and will be free of that within two years. I would say we’re investors, although we’re not quite independently wealthy. I’ve… Read more »

Student Loans Worked Out
Student Loans Worked Out
7 years ago
Reply to  Samantha

I LOVE Mr. Money Mustache!

BC
BC
7 years ago

I’ve spent the past 5 months getting educated on personal finance principles with the support of my local library and the internet. This article resonated with me because I have been holding back on reading the investment books until I am closer to being completely debt free. But it is my intention to go on a deep-dive to learn about investment strategies once I reach that point, hopefully in the next 12-18 months. I felt early on in this process that I needed a clear post-debt strategy or else I might end up spending too much with the new found… Read more »

Edward
Edward
7 years ago

This article is *amazing*! Toughest love on GRS in a long, long time. I’m sure there will be a lot of “But my situation is different because…,” arguments thrown out, but that’s the hallmark of a debtor. Everyone thinks their own situation is “different”. Debt is an (the) emergency to your financial freedom. Get rid of it ASAP and forever before you do absolutely anything else. What good is buying any investment which gives you an 8% return if you’re paying 20% interest on a chunk of debt? It just doesn’t make any sense. There’s a lot of folks just… Read more »

LeRainDrop
LeRainDrop
7 years ago
Reply to  Edward

I agree with you wholeheartedly, Edward. But as a counterpoint to your middle paragraph, just for thought, what good is paying off a 1% interest car loan if you could instead invest for 8% return (or even 1.64% on an Ally Bank 5-year CD)? I loved this article!

Christopher
Christopher
7 years ago
Reply to  Edward

I agree completely. The bifurcation between the two mindsets is as clear and concise as I’ve ever seen it articulated. And, while I agree that many if not most of us have some debt with which we have to live, it is the approach to it that is important: a necessary evil to be rid of as soon as possible, or a means to an end of a lifestyle one can’t afford.

Tie the Money Knot
Tie the Money Knot
7 years ago

The first thing to do is make sure that income exceeds expenses. Doing this results in savings. So, at a minimum, having savings is a great start.

However, if one aspires for at least some degree of financial freedom, things must go to then next step: taking savings and investing it. There is negative rate of return attached to stuffing money under a mattress or burying it in the backyard. Not much better in bank accounts. But investing it, with proper asset allocation, can do wonders for one’s long-term finances.

Rate of return really matters a lot.!

Teinegurl
Teinegurl
7 years ago

One of the best articles on GRS this year truly a light bulb moment for me !

Jenne
Jenne
7 years ago

“And so, when Danny Debtor’s car payment ends, he buys another car, one with a new set of payments. Is this because the car he just paid off happened to just die on him? No, it’s because he’s used to making payments. If he had to stop making car payments, he wouldn’t know what to do with the money that went into the payment. Maybe I lived in Orange County for too long, but almost everyone around us had this mind-set. ” Yeah, you did live in Orange County too long. The logistics of living without a _reliable_ car(s) in… Read more »

Deb
Deb
7 years ago
Reply to  Jenne

I hear this excuse all the time. I have driven paid-off used cars for my whole adult life and have never spent more keeping one on the road than I did on the payments. I am currently driving a paid-off 12 year old truck in great condition that has only needed regular maintenance in all the time I’ve had it.

CincyCat
CincyCat
7 years ago
Reply to  Deb

I agree completely. We bought an 8 year old used car with bad A/C on a 3 year loan (which we paid off about a year early), then paid to fix the A/C later. All told, we have spent far less for the car overall (including the new A/C) than we would have spent if making 5 years’ worth of payments on a “newer” car, that would still be 5 years “older” by the time it was paid off.

Jamie
Jamie
7 years ago

The big thing this article is making me think about is the idea that once a debt is paid off, people tend to pick up a new debt because that is what they are used to. I will count myself lucky, then! In 2009 I bought a car with an auto loan; in 2010 the car broke down and the repairs were unaffordable and not covered by the warranty or lemon laws. Just last month I finished paying off the car, which has been broken down in our parking lot for the past two years and serving as a storage… Read more »

CincyCat
CincyCat
7 years ago
Reply to  Jamie

I know this isn’t the larger point you’re trying to make, but you may be able to get a reduction in your insurance costs if the car is basically “parked”. When my grandma had to be hospitalized for a long-term illness, I(as her POA) got her insurance down to a tiny fraction of her regular cost because she was not driving the car. Something to check into…

Jamie
Jamie
7 years ago
Reply to  CincyCat

Luckily, the car is paid off and off my insurance now, but even as a registered non-op I had to pay full insurance because the bank still owned it.

Thank you for the suggestion, though!

Old Guy
Old Guy
7 years ago

Why invest? My government will take care of me. 😉

Sara
Sara
7 years ago

I categorize myself as a strategic debtor. Yes, I have debt. Yes, I have used convenience checks from a credit card, taken out student loans and car loans, and have had debts I don’t pay ahead on because they are low interest. However, the point isn’t that I have incurred this debt because I can’t wait and need it now, it’s because after careful consideration, it was what I considered the best option. I also invest a fair amount – around 15% of our gross income – across a wide variety of accounts. You know that amazing mind shift that… Read more »

krantcents
krantcents
7 years ago

I grew up with depression era parents who only invested in businesses and real estate. My first inveestment outside my primary residence was in income property. It turns out, I did very well! It lead to financial freedom and other businesses. The first step is the hardest!

John S @ Frugal Rules
John S @ Frugal Rules
7 years ago

Great post! As has been already stated, our culture has a mentality that is so averse to waiting. It’s one that’s fine with taking on debt to get the latest and greatest thing without batting an eyelash. Sure, it’s fun to have, but not worth the debt. I would consider myself an investor. You just have to be in order to get ahead and make your money work for you.

Matt
Matt
7 years ago

I can’t be the only person who found the “holier-than-thou” attitude throughout this entire article profoundly offensive, can I? Not only that, the entire premise of the article is flawed from the outset by setting up a false dichotomy. People aren’t either “investors” or “debtors”, most people are some combination of both. This article suggests that it’s a no-brainer, that everybody can be a brilliant financial day-trader and spend their time “by a pool in Cancun and sipping piña coladas” instead of working like a sucker, but everybody knows this is BS. The ghost-writer analogy makes no sense whatsoever. “The… Read more »

Wes
Wes
7 years ago
Reply to  Matt

You do realize this is Get Rich Slowly (as opposed to You’re Poor and You Suck), right?

The website is about helping people – providing useful information and tools for overcoming financial burdens, mindsets, whatever. It shouldn’t be that difficult to read through the lines and link the article to that ultimate purpose.

Ross Williams
Ross Williams
7 years ago

As far as I can tell, people who live off their investments are usually using other people’s money to invest. Donald Trump didn’t go bankrupt, his businesses did. The idea you are going to save enough to live off your investments is doubtful. If you save 20% of your take home earnings and get a 4% return over inflation, it will take you about 40 years to save enough to live at that same level in retirement. And even at that, you might want to enjoy a few pina coladas along the way, because you still won’t be any better… Read more »

Deb
Deb
7 years ago

Now that I’ve gotten rid of all my debt, I’ve been looking into ways to get into the other side, investing (outside of retirement funds). I don’t have a lot of extra $ to work with, so I recently signed up with one of the peer-to-peer lending sites. I’m excited to see the ball start rolling, even though it’s a pretty small ball right now. You gotta start somewhere, right?

Andrew
Andrew
7 years ago

Excellent article! I’m a huge fan of the straight-forward approach. Less wishy-washy compromise and don’t be afraid to ruffle the feathers!

One interesting typo early on (apologies if someone already pointed it out) changes the intent a bit until you realize it was a typo:

“… choose whether to be a debtor to an investor”

Aram Durphy
Aram Durphy
7 years ago

If you want to be an investor, but find self-teaching daunting, I recommend interviewing some local fee-only investment advisors. You may find someone who can help you with a plan, and who has a good track record for return on investment.

Jay
Jay
7 years ago

This was a very good article. It actually challenged the reader to think…hard. Thank you.

adriano
adriano
7 years ago

Awesome article. Kept thinking, i wish this is true, while reading it. Then i was thinking that something was wrong, i didn’t want to be seduced by a feel-good article. Then i started making rationalizations such as; it didn’t deny the possibility of a person changing theyre mindset from debtor to investor. Then i finally found the point of the article; An investor mindset can be chosen. Something has to happen for a person to change from debtor to investor mindset. Some event must trigger it. Like taking an article too personally and getting offended and then re-evaluating.. What is… Read more »

Cat
Cat
7 years ago

Do you suggest using a financial adviser for investments or trying it out on your own (if you don’t have a lot of money to start off with, let’s say around $1000).

-Cat

Ross Williams
Ross Williams
7 years ago

With all the laudatory posts, I am going to repeat what I said earlier in clearer terms. This article provides poor analysis and even worse advice. If you want to live off investments you need to take risk. That means borrowing money to invest aka going into debt. Without leveraging your own money with borrowed money, your chances of earning enough from investments to live on is very small. That’s why when people retire their largest asset is often their home. They bought it with mostly borrowed money and they got all the appreciation for its full value. Yes, they… Read more »

SweetCoffee
SweetCoffee
7 years ago

Fantastic article, William. Lots to chew on here.

Tania Belkin
Tania Belkin
7 years ago

William,

Good article, thought provoking. I like and appreciate your points. I am one of those people who hasn’t been paying much attention to investments lately.

Thank you for the push:)

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