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Winding Down Friday: How Much Credit is Too Much?


I read a LOT of personal finance books and other investment related articles, news, media, etc. and I’m always somewhat concerned by the line of thinking that debt is ok to have. Books like Rich Dad Poor Dad explain that it’s ok to use leverage to your advantage as long as you’re not in too deep or only if it directly benefits you (investing in a rental property as an example). I’m not so sure. Debt is one of those things that’s all too easy to spiral out of control, and constantly forces you to meet a certain level of income.

Let’s approach it this way. When considering the amount needed to live on, there’s usually some expenses that top the list. One of my favorite blogs, Early Retirement Extreme, recently laid out our biggest expenses like this:


  1. Children
  2. Housing
  3. Transport
  4. Food
  5. Taxes

Understanding which of these can and cannot be kept below a certain level is vitally important. You can take a variety of steps to lower the cost of Children (Not spoiling them with expensive toys) Transportation (no car loan) , Food (coupons/sales), Housing(NO mortgage), and Taxes (…accountant?). If you’re noticing a theme here, it all related back to debt. One of the biggest ways to cut down on your monthly expenses is to not pay debt interest to anyone. Not only does this mean that you’re more resilient to a recession, but you’ll also have a lot of options available to you in terms of career choice and income. I’ll admit I’m the most fuzzy in the tax area. It’s just not something I feel comfortable talking about with any sort of authority. Expect more posts about it in the coming months though, as I intend to learn a lot for next year!

None of these can be eliminated entirely, but keeping the monthly bite your living expenses take out of your income to a minimum means there’s more left for you!

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