During the Vietnam War, one highly effective guerilla tactic used against US troops was to dig a hole, bury some sharpened bamboo at the bottom, smeared the tips with feces then camouflage the pit so Joe Bonham would fall in and be impaled.  Soldiers that didn’t bleed out would die later of infection.

Debt is the financial equivalent of a punji sticks.  Most folks are just walking through life and fall in by living a future lifestyle with current funds.

Here’s a great and simple example (pp. 288-289) …

23YO Debbie works a job that earns $23K annually, about $1400 month through-the-door (TTD).  She lives with her parents, who cover all living expenses, and she gives them $500 each month.  One day Debbie’s car dies, and she decides to buy another, newer car.  After originally planning to spend $14K on some basic transportation, Debbie gets sold a $28K hot sexy red ride, topless, fast. 

With a $20K in 60-month financing, and a $445 payment every month, Debbie sees no problem with the purchase, driving off in her new hot, sexy, red ride, topless, fast. 

But.

Not only has Debbie burdened herself with a $445 payment for the next five years, she also has an additional $150 in payments for maintenance, insurance, and gas.  So Debbie is now spending nearly $600 a month for her new hot, sexy, red, topless, fast ride.  As well as $500 to her parents every month. 

              = $1100 of her $1400 TTD spent for the next five years,
                             and only $300 a month — for the next five years — for everything else.

Oops it’s summahtime!!!  Debbie’s girlfriends are planning a weekend getaway, say for $500. 
But Debbie doesn’t have enough money to have a good time, so she starts buying gas for her not-so-new hot, sexy, red, topless, fast ride with her credit (“debt”) card.

Oops it’s the haul-lee-daaayyzzzeee!!!  Debbie has no cash (gotta pay back those gas charges every month) so uses her credit (“debt”) card to pay for gifts and clothes and … and … and. 

In less than the five-year financing term for her not-so-new hot, sexy, red, topless, fast ride, Debbie is now thousands of dollars in debt after buying more vehicle than she needs, expenses related to the more vehicle than she needs, and fun-money spending that makes life fun/(bearable).  And wondering how she got there.

To avoid the debt trap, keep expenses low.  Avoid spending future income on a present lifestyle.

More to come on this …