Debt Sinks Worlds Oldest Business

Think using debt to fund your small business is a good idea? I have a great counter-example for you, Koko Gumi. Koko Gumi (a Japanese construction firm) was the worlds oldest continuously operating company, and had been in business 1,400 years. Yes, they have been a family business since the 7th Century and are having to shut their doors. Why? Debt, of course.

You see, in the 1980’s, the company borrowed heavily to invest in the inflated Japanese real estate market. It was an opportunity too good to miss, they thought. The bubble burst, and they were in hock up to their eyes. Then, demand for their services diminished (they are specialists in building and restoring Buddhist Temples) and they couldn’t keep afloat.

The 1-2 punch of debt and hard times is too much for almost any business or family. You can’t predict when hard times will come, but you can influence how hard they will hit you. By preparing with a generous emergency fund and keeping out of debt you can make sure that your head stays above water, no matter what.
If you are interested in learning more, Business Week has all the sad details.

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Nothing Wrong With Student Loans?

The prevailing logic in our culture is that student loans are a good thing, or at least a necessary evil that is required in order to get an education. In reality they sap both our individual and collective futures. We take the people with the most energy, the most enthusiasm, and the most potential and saddle them with long-term financial commitments at exactly the wrong time.

Student loans are a student loans are a multi-billion dollar industry , in some ways a shady one. With hundreds of millions of dollars going through major universities there is a significant conflict of interest, establishing a relationship that will enrich an institution at the expense of its students. The New York Times published an article detailing the tangled relationship between Citibank and several universities. While no wrongdoing was admitted on anyones part, both parties agreed to pay restitution and to abide to a new code of conduct for student loan processing. That sure sounds like wrongdoing to me!

Why I Don’t Use Credit Cards

The issue of credit cards comes up a lot when I teach FPU, and there is always someone who doesn’t see the problem with using them. Personally, I think credit cards are at best dangerous and at worst usurious. There is absolutely no upside to credit card debt, whatsoever.

Here are several reasons why I don’t use credit cards for my finances:

  • On average, people spend 12-18% more when they use credit cards vs cash.
  • Credit card companies don’t have any loyalty.
  • Perks and rewards come at a very high cost.
  • Credit Cards make it difficult to track your purchases day-to-day and easy to buy things you can’t afford. I don’t want to use any tool or service that has a vested interest in damaging my long-term future.

Here are some reasons why I don’t do business with these companies:

Dabbling with credit cards is like playing with snakes. Don’t be surprised if you get bit!

Thriving on $12K/year

MSN Money provides some inspiration from a true story on surviving and thriving on $12,000 per year. Donna Freedman decided to go back to school to better herself and her future, and in doing so she had to make some radical lifestyle changes. She is now a full-time student with a grant that covers her tuition and books.

In order to make ends meet, Donna:

  • Works doing baby-sitting, mystery shopping, freelance writing, paid medical research, and as the manager of her apartment complex.
  • Takes a brown bag lunch every day.
  • Gives money to those less fortunate than herself.
  • Donates regularly to her church.

I found it totally inspiring to see someone who is making their future better and thriving in a difficult situation. She has totally taken responsibility for herself and is making it happen. Donna is going to sacrifice to graduate from school completely debt free, and be able to live like no one else. It isn’t going to be easy, but it isn’t going to be forever either.

The next time you are struggling with making a financial sacrifice, measure yourself against what the Donna Freedmans of the world are doing.

25 Rules For Wealth Building

Money Magazine has a nice gallery of helpful hints for building wealth. The advice is wise, thoughtful, and considerate, very close to what Dave says. I would recommend taking a closer look, if you are interested in that sort of thing.