Earlier this week, as I lay outside practicing Savasana, or trying to, my mind could not help but wonder. Do any other yoga students struggle with Savasana? When I do yoga at home I honestly skip it. I know it is important, but I think the entire time, “I have other things to do,” or “what is wrong with me, everyone else has achieved total relaxation and I am ready to just go home.” Yes, I know I am a bad yoga student.
During this typical “Savasana Fail” my mind began to wonder to financial goals. Yes, yoga instructor I understand these are not intertwined, but let me explain how my mind arrived at my financial goals when I was trying to relax. As I lay on my yoga mat on the lawn, taking in the warmth of the sun, I began thinking I would enjoy my own little “yoga oasis.” This, of course, requires money and dedication. For Lynden and me the biggest roadblock to creating a beautiful backyard is money. Neither of us is great with upkeep and would probably benefit from hiring someone to maintain the yard. We additionally need a new fence, need to pull out the old “trash trees”, and need to purchase the necessary materials for this kind of oasis.
Financial Goals are important; and, even more, important is for a couple to discuss and agree on those goals. Luckily for me, Lynden will not read this post so we do not need to discuss or agree on my “Yoga Oasis.” Okay, I am kidding, he may read this post, but we both realize there are far more important projects we need to tackle first.
One important step, besides setting your financial goals, is to understand debt and credit. Last week I shared 3 Types of Bad Debt You Use to Hurt Your Credit. The response to this post was wonderful. So many of us do not realize the importance of having credit; in fact, it is almost as though there are two mindsets when it comes to credit/debt. The first mindset is “Credit is necessary, debt is unavoidable, I will respond later.” The second mindset is “Credit is evil, I need to avoid debt at all cost, I will pay cash for everything.” While I will not say both these mindset are wrong as they are usually based on past experience, I will say there is a third approach to debt that is better. This approach is, “when the importance of debt is understood, credit can increase my financial position.”
As I mentioned earlier, last week I discussed debt that could potentially hurt your credit. Today I wanted to set aside some time to briefly discuss good debt that is more likely to help your credit. Please notice the words here “potentially” and “more likely.” Good Debt, when ignored, can ruin you, just as Bad Debt when timely paid can help you. Still though, having one of these four types of good debt on your credit does have the potential to increase your credit score.
Once again I am referring to Investopedia for these four examples of Good Debt. Ironically one of these four kids of Good Debt I tend to view as bad because it takes a good chunk of my paycheck, and I do not mean Real Estate. Yes, that takes a better chunk of my paycheck, but we have a place to live and that is awesome. Nope, this one is Technical or College Education. Two other types of Good Debt are Small Business Ownership and Investing, neither of which I have any real experience.
The Four Types Of Good Debt
1. Real Estate
Typically people do not think of owning their own home as a way to immediately make money. If you are living in a single family home, with your family, it is unlikely you are making any money from your home. This property, however, could help to increase your credit as it is seen as a positive asset. Theoretically speaking, the chances are high that if you sell the home you and your bank will not lose money. You know the hope that property values increase.
There are of course times when property values plunge, you know like ten years ago when the Real Estate Bubble Popped all over Wall Street. See, I know what I am talking about. We all remember that time, and we all remember the aftermath of it. There are so many important factors when considering purchasing a home, but I will save that for a future post. Instead, consider how your mortgage could help your credit. When paid on time it shows lenders you are able to maintain your debt and thus manage your money. Of course, when you fail to pay the bank will take your home and sell it. Trust me, that does not help your credit score.
2. Technical or College Education
Okay, I understand where Investopedia is coming from by listing this as a Good Debt. I am going to try my best to rationalize how it could help your credit score. Please bare with me as I hate my student loans and do feel like they are at best evil. Okay, evil is harsh. These loans helped pay for my education. I also recognize that I am in an area where my degree and skill set is not highly sought. Plus, as Lynden reminds me, my degree and skillset did help me obtain a very good job as a City Recorder. In this community, my wages for that position is higher than most, for which I am thankful.
Okay, so maybe that kind of arguing for the point that Student Loans are helpful. Again though, the key here is paying them on time. Do you want to know how to get out of Student Loan Debt? Death is how you get out of paying your student loans if they are tied to your name only. Yes, there are scammers who claim you can wish away all your student loan debt. If anyone has successful been granted this wish, please let me know. Please also go straight to your loan provider to discuss payment options. Before signing paperwork from one of these scammers, I called my loan provider (my public loans), and well maybe they mislead me, but according to the representative 9 times out of 10, the scammers change their names and you are left with an even bigger mess. The reality is for Public Loans the provider wants to help you and does understand that your beginning income is probably less than what they estimate. My biggest regret, not calling my providers right away; wow I see another blog post in the future.
3. Small Business Ownership
I own my own business. Oh wait no, I have an Etsy Account, LillersBoutique, which has four listings, I am signed up as a PawTree Pet Pro (and failing), and I want to treat my blog as a business but right not it is more of a hobby. Okay, I am not the best to give advice in Small Business Ownership. Let me simply say this, the idea here is similar to the Student Loans. A Business Loan when paid off in a timely matter, and hopefully before the due date, helps the bank. This helps your credit score. On the other end, if it blows up in your face and you shut your doors after two years, the bank reasonably assumes you can sell off assets of the business and pay for that loan. Finally, if you do not sell it off, they will do it for you. Please, if the first option of having a successful business does not pan out, sell the assets and pay off your loans. Yes, your credit score will drop, but not as drastically as if the bank takes everything from you.
Okay, last one. Has anyone borrowed money for investing? Clearly, the mindset here is if you have the money to set aside for investing, it has potential to increase your net value. Do not, I repeat, do not borrow money to invest. I fear it my end with your fingers being chopped off. Okay, probably not, but I do not see any lender saying, yes let me lend you $10k to put into Tulip Commodities because that bubble also never popped!
As I said last week, credit is a tricky subject. Again, why are we not spending more time in schools teaching this subject? I suppose the most important aspect of understanding credit is to know your own limitations; you know to do the adult thing and set a budget! Oh yes, I see another Personal Finance post brewing. In the meantime let us recap. I have provided four examples of Good Credit, but I am going to say only 3 of them have potential to help your credit score. Home ownership when paid helps to increase your net worth and thus your credit. Student Loans and Small Business Loans are viewed as an investment to improve yourself and again, thus increasing your financial worth. The goal here is that through the use of Good Debt, my financial position will increase. Right?