Dodge St. Regis
This morning, just out of curiosity, I did some research on companies that operate debt free. This is mainly just a hobby of mine, and I don’t use the information for anything. Furthermore, I’m not an investor, merely a person who does some occasional research in order to be aware of what’s happening in the world. I’ve found that many companies, which had at one time, operated debt free, have since taken on billions of dollars in debt, most recently after the last financial meltdown in the mid-aughts. A few of these companies include Walgreen’s, Cisco, and Harley Davidson. These companies operated with no long-term debt for, in some cases, a hundred years or so, but then decided to take on debt to expand once interest rates got so low at the end of the financial crisis. These companies all have literally billions of dollars in debt at this point. They used that debt to expand, but one of the downsides is that the cost of servicing that debt has restricted their cash flow, the same as it does in my little world of household budgeting. It’s easy to get lulled to sleep when the cost of money is so low, and we tend think it always will be. But, of course, it isn’t; because nothing ever stays the same.
A couple of businesses that operate without debt at this point are PayPal and Ulta Cosmetics. It’s interesting to note that another company that operates debt free is American Express. That’s right. The same company that keeps your personal and business cashflow tied up operates without any similar hindrances upon themselves. I think there’s something to be learned here. Let’s see ….hmm…OK so
How about Apple? Apple too, operates with zero debt. Here are some others: Amazon, Bed Bath and Beyond, T. Rowe Price Group, and MasterCard. Maybe these companies know something about debt that we don’t? They’ve been able to resist the pull of cheap money while we had it, but interest rates are going up now, and budgeting for those payments is going to get more difficult for everyone; individuals, and companies alike. While the tide has been in, some of us have been skinny dipping, and as it goes back out, we’re about to find out who that is.
Shakespeare was one of the first to make note of the danger of borrowing and lending money, in his play “Hamlet.” Here’s a few of the most famous lines from that play:
“Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine ownself be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
Farewell: my blessing season this in thee!”
People quit asking me if they could borrow money from me a long time ago (probably because they knew I didn’t have any!) and likewise, I don’t borrow money from friends or relatives any longer either. I learned a long time ago that this is a really bad thing to do, but I had to learn my lesson the hard way. If you borrow and then don’t pay it back, or if you lend and never receive repayment, it can cause a rift in any delicate relationship, even one between parents and children, siblings, or BFF’s. This goes down to even asking someone to loan you money for lunch, to float you a few dollars and you’ll pay it back when you get paid. Sadly, in too many instances, it doesn’t get paid back. Then, your co-worker from whom you borrowed the money, sees you every day and wonders why you haven’t paid back the lunch money, but you now have a new car in the driveway. As for me, if someone does ask me for money, I just give it to them if I have it available. I tell them to pay it forward rather than pay it back. I let it go and never think of it again. In the past, I have been on both sides of transactions like this, and it can get really ugly, really fast. Don’t recommend.
I can’t remember where I was, or what salesperson was trying to sell me some money, but when I told him I felt I couldn’t afford the thing, he asked if I had a friend or relative I could borrow it from. Really? Well, that’s never going to happen if I have anything to say about it. But it’s hard to believe how ruthless and unethical some salespeople can be. Young people are often taken in by this, and much to their detriment. Don’t fall for it!
Another thing that parents and grandparents do, is co-sign for car loans or other credit so that their kids or grandkids can “get started in life.” My dad did this for me when I was 18 years old and purchased my first used car. It seemed perfectly harmless and normal to me at the time, because, let’s face it, at 18 years old, you’re still a kid. You’re used to asking your parents for things. In my case, I didn’t ask for this, but my dad felt it was what I should do to have more reliable transportation, and to build credit, and become responsible. Talk about a nightmare! Now the pressure was on to make the $48 a month payment and pay the insurance, which was easily twice that amount at the time. I made less than $3 an hour, so every little bit hurt. Yep, I brought home less than $100 a week in those days, but I had a cute Ford Fairlane 500 super sport with a fast V-8 engine, mag wheels and dual exhaust. Vroom! I don’t think it helped me become more responsible, but it did add a lot of pressure into my relationship with my dad. Things continued in this vein until my dad passed away in 1991. That’s when I discovered that Daddy wasn’t around to help me anymore and I finally learned to be responsible for myself. In my case, developing sound money management skills was a long time in coming. Sometimes “tough love” is what really helps in situations like this.
When my daughters were old enough to drive, I bought them each a cheap car I could afford to pay cash for. This helped me tremendously, because I didn’t have to drive them around anymore and they could go out and get a job. Once they could afford a better car, they bought and paid for it themselves. Both of my daughters became very self-sufficient by the time they graduated from high school or shortly thereafter. My youngest daughter was ridiculed for her old car I had bought her, when she went to college. The other kids didn’t want to ride around in it. It’s not that it wasn’t safe, it just wasn’t new or modern. It was a late 1970’s era Dodge St. Regis. I still feel bad that this happened to my daughter, but the rich kids she went to school with all had new to nearly new sporty cars paid for by their parents. As a single mom I couldn’t afford such things and I certainly wasn’t going to go into debt for it or put my daughter into debt for it either.
If a loan to a young person requires a co-signer, that’s usually because that kid can’t qualify for their own loan. There’s a reason for that. The bank must make sound lending decisions. You can come to your own conclusions about that in reference to the person you’re planning on co-signing for.