No one likes debt. People do whatever it takes to not deal with the word debt. People try to pay their credit cards on time. They don’t even want to think about owing money to other people. But what if someone tells you that this is not true? Everything in this world, everything in this life is based on debt. Sounds interesting? Well, that’s what we’re going to talk about today.
Today, we’re going to talk about the dreaded word called debt. A lot of people dislike it. Some of us are even afraid of it. We are going to walk you through the misconceptions to widen your horizons and to help you understand that everything involving any type of transaction in this life involves debt.
Before we dive in any further, we’re going to learn a little bit about the cycle of money. We have the Fed and the banks. The first transaction is typically from the Fed to the banks.
Understanding Debt: The cycle of the money
The Fed approves money being pumped into the economy, so to speak, and the first stop it’s usually the bank. The banks get the money that the Fed issues out.
That is the number one transaction. The bank receives a bulk load of money from the Fed, and then they have to pay it back to the Fed with interest rates.
Then, you come into the equation. These types of transactions involve mortgages and credit cards. You get to pay mortgages, whether it’s within 15 or 30 years, or if you have credit cards, the cycle is done on a monthly basis. These are the type of debts most of us are familiar with.
There are other types of debt aside from these kinds of transactions, and no one talks about them. Just so you know, everything we do, all we’ve ever worked on, always involves some type of debt. For example: you walk into your job or provide a service, whatever service you provide in exchange of money. We’re all here working for money. When you do that, the minute you start making your first dollar, you’re automatically entering into a debt transaction. Why? Because you expect to get paid, you’re giving a service. The employer or whoever is hiring you, owes you money.
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At the same time, as you’re collecting that money, every 15, or bi-weekly, or monthly, whichever frequency you are getting paid on, that also puts you in debt with the government.
Debt and Taxes
The Fed is a quasi-government institution, so it’s part of government. You also have the IRS. Every time you work for a dollar, you have to pay a percentage in taxes. The government doesn’t wait for you to want to pay for it. The government takes it away from you the minute you get paid. You can check your pay stubs. Every time you receive your pay, you will see your taxes deducted at the top part of your paystub document.
At the bottom is your check, unless you get direct deposit. If you do get direct deposit, you can always check the tax breakdown online. You will see a certain bracket going to federal taxes, a certain bracket going to state taxes, Medicare, Social Security and all of that is debt. It’s debt that you have to pay as a good citizen.
Towards the end of the year, if you overpay in taxes, the IRS will return to you what you overpaid. On a transactional basis, every time you work, you expect to collect. That makes you a bank, so to speak, because the employer will owe you money, but then as soon as you collect, you will owe the IRS money. That’s a debt cycle.
Debt ends when it is settled. You settle your mortgage within 15 or 30 years. Settlement is when the debt is fully closed, collected, and nobody owes anything. All parties involved got what they wanted. You got your house and you don’t owe the bank anything. The bank got their money back, and they were also able to collect the interest that they originally intended to collect.
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Same thing happens with you. The difference is that when you are giving a service, you have a shorter timeframe to settle the account. When you give a service, you typically expect to get paid when the service is done, or if you’re an employee, then you expect to get paid according to what was negotiated at the beginning. The debt is settled when you get paid.
Same thing happens with your rent. If you’re currently renting, you settle that debt on a monthly basis. Every month you receive a service (in this case, the service provided is a rental), you’ll need to fulfill your end of the bargain through the payment of your rent. This also happens with your cell phone bills and with your internet. See?, you are on a constant debt cycle.
A shorter cycle to settle the debt
To be more creative, there are even shorter debt cycles than the actual 30-day period. For example: you go to the supermarket and you grab your shopping cart and you start going around. The minute you take something and you put it in the cart, the debt starts right there.
How long will it take for you to settle that debt?, that will be up to you. Whether it’s 30 days to finish going around the supermarket, or perhaps an hour. Then, when you get to the registry, that’s when you actually get to settle that debt, and no one will owe anybody anything.
If you choose to pay your groceries with cash that means you’re simply settling that transaction at that point in time. For those who choose to pay the groceries using a credit card, you’re just simply transferring the debt. It’s just another form of debt that went from one piece of paper, that’s one form, into a plastic card, another form. That still makes it a debt transaction.
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