With apologies to those who believe in reincarnation, it’s true that you only have one crack at life and implicit in this is that you should live for today. The problem with that is it can lead to a life with unnecessary hardship down the track. The ‘only live once’ approach should perhaps be replaced with a ‘no regrets’ approach. Although on the surface they are similar, the no regrets attitude looks towards the future.

I have heard many a young person justify the personal debt they are in with the line “Well, you only live once!” and I have heard just as many people a few years older express regret at the debt they burdened themselves with when they were younger. So to minimise the chance of regret, I reckon you should think to yourself “You only need to do it tough once.” You get to choose if you will do it tough for a short time by saving up for purchases, or a long time by buying on credit then paying your debts off.

The ‘do it tough once’ thing assumes that you don’t suffer some sort of personal tragedy, illness or disability that you can’t insure yourself against or avoid. Statistics tell us that there is a pretty high chance that you will bit hit with an affliction that’ll lay you off work for a couple of months at some stage in your life. So I guess the reality is that you may have to do it tough twice.

I’m not saying that all the good things you want should be delayed until you no longer have enough teeth to chew your own steak. There is a happy medium between living for today, at a big cost, and not spending a cent ‘til the day you retire. In fact, doing things tough when you’re young means there is little risk of having a retirement where you have to rely on government help.

Doing things tough once also lowers the chances of passing on the burden of debt to your family when you depart. Personally I can think of nothing where I would be more of a failure as a parent than to pass on a large debt with nothing to show for it to my children. Giving my kids the best crack at life has always been a very high priority for me, and being free of debt is a big part of that.

So next time you are tempted to whack that new lounge on credit or buy that car with a loan, think about how much easier life will be later on if you delay the purchase and use your savings instead.

There are a lot of people in finance who like to talk about good debt and bad debt, as though debt could either be well behaved or dig lots of holes in your garden. Perhaps debt should be referred to as naughty or nice. I guess in the simplest forms you could categorise them like that, but life’s not that simple so I prefer to refer to debt in a different, more complex way.

Debt is either tax deductible or its not, and debt is used to buy something that will either rise or fall in value.

While you are still awake I’ll tell you about tax deductible debt; it’s anything that can be included in your personal or business tax return (yes, you might need to grab yourself a coffee at this point). The majority of taxpayers would not be able to claim a tax deduction on their credit card or personal loan interest, because the purchase that’s accruing interest hasn’t been for something that earns income. If you use your car for work (that’s at work, not driving to and from the office) and your car has a loan, you will be able to claim a bit of the interest on that loan. Tax deductible debts are also the loans used to purchase investments like shares and property (but not vacant blocks of land). Because the tax deduction allows you to effectively lower the interest you pay, there is not the same urgency to pay off these loans. Thus the ‘good’ debt. [As a side, I’ve never heard from a victim of a rogue geared investment scheme referring to the debt that crippled them as being good in any way.]

When you have purchased something with debt that you can’t claim on your tax (pair of jeans, Blu-ray recorder, cat food, snowboard, etc.) then you want to pay this off as soon as you can. This debt is usually for stuff that falls in value (the coffee you have just finished won’t be worth too much now, and the cat food’s only worth something if it’s been half eaten by Paris Hilton’s dog, you can prove it, and successfully sell it to some idiot on eBay). Bad debt. Naughty debt. Go and sit in the corner.

Things in the non-tax deductible debt category that go up in value are usually only homes (mortgages) and qualifications (FEE HELP). They might not always rise in value but they should be worth more as the years go by. Sort of, kinda, alright good debt. Good because it’s not bad, but I’d never refer to a half million dollar mortgage as good. These debts should still be paid off quickly, but there’s no need to pay off FEE HELP or HECS debt quickly.

Like I said, it’s complicated.

To make it easy to remember, get rid of all the debt that you can’t claim on your tax, especially if the debt was used to buy things that aren’t worth as much anymore. After they’re gone then you can concentrate on paying off that geared share portfolio and investment property.