The Golden Rule: Don't have Debt

In the personal finance world we all know that debt is the sure fire way to live moneyless and is the reason why people cannot create wealth. You know how I feel about debt and that we as a nation have to stop carrying debt from individuals, corporations, and mostly our government. If you don't care about those things I would highly suggest watching I.O.U.S.A. I believe for the most part, that a large majority of US consumers have figure this out and are working to cut down their debt. I am pretty sure that our government is doing the exact opposite as running up massive debt—which we will talk about later.

I came across an article yesterday on cnnmoney by Paul La Monica that talks about how companies with low debt loads are out performing stocks of firms that are in massive amounts of debt. Here are some interesting stats from the article:

According to figures from Thomson Baseline, shares of S&P 500 companies with a long-term debt to capital ratio below 34% -- the S&P 500 average -- are up an average of 10.3% this year. The S&P 500 stocks with debt loads above 34% are up only 1.2%.

This holds true for smaller companies too. Firms in the S&P SmallCap 600 with a below-average debt load are up 7.2% this year while those with higher debt loads are down 1.6%.

Shares of S&P 500 firms that are debt-free are up an average of 15.6% this year. Debt-free tech giants Apple and Google have both surged more than 30%.

So we can see here as well, that for companies and personal investors, that debt is not the way to go. If you were to invest your hard earned money in a company, would you invest in a company whose balance sheet is pristine or in one that is carrying a load of debt?

Craig Callahan, founder of ICON Advisers, an investment firm with $3.5 billion in assets tells us why companies that have low debt have an advantage.

"In times like this, companies with high cash and low debt levels are in a better position to survive and take advantage of opportunities to grow through acquisitions,"

"Any type of financing is tough to come by. And in cyclical businesses, firms with no or little debt have a competitive advantage,"

Paul La Monica even names our good government handout buddies Lehman Brothers and General Motors along with General Growth Properties as example of companies that carried around to much debt. (note: why wouldn't they take on risk if they are going to get bailed out? General Growth Properties filed for bankruptcy) Callahan makes a great point when he says that companies with high cash and low debt levels are able to grow through acquisitions. Only if the government would allow companies to fail so other companies could buy up there assets and expand.

The golden rule here is pretty simple: don't have debt. Don't carry around personal debt, don't invest in companies that have debt, don't be a business that carries debt, and don't allow our government to spend us into nonsustaining debt. Why can everyone see this except our government?

Related Post

I.O.U.S.A - One Nation. Under Stress. In Debt 

GM - Government Motors

Peter Schiff: Daily Show

Cartoon by Marshall Gamsey from the Clarion Ledger

Would you invest in a company that was high in debt? Is debt ok for some individuals, businesses, or our government? Leave a comment!

Taxes, Surcharges, and Fees!

So I am headed to California in April and am starting to book hotels, cars, etc...

We are going to be renting a car and driving up the coast of California for a week. I found the vehicle at the price I wanted and made reservations. Once I got to the purchase page I see that my price had sky rocketed. I went and looked at the pricing and saw the breakdown of taxes, surcharges, and fees.

Airport Concession Fee 11.1 % = 28.62

Los Angeles World Airport Fee $10 = 10.00

Travel and Tourism Fee 2.5% = 6.45

State Sales Tax 8.25% = 23.63

Total = $68.70

This is just renting a car...I might have to calculate all the taxes, surcharges, and fees from my trip(Flight, Car, Hotel, etc...) and see the total of all these. I also have a surfboard that I kept out at a friends in California after I moved. I was going to bring it home with me after this trip. Guess what? If you guessed that there is a fee you were correct, a $175.00 fee to bring my surfboard back. A brand new surfboard cost between $400-$700 so its not worth it to me to bring it back. I will be giving it to a friend in the end.

I love traveling and don't mind flying 4-5 hours for a weekend trip if it was cost effective, but all these fee and surcharges along with tax it just not affordable. My question is do you think in the long run that travel oriented business hurt themselves by adding cost on to the regular price of goods and services? I don't know I am guessing someone is charging these companies and they are just passing along the charges to the consumer?

I would love to stay in a hotel every night out there but we just cannot afford it? I am willing to bet that once I add up all the cost associated with my trip I could have stayed a couple extra nights or brought more business to other hotels, restaurants, etc...

I don't mind spending money for experience and fun things, but it cost so much that we can really only afford one big vacation a year and thats still hard. I would love it if I could take more trips more frequently especially surfing. I can tell you one thing though, I will not be flying Delta to any surf destinations. That is a shame because A) Delta is my airline of choice (Amex and frequent flyer) and b) surfers travel to destinations all over the world. If I was a business I would cater to customers like surfers who spend a lot of their hard earned money every year to travel.

Why in anyones right mind would they want to turn those types of customers away? I know every company has to tax but fees and surcharges can only be hurting business in the long run, no? Let me know what you think?