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Some Principles Regarding Debt

As a country, we have the most consumer debt since the Federal Reserve started tracking it in 1943.  

The Bible has a fair amount to say, and this article is the best summary I’ve read as far as what scripture teaches.  Debt is not prohibited, the absence of debt is praised, God regulates the processes of borrowing and lending, and God warns about the dangers of debt.  

Ron Blue outlines the following principles regarding debt.

1. The economic return must be greater than the economic cost.
There is always a cost of borrowing - interest rates aside.  Funds for debt are received tax free, but paying back the debt is always done with after-tax income.  This principle almost always precludes borrowing for a vehicle, which depreciates in value as you pay interest on it.  

2. Have a guaranteed way to repay the amount borrowed.
When borrowing for a house there is an underlying asset that could be sold if need be.  Same idea for a lot of business debt.  Maintaining a liquid cash-reserve is also a way of ensuring you have the ability to repay a debt.  

3. Spouses must be in agreement.
This one shouldn’t need a ton of explanation - but both spouses should be on board before incurring any debt.  

4. There are no other alternatives.
Debt should be viewed as a last resort.  Most purchases that we end up financing in the US could be saved for and paid for in cash with proper cash-flow planning.  

Bottom line: debt isn’t necessarily bad, but it also is used way more frequently than it should be. 
Interesting Resources 

1. 10Q 
I started filling out these annual questions in 2014.  It’s super simple: every day you answer one question for 10 days.  The questions range from describing the impact of a significant experience, to something you wish you had done differently, to major milestones that happened lately, to something you hope to accomplish in the next 12 months.  You take a few minutes, reflect on your answer, and submit it into the 10Q Vault.  Then the next year these answers are sent back to you.  I’m an almost daily journaler, but this exercise carries extra weight.  This year the fun starts on September 9th, so be sure to sign up before then.  



2. Inc - Retirement Is Dead
Drastic headline aside, this is a great read on rethinking retirement.  It cites several studies that make connections of earlier retirement to earlier health declines, as well as bringing up the whole notion that work itself is some sort of evil.  It’s why I like to use the term “rehirement” when talking about retirement - we may plan to be financially independent from the NEED to work, but we should still plan on what we’re going to actually do with our time.  Maybe it’s part time work, maybe it’s volunteering, maybe it’s caring for family members.  But creating a “third act,” as the author mentions, merits great consideration.  
How do you approach the concept of debt?  Think I’m being unrealistic here?  Think I’m being too liberal in suggesting not all debt is wrong?  There’s few shortages of opinions when it comes to debt, so reply back to the email and let me know your thoughts. 

Gratefully,
Jeremy
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