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Sunday, January 10, 2010

Living Debt Free

Having entered a new year, no doubt many folks have been pondering what resolutions they should take on in order to improve their lives. Given our current economic climate, one excellent resolution for countless American families would be to become debt free.

In today's culture of instant gratification, easy credit, and stifling debt, more and more Americans are finding themselves in financial disasters. Foreclosures have been at record levels, with even the lenders themselves going under. The consequences are staggering: broken homes, broken marriages, bankruptcy, criminal behaviors, stress-related health problems, and so on. Sadly, many Americans are learning the hard way the truth of the Proverb which says, "The borrower is slave to the lender."

When it comes to personal finances, the recent recession has certainly gained the focus of an otherwise ADD-afflicted America. According to the Barna Group, a January 2008 report showed that, "Americans are troubled by a diverse palette of concerns. Three types of issues are of particular concern, perceived as ‘major' problems facing the country." Leading the way, with 78% listing it as a "major problem," was the personal debt of individual Americans.

The personal debt of Americans has reached epic proportions. A few months ago, David Beim, a professor at the Columbia Business School noted that "currently consumers owe $13 trillion [while the] GDP is $13 trillion. That is a ton." In other words, U.S. households have debt that is equal to the total U.S. economy. According to Beim, this happened only once before in U.S. history: 1929.

Our current recession, just as with any other, had many contributing factors. However, most experts agree that this recession, which began in late 2007, was mostly caused by the so-called subprime mortgage crisis. Blame for this crisis has been laid at the feet of various entities.

Whoever is to blame, tens of millions of Americans are suffering as a result. In my state of Georgia, according to the National Bankruptcy Research Center, between January and November of last year, one in 50 Georgia households declared bankruptcy. Nationwide, during the same period, personal bankruptcies were up 32%. As the Wall Street Journal recently put it, "never...underestimate [U.S. consumers'] willingness to spend beyond their means."

For the United States to recover from this financial disaster, one thing is certain: American families, businesses, churches, governments, and so on need a much more cautious attitude toward debt. Given that the family is the foundation of all institutions, this attitude must begin in the family.

What would it mean to you to be totally debt free? How would you feel if your home were completely paid off? What if you had no car payments and no overdue credit card payments? Can you imagine the peace? If you're married, can you imagine never fighting about money?

I'm 40 years old, and for the last 10-plus years of my life my wife Michelle and I have had zero debt. We are not, nor have we ever been, wealthy, at least by secular American standards. I have been a public and private school teacher for the last 17 years. Michelle has worked full and part-time for a Christian ministry throughout our marriage, but for the past eight years she has been mostly a stay-at-home wife and mother.

Michelle and I married in early 1998. Just after our wedding, we began to pay off about $25,000 in consumer debt. Despite having combined annual incomes that were only slightly above the U.S. median, we accomplished our goal in about 14 months. During that 14 month period we committed ourselves never again to go into debt—not for cars, vacations, or even a home. (A video of our personal testimony from Crown Financial Ministries can be seen here.)

Over the last 10 years, after paying off our initial debt, through the "blessing of the Lord," we have been able to: 1.) Build a debt-free, 3500-square-foot home (over about a 4 year period, acting as our own contractors); 2.) Bring four beautiful children into the world (with Michelle being a stay-at-home mom) and all the expenses that go along with them; 3.) Purchase five (used) vehicles with cash (average cost approx. $10k); 4.) Place approx. $25k in emergency savings (not including my retirement); 5.) Begin to fund college saving accounts for each of our children.

I take almost no credit for where we are financially. Michelle has always been more financially disciplined than me. Early in our marriage, through her efforts and the ministry founded by Larry Burkett, Christian Financial Concepts (now Crown Financial Ministries, www.crown.org), I embraced the simple, wise truths put forth in Scripture concerning money and debt. In other words, we are where we are financially by the grace and wisdom of God.

There are two key principles with which I believe everyone who is serious about properly managing his or her money must come to grips: 1.) Budgeting and 2.) Stewardship.

A budget is a tool. All it does is tell you when you've spent what you've agreed to spend in any particular area throughout a given time period. A good budget, one that is formal and written out, is essential in maintaining a healthy bottom line.

A budget can help keep you from overspending in any particular pay period or in any particular area, help you plan for non-regular expenses, such as car repairs, and help you plan for your financial future. Establishing a budget can be a lengthy process. It can take as long as a full year to get a budget working well, but the benefits are certainly worth the hard work involved.

Our budget has played an essential role in helping us weather these difficult financial times. I despise the rise in gas and food prices that we have experienced over the last few years. Being a family of six on a single income, these increases have hit us hard. Our budget is in constant flux, but it helps us see the adjustments in spending that we need to make, and therefore maintain sound financial discipline.

The second principle, stewardship, is the most important one. Only when we understand, as Scripture teaches, that none of us really "owns" anything, can we truly have the right perspective on money and wealth. The Bible says, "The earth is the Lord's, and everything in it." We are merely stewards, or managers, of His property. If you want peace in your life when it comes to your finances, you must first accept your role as a steward.

Our situation was and is a unique one; I certainly would not recommend that anyone do things exactly as we did them. Our path was truly "a calling." However, I hope our story encourages those who are looking for direction in their financial lives. We applied tried and true, simple financial principles by which we are still living. These principles would benefit most anyone.

Copyright 2010, Trevor Grant Thomas
At the Intersection of Politics, Science, Faith, and Reason
Trevor and his wife Michelle are the authors of: Debt Free Living in a Debt Filled World
tthomas@trevorgrantthomas.com

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