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Thomas: Take a look at what you own vs. what you owe

POSTED: October 10, 2008 5:01 a.m.

"An absolute principle of economics," the late Larry Burkett wrote in his 1992 No. 1 best seller, "The Coming Economic Earthquake," was that, "... no one, government or otherwise, can spend more than he or she makes indefinitely. At some point the compounding interest will consume all the money in the world."

He added: "With so many variables in the economy, the one nonvariable is this: What you own belongs to you and not to a lender." What he was encouraging folks to do here was to make debt rare and to get completely out of debt as soon as possible.

In this best-seller, Larry may not have foreseen the subprime mortgage crisis, but writing about mortgages, home equity loans and easy lines of credit, he did note that, "Clearly many American homeowners have transferred the wealth stored in their homes to the lenders. In this case, it leaves both in jeopardy. Given the wrong set of circumstances, the homeowners will default, leaving the banks with huge inventories of homes they can't sell."

Approximately 18 months ago, it seems that "the wrong set of circumstances," became "the perfect storm" for many homeowners, lenders and the government. The latest big victims of this storm: Investment bank Lehman Brothers, fourth largest in the U.S., insurance giant AIG and mortgage giants Fannie Mae and Freddie Mac.

Hundreds of billions of dollars will have been lost by homeowners and lenders by the time this turns around. I'm speaking here not only of those individuals who lost their homes, but also of those who have seen their homes plummet in value as a result of this mess.

With its bailout of companies "too big to fail," its purchase of failed assets and a pool at the Federal Deposit Insurance Corporation to insure investors in money-market funds, according to some in Congress the total cost for the federal government in all of this will be more than a trillion dollars. Of course, by "the federal government," I really mean the U.S. taxpayer, you and me.

How did it get to this? The details are somewhat extensive and complicated, but simply put: America had too much bad consumer and corporate debt, especially in the area of home mortgages.

The better question is: Where do we go from here? There is no easy answer, but first I believe that all parties involved, the government, lending institutions and U.S. citizens, all need a much more cautious attitude toward debt.

Time magazine recently noted that, "We all will have to start living within our means - or preferably below them. If you don't overborrow or overspend, you're far less vulnerable to whatever problems the financial system may have." That sounds like something Burkett would have said.

My wife, Michelle, and I can testify to this wisdom. We have now been married for nearly 11 years, and for about the past 10 years we have lived our lives completely debt free. This includes owning our home, our cars and so on.

We are not, nor have we ever been "rich," at least by American standards. I've been a public or private school teacher for the last 15-plus years. Michelle worked full time for a Christian ministry early in our marriage, but has been a stay-at-home mom for about seven years. Our income has always been at or slightly above the median income for Americans.

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), 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.

Our financial path has literally been a calling. After about a year of marriage, I felt God was calling us to commit to live our lives totally and completely debt free, never going into debt again for anything. I have always felt that this calling was not simply to bless us personally, but that we were to be an example to others and encourage them to trust God to provide all that they need.

I am not saying that it is wrong to be in debt. However, debt should be rare (as it used to be), and any debt should be paid off in full as quickly as possible. The bottom line financially, whether we're talking about the government, banks, corporations, small businesses, churches or individuals, is: How much do you own and how much do you owe? Let me say from experience, it is much better to own than to owe.

I'll share more of our financial journey, including some struggles we've faced and other challenges as well, in my next column.

Trevor Thomas is a Gainesville resident and regular columnist; Web site.



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