The borrower is slave to the lender.
This was true when it was written over 2500 years ago in the Proverbs, and it is true today, and yet we continue to buy stuff we cannot afford and put it on credit. Our government does this all the time. Even worse, we justify it by rationalizing that it is something we can’t live without.
It all starts at the tender age of 18, as young men and women each Spring begin choosing where they will attend college. We have convinced our youth that college is something they deserve and must have in order to be successful in life. Never mind the fact that many of the most successful entrepreneurs never graduated from college. But that’s another point for another day.
High school juniors and seniors begin looking at colleges like their parents look for vacation destinations, often focusing only on which college has what they want rather than which college they can afford. The result: the vast majority of students and parents enter into massive students loans all in the name of higher education without regard to what this payment will look like in four years and how they are going to pay it back. The average student today graduates with $26,000 in student loan debt before they ever make their first paycheck.
Somewhere along the way, most college students get their first credit card pre-approval in the mail, and there is something intoxicating about receiving a letter from a stranger at Bank of America saying they believe you are credit worthy for a couple thousand dollars. This turns into a way to buy Christmas presents freshman year, and from that point on, most students will keep that credit card payment for the rest of their lives. The average household in 2012 had over $15,000 in credit card debt.
Upon graduation and securing that first job paying $30,000 a year, it is easily rationalized that they deserve a new car now that they have successfully went to class and passed a few tests. They take their offer letter with their potential income at their new job down to the nearest dealership and walk away with a brand new car with a price tag on average in 2012 of over $30,000, and for argument’s sake, let’s just say these college grad’s only spent $20,000 on that first car.
If we stop at this point, the average recent college graduate is already up to nearly $50,000 in debt and well on their way to achieving the American dream.
The next venture is buying a house, and as we have seen in the past five years, many people buy way more house than they can afford. More significantly, they strap their families to a 30-year marriage to a bank that will make hundreds of thousands of dollars in interest during that time period, turning a 300,000 home into a $567,000 purchase.
Then, needing to make repairs on this home, or attempt to help their child with college, many adults take out a home line of credit, borrowing against their home to pay for more stuff they can’t afford. The interest rates for these loans are often twice as high as the interest rate on the home loan, meaning people willing borrow their own money in the form of equity and pay twice the interest to do so. And somehow we have convinced ourselves that this is the best path for us.
The truth is, in order to live a peaceful, low-stress life, our finances must be healthy. They must give us the freedom to make our own choices, but when over half of your income is already accounted for before you ever sit down to budget, you aren’t left with many choices as to what you will do with your money, and you certainly aren’t freed up to give generously, because there’s often more month at the end of the money.
There are many ways to get started changing your financial picture, and my wife and I chose to learn from Dave Ramsey’s best-selling book My Total Money Makover. This isn’t the only way, but it’s one that makes a lot of sense and would be worth looking into if you want to change your financial situation and become debt-free. Because the borrower truly is slave to the lender, and nobody wants to be a slave.
Living the 5-Star life, as we have seen over the past five entries, requires that we have health physically, emotionally, relationally, spiritually and financially. It’s never too late to start moving towards health in these areas and living a fruitful, enjoyable, balanced, successful life.