Debt & Moderation

I typically begin a posting with a quote. Today’s posting on the need for, and the responsible use of debt, provided several challenges in the quote department. One challenge is current popular opinion which states that all debt is Biblically and morally wrong. The second challenge, and perhaps very revealing, is that quotes on the responsible use of debt, outside of economic circles, is very limited.

In our practice we use debt with our clients in a variety of ways: asset protection, short term cash flow needs, and as an investment. The ‘true north’ in the application of debt in financial planning is moderation. Moderation as a quotable phrase provided a more substantial harvest.On a humorous note, Mark Twain said, “Water, taken in moderation, cannot hurt anybody.” This quote had more to do with Mr. Twain’s predilection for distilled spirits than water, but it makes a good point. We all need water to live; however, too much water may result in death. This condition is called water intoxication, water poisoning or dilutional hyponatremia. So, yes Mr. Twain, water in moderation is good for you.

For those who feel that all debt is Biblically and morally wrong, I would draw their attention to the Parable of the Talents (Matthew 25:14 – 30). The owner of a business loaned, entrusted money, to his employees, who in turn loaned the money out to others in order to create a profit and provide a meaningful return to the business owner. The entire parable involves layers of the responsible use of debt. All of the employees, save one, provide the business owner with a return on the money loaned. The employee who did not use debt responsibly—he buried it in the ground to protect principle – was punished for the improper use of debt. And that employee was terminated from his position.

Beware of those who say that all debt is wrong. They are either uninformed, misinformed, or they have an unspoken agenda—perhaps to have the consumer enroll in one of their courses to eliminate all debt, and thereby generate profit for themselves. Debt, when utilized correctly, can generate substantial benefits. In order to utilize debt correctly and effectively, the consumer needs to first establish a spending plan, pay attention to their financial ratios and have an emergency reserve.

I hope you will join me on this month’s CE/CPE Webcast: Back to Basics: Fundamentals of Financial Planning on Friday January 31, 2014 at 1:30PM EST. This Webcast will provide an overview of some of the basic fundamentals of personal financial planning. The presentation is web based and virtual seating is limited. The course is approved for one hour of CPE and CE. For more information or to register, please email hello@ttillery.com at ttillery.com.

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