Debt: Self-Imposed Slavery

Debt: Self-Imposed Slavery

Perhaps the most severe cost of going into debt is the resulting loss of freedom. It truly is a form of self-imposed slavery. Too few of us enjoy the level of freedom our founding fathe24rs intended for us. We may not be oppressed by political dictators, but we often voluntarily submit ourselves to dictatorial creditors. Many of us lock ourselves into huge long-term commitments without knowing whether our future circumstances will allow us to honor these obligations. We may barely be able to qualify for the payments on a large new home, but we want it so badly that we buy it anyway, in hopes that the payment will feel more affordable as our income goes up. Then the unthinkable happens: our income actually goes down, or stops completely, and we lose everything. Consider the following observation by J. Reuben Clark, Jr: “Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; …it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”[i] Maybe part of the reason so many people readily incur excessive amounts of debt is that the penalty today for failing to meet...
Four Ways to Manage Risk

Four Ways to Manage Risk

Every risk we face can be addressed in one of four ways. Each may be an appropriate choice, depending on the circumstances and type of risk in question: Avoidance Reduction Transfer Retention Avoiding Risk The surest way to prevent the potential loss arising from a certain activity is to completely avoid it. For example, if I want to avoid the possibility of having to pay for a stranger’s medical expenses due to an auto accident, I could stop driving a car. So why not just avoid all risks? The problem is that whenever we avoid a risk we also miss out on the benefits we could have received for participating in the associated activity. In addition, not all risks can be completely avoided, such as the risks of illness or natural disaster. Avoidance may be appropriate for a limited number of risks that produce a high probability of loss, such as gambling, but it is not a practical solution for most risks. In some cases we may even create additional risks by trying to avoid a particular risk. For example, we may be tempted to keep all of our savings in cash to avoid the risk of investment losses, but then we would be subjecting ourselves to the potential risk of loss by inflation, which is practically guaranteed to significantly erode the value of our cash over time. Reducing Risk  If we are unable or unwilling to avoid an activity, we can take steps to reduce the probability and potential severity of loss associated with the activity. For example, when we choose to drive, we can reduce the risk...