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You Control The Debt, You Control Everything

I saw a great movie last week, The International, and there is a fantastic scene that describes the essence of the banking industry. Before continuing, you may wish to watch this clip by clicking HERE.

This notion of ‘controlling the debt’ is something to ponder. At a larger level we saw what happened in the middle of a financial crisis: those who controlled the debt (i.e. big banks) received the immediate attention of our political leaders. They controlled everything during that crisis. To this day, nearly three years from that crisis, the banks are doing just fine and most individual Americans are not doing just fine.

Now, let’s break this down to the individual level. Those who have little or no debt are less susceptible to control by others. (i.e. banks) They are more likely to have financial security or financial freedom. For the vast majority who are in debt to the banks, they are more likely to not feel in control of their financial situation and more likely to not feel optimistic about their financial future.

Is all debt bad? Well, no. For younger couples starting out in life the path to owning a home usually involves a mortgage. The problem that developed in our society was that very few people wanted to save for a proper down payment before buying that home. And now with the housing bust, so many people actually owe more than their house is worth. My prescription is for a minimum down payment of 20% before buying a home. (Ideally, this should be over 30%.) I actually think this should be mandated through government regulation. Given what has happened in the housing market over the past 10 years, do we really need another example of why this should be so?

Beyond a fixed rate mortgage, we need to think long and hard about borrowing for other purchases. A habit of saving for the things we want is not a lost art; it just seems to have been forgotten by so many.

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