Khan’s 2nd Rule

Rule 2: Don’t Forget Your Debts

Debt: the necessary evil of modern life. We take out loans for education, for cars, and homes. Some people even have tons of unsecured debt. Some people can handle the debt and some can’t. A manly man knows how to manage his debt. A manly man honors his debt.

I have a few acquaintances that failed to manage or honor their debt. One family racked up tons of credit card debt. At the height of the housing bubble, they sold their house to cash out. They took the money and blew it on new cars and frivolous spending. Then a few years later there were broke and bankrupt. Now they can barely qualify to lease a home. They didn’t know how to manage their debt.

Another friend of mine bought a house at the peak of the housing bubble. He had no problem making the payments. However, after the bubble burst he was upside down on his mortgage (house was worth much less than he owed). His solution? A strategic default. He walked away from his house even though he could make the payments. He did not honor his debt.

I strive to manage and honor my debts. It’s the manly way. Last week we made our last car payment, and now our mortgage is the only debt we have. We bought a home near the peak of the bubble in 2006. I’m upside down on my mortgage (not by as much as some of our friends). It’s not a great feeling knowing our house isn’t worth what we owe, but my wife and I love our home and neighborhood. We know that if we stick with it, we’ll be back on top in a few years.

This is part two (of four) of my thoughts about Genghis Khan’s four laws. Part one can be read here.