Biblical Finances 101 – Part 2

Here are some rules on lending:

1. Never lend what you need.
2. Never lend what you cannot afford to lose.
3. Never co-sign a loan if you aren’t prepared to take it over, and especially if you cannot afford to take it over.
4. God’s view is that forgiveness and unity is more important than money… if you lend it, you may be required to forgive it.

Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.Proverbs 22:26,27

Money is not the most important thing, and it should not be the central thing in our life, but it will be the central thing if you do not handle it correctly.

You must learn to hate and despise debt. The magic of “compound interest” will work against you.

2 b) Debt Reduction Strategies

1. Household & Discretionary Spending:
   1. Home operational Costs include monthly bills that you have no control over, such as your Rent, the Hydro Bill, Heating Bill (whether Natural Gas or Propane or Oil). When that bill comes in, you owe that money. The only control you have here is to turn down the thermostat to decrease the monthly bill.
   2. Discretionary Spending are the Items that you do have control over, such as Allowance, Dining Out, Entertainment, basically Items under the Lifestyle Heading. These you can trim or suspend for a temporary amount of time until you get things like Credit Cards under control.
2. Credit Cards:
   1. There are 2 purposes of a Credit card: “Instrument of Convenience”, and “Emergency Financing”.
      1. If you are going out to Dinner for an evening, you have the money in the bank, and you decide to use the Credit Card instead of carrying cash… the assumption is that you will get the bill at the end of the month and pay it off, leaving a “0” balance. This becomes an Instrument of Convenience. All Credit Cards should be at “0” balance every month. My goal is that the Credit companies get no interest from me.
      2. Emergency Financing is when the car suddenly requires a repair, or you need a plumber in your home due to flooding. In this case, you do what you have to do, but then you reduce or suspend Discretionary Spending until you are back to a  “0” balance. The KEY here is to just hate carrying a balance on your Card.      In other words, Hate DEBT.
   2. Strategy for Paying Down Multiple Credit Cards:
      1. If you have 3 Credit Cards with Balances, and one of the cards has a lower Interest Rate, consider moving the balances of the other Credit Cards to the low Interest Rate Card, if you have the credit room in it.
      2. If you owe a $1000 on a card, and the minimum payment is $25, understand that the minimum payments are designed to benefit the banks, not you, therefore you will pay the banks interest almost forever. The only way to pay that card off is to pay at least 10% as a minimum payment. This means you would pay $100 towards a $1000 balance. You may think then that it would take 10 months to pay off the card, but because they are adding interest each month, it may take you 12 to 15 months or more to clear that card.
      3. If you have 3 cards, and Card 1 has a $1500 balance, Card 2 has a $3000 balance, and Card 3 has a $1000 balance, then use the following strategy.- reduce expenses and Discretionary Spending as much as possible so you can make the maximum amount of payments towards the credit cards (this is a mountain that needs to be chipped away at).- let’s say you have been able to squeeze $150 out of your Cash Flow to dedicate towards Credit Card reduction.- then you would make the minimum payments required by the Card company on the cards with the $1000 balance and the $1500 balance, knowing that you aren’t making any headway with these cards. The balance of the $150 should be focused on the card with the $3000 balance. Make maximum payments on this card so you can chip it down at the speediest rate. When this card is eventually paid off, you will experience some sense of relief and accomplishment.- once the $3000 card is paid off, you move all those payments to the $1500 card, until it is paid off. When this card is paid off, you will be experiencing some excitement… you can see light at the end of the tunnel.

         – Now you focus all those payments on the last card, and watch it dwindle.

         – the Key for this to work, is that you must not be using the Credit Cards.

   3. Once all the Credit Cards are paid off, the payments that went towards them goes back into your budget, and hopefully a portion of it becomes Positive Cash Flow.
3. Line of Credit:                                                                                 
   1. In my opinion, the purpose of a Line of Credit falls between the Credit Card and a Second Mortgage. Its ideal use is to finance a business venture where there is potential to see a return of profit, and to be able to pay it off. It should NEVER be used for Operational Expenses of the Home. Although many banks promote them as an ideal way to finance Home Renovations, I would recommend caution here, as it then becomes like a second Mortgage, that requires repayment, which chews into your positive Cash Flow. It also should never be used to buy luxuries/play toys. Again, use with extreme caution. As much as possible, if it isn’t an Emergency, try to save and pay cash for the things you want.
4. And now, a word about decision making.                                                                         
   1. If you are single, you are accountable only to yourself. But you may still want to seek out advice about making major purchases, to assess pros and cons. Consult some mature Christians that you trust. Allow them to advise you.
   2. If you are in a relationship with a significant other (marriage or otherwise) there are ground rules that should be followed when it comes to finances.
      1. NEVER make significant purchases without BOTH parties being in agreement. Trust that if the purchase is the Lord’s Will, you will be in agreement. Conversely, if there is no agreement, trust that it is not God’s Will. Remember that Peace in the Home is God’s Will, rather than fulfilled desires with strife.
      2. It takes commitment to lay aside your wants, and wait for the right timing to make significant expenditures. Adhering to this commitment will help build and maintain Trust in the relationship.
      3. Some of the greatest pressures that come against relationships is finances and trust issues. Get your finances in order, and it can build your confidence as well as trust. Both parties need to share in the ownership and responsibility for these issues.

Protect your cash flow, and you protect your family and home.

HOMEWORK

• Do an Income Summary Sheet, identifying all Household Income;
• Collect all Credit Card statements;
• Identify balances left on any bank Loans, such as Car Loans, or other.