Two Basic Principles
How can one walk in financial freedom? We have a simple formula:
- Saving = Earning - Spending
- Spend less than we earn so that we will never get into the bondage of debt and have financial freedom.
- Increase our Earning. If we want to spend more and still want to remain in freedom, then we must increase our earning. Our earning can be increased by working longer hours or to increase our value. It is quite obvious that it is better to increase our value rather than to work longer. To increase our value, we must either spend money and time to acquire new knowledge and skills, or to invent new things of value. Both involve temporary sacrifice of time and money in exchange for longer term larger earning and ability to spend. This is the exact opposite of EzCredit that encourages you to over-spent to enjoy now and then pay later.
Pro 22:7 The rich rule the poor, and the borrower is slave to the lender. It is obvious that debt has enslaving power. If we have any debt, it will take priority over our life decision. The creditors will hound you to pay off the debts off. Paying debt off will be our top priority in our living and decision making. Debt will enslave you to its power. I can't find a bible verse on this (let me know if you find one) but debts create more debts. Partily due to the multiplying effect of interest rates and partly due to the continued bad habits (like gambling) that continue to create more debts. There is only one way to get out of debt - repent. We will cover "How to Get out of Debt" later.
The Banking System of Loan & Interests Are OK
Because of the enslaving power of death, there are strong but erroneous teaching against the banking system of loan and interest charging. Let's go back to the Bible, the Parable of 10 Talents in Luk 19:23 or Mat 25:27 recorded for us, the Master judgment on the lazy steward, "Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest."
It is obvious me that making deposit in bank and collecting interest is a wise thing. By extension, the Bank making loans and charging interests for the loans are all valid and good things. If the Bank does not charge interests, how could the bank make money to pay interests to the depositors. Bible does not prohibit charging interest but is against charging exorbitant interests to exploit the poor. By further extension, if loan is OK then debt should be OK too.
The Restrictions on the Lenders
Because debts give the lenders enslaving power, the Bible has much to say about restricting lender behavior such us the use of collateral, the interests rate, the periodic payments etc. See Deu 15, Lev 25.
Deu 15 provides of release of payment at the 7th year, no interests to be charged for relatives (interests can be charged to outsider), the land lease must always be redeemed by owner or close relative etc. There is no condemnation for the borrowers that are poor. Leaders are encouraged to be generous in their lending, sometime to give away, to help the poor.
How can the Poor Break Free?
How can the poor get out of the vicious circle of poverty? Through the helping hands of the generous lenders who provide low interests loans with generous conditions for the loans. Please note that the Bible also teaches us to be wise as wolf even as harmless as doves. Making profit out of lending is endorsed by the Bible (how can one continue to lend and do good works if one cannot make some profit to survive the long run?). Bible is only against exploitative profits making.
The helping hands or loans or gifts
from others is only a kick start for the poor or needy to be put a path for growth so that they can take make a proper living to care for themselves. We have the famous saying of not just giving the fish but teaching them how to fish.
The Right Use of Debts
When an exceptional condition arises, such as a famine, an earthquake, a fire or a flood, the live-stocks or harvests of a farmer for the year could be destroyed. The farmer may not have the ability to buy seeds for the next season of harvest. How can he be helped? The Bible tells the rich to lend to the poor to help them. It would be better if there is a Bank where one can go for help. How can the poor becomes rich? By acquiring a new skills and knowledge that can create value of course. In trading business, one need to have money to buy the goods first and then re-sell at higher price to earn the margins. I think all these are valid reasons for borrowing.
So, I would proposed that it is the use of debt that decide whether it is OK or not OK. It is OK to use debt for financing investment or capital items - things that are used to produce things of higher value or things that appreciate in value over the long term such as your house or land. It is BAD to use debt to finance your consumption - things who value go to zero upon using or with time. I think study loan is fine. It is of course much better if one can get scholarship. But there are limited scholarships to go around. Studying is one way of increasing your value-add or earning power in the long run.
There is the wonderful story of a rich man who bought and developed a land into a housing estate and sell it, without deposit, but only periodic payments over a fixed period, to the poor so that they can hold their own home in the long run. He has the compulsory condition that his buyers must attend courses to upgrade their skills and be taught how to wisely use their earnings. He hired a pastor to help counsel the poor buyers. His method allowed him to make a fair profits on his development project and at the very same time, help many people break free from poverty.
There are the mission work of micro-enterprises. The mission work organization bought 10 piglets as an interest free loan for a poor family. They teach them how to take care of the pigs. When the pigs are fully grown, they can be sold at a higher price. It is enough for the family to pay back the 10 piglets, buy his own and continue his pig farming business. The money received back will be used to help another poor family.
How to Get out of Debts
The steps are: (follow the AA 12 rules is OK too)
1. Face the facts - Admit one has a Debts Problem
2. Repent - i.e. Change the Mind-set. Don't overspend on consumption goods.
3. Pray and Commit to God. Ask God for power and wisdom
4. Get an Mentor or a Group of Mentors and be accountable to he/them.
5. Make a list of all debts and interests charge.
6. Meet up with Creditors to work out a plan of periodic payment to pay them back. If by God's grace, the Creditors may reduce the debts to be paid. Do a restructuring in financing.
7. Decide and never over-spend again.... report to the mentors your plan and actual budgets on spending and repayment of debts.
8. Work hard and Upgrade to increase earning to pay off the debts. Get advises.
9. Ensure regular repayment of debts. Some advices to pay off the interests ones first. Some suggest pay off the smaller debts first so that you have sense of early victories that encourage you to carry on.
10. It could take 2, 3, 5 or even 10 years. But stay the course. Stay close to God and fellow Godly mentors for guidance and encouragement.
- Always Spend within your means. must includes tithes and savings first
- Grow your Value by learning (getting degrees, diplomas, new skills), by experience in new areas
- Grow your Savings by spending less than earnings and invest the savings wisely.
- Don't go into debts for spending on consumers.
- Can go into debts with caution for things that create value or whose value appreciate over time such as investment goods. e.g. House as a home, Study Loan. Even so, don't over-borrow to buy a house that you could not afford. The key is sustainability: if you loose your job, how long can you service your monthly payment?
- Be generous in your lending; Be wise - don't lend to anyone who ask even they pressure in the name of God and love. Be sure if borrower can pay back. Get Collateral, Guarantee.
- Loan amount should be the level you can still be friend if the friend could not pay back.
Charge minimum interest; be sure of how it is used by the borrower; don't use good money for bad project, gambling, stocks & equivalent. It may be better to give or lend in kinds (such as school fees, books, foods etc).
- Don't be guarantee of others debts. Pro 22:26