Dreams Denied by Too Much Debt

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Every day I meet with people who dream of opening their own business, and far too often, they will not be able to fulfill their dreams due to the inability to manage their finances and to having too much debt.   The median household income in America is about $54,000; in the area in which I live, it is nearly $83,000.  That is $29,000, or 53%, higher than the norm. Yet, many of the people I meet with are living well beyond their means and are saddled with debt.

For example, I recently met with a man whose annual household income was more than 4 times the median at $220,000.  He has done somethings right–he has a government pension and he has invested on his own into a retirement plan.  However, he is drowning in debt.  He has children in college and owes more than $100,000 in student loans. His credit card balances, car loans, and consumer debt total nearly $200,000.  He came to us hoping to borrow $300,000 to open his dream business.  He wrote a great business plan, he had the right management team lined up, and he was willing to inject some of his retirement funds into the business.  However, no bank was willing to give him a loan due to his overwhelming debt.  I doubt that he even realized how deeply he was in debt until we required him to complete a personal financial statement.  It is likely that much of that debt represented purchases made with little forethought and for possessions with little lasting value.

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Unfortunately, this is not a unique story.  I see it time and time again.  I had one client tell me recently that the bank should understand that going into business was her plan for getting out of debt and improving her family’s financial situation.  Life does not work that way.  Opening a business is risky, and banks will only loan money to those who have proven that they can manage money. Of course, they also have to have a good plan.  But, no matter how wonderful your idea is or how great the potential of your proposed business, you cannot borrow money to start a business if you don’t have good credit, moderate to little debt, and your own money to invest in this business.

Your dream may not be to own your own business.  You dream may be to retire at an early age, to become a missionary, to buy a vacation home, to leave your children with a large inheritance, to donate millions to charity, or something else entirely. Whatever your dream, it will be difficult to accomplish if you do not manage your money well and live within your means.

Making a budget and sticking to it is the first step to living within your means.  Budgeting allows you to (1) discover where your money is going, (2) determine what level of expenditures is appropriate for your income, (3) develop a plan to pay off your debts, and (4) start building a nest egg to make your dreams come true.

Budgeting isn’t glamorous, but it pays big dividends.  As Proverbs 21:5 tells us “The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty.”    Make a commitment today to start budgeting and managing your money, so that your dreams will not be deterred by excessive debt.

What dreams are you being held back from fulfilling do to too much debt?  How can you make changes in your spending to make your dreams come true?

 

If you need help with budgeting and money management, please see my earlier blogs on “Honoring God With Our Money.”

Honoring God With Our Money: Cultivating True Wealth

For the past three months, I have taught a Sunday School class entitled, ‘Honoring God With Our Money.’  In this final lesson, we looked at true wealth and how to cultivate it.  Money is a necessity in our world and it serves many purposes.  However, money in and of itself cannot bring true happiness, contentment, or joy.  And money most certainly cannot buy eternal life.

The Bible teaches us that true wealth can only come from having a personal relationship with Jesus Christ.  To enter into a personal relationship with Jesus, we must admit that we are sinners in need of a Savior, recognize that Jesus is the only one who can be our Savior, and accept His freely-offered sacrificial death as cleansing for our sins.  Repentance and faith in Jesus leads to true peace on Earth and ultimately to an eternity in Heaven.

In Proverbs 22:4, King Solomon wrote that “Humility and the fear of the Lord bring wealth and honor and life.”  We must come to the Lord humbly admitting that we are sinners and in fear that He will give us the just punishment our sins demand before we can truly accept His gift of salvation.  In accepting Jesus as our Savior, we become children of God and joint heirs with Christ in the abundance of Heaven.

When the rich young ruler came to Jesus and asked what he must do to obtain eternal life, Jesus told him to obey the commandments.  When pressed for what else was necessary,  “Jesus answered, ‘If you want to be perfect, sell your possessions and give to the poor, and you will have treasure in heaven.  The come, follow me.'” ( Matthew 19:21)  The  next verse tell us, “When the young man heard this, he went away sad, because he had great wealth.” (Matthew 19:22)  This young man was so tied to his earthly riches that he was unwilling to give them up for the true riches of Heaven.  How very sad!  Our earthly possessions are fleeting, but true wealth will last forever.

Jesus further illustrated to his disciples the way to acquire true wealth by telling them the parable of the sheep and the goats, found in Matthew 25:31-46:

 “When the Son of Man comes in his glory, and all the angels with him, he will sit on his glorious throne.  All the nations will be gathered before him, and he will separate the people one from another as a shepherd separates the sheep from the goats.  He will put the sheep on his right and the goats on his left.
“Then the King will say to those on his right, ‘Come, you who are blessed by my Father; take your inheritance, the kingdom prepared for you since the creation of the world.  For I was hungry and you gave me something to eat, I was thirsty and you gave me something to drink, I was a stranger and you invited me in, I needed clothes and you clothed me, I was sick and you looked after me, I was in prison and you came to visit me.’
“Then the righteous will answer him, ‘Lord, when did we see you hungry and feed you, or thirsty and give you something to drink?  When did we see you a stranger and invite you in, or needing clothes and clothe you?  When did we see you sick or in prison and go to visit you?’
“The King will reply, ‘Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.’
“Then he will say to those on his left, ‘Depart from me, you who are cursed, into the eternal fire prepared for the devil and his angels. For I was hungry and you gave me nothing to eat, I was thirsty and you gave me nothing to drink, I was a stranger and you did not invite me in, I needed clothes and you did not clothe me, I was sick and in prison and you did not look after me.’
“They also will answer, ‘Lord, when did we see you hungry or thirsty or a stranger or needing clothes or sick or in prison, and did not help you?’
“He will reply, ‘Truly I tell you, whatever you did not do for one of the least of these, you did not do for me.’
“Then they will go away to eternal punishment, but the righteous to eternal life.”
 
 

I urge you, as you read this post, to consider whether you are cultivating true wealth through your relationship with Jesus Christ and through your actions.  If you are not, it’s not too late to start.  For those of you who do know Jesus Christ as your Savior, I urge you to use the money God entrusts in you wisely and to honor God in all that you do.

Honoring God With Our Money: Rules of Investing

If you have created a budget and are following it, eventually you will wind up with more in savings than you need for an emergency fund.  At that point, you should think and pray about investing your excess money to meet future needs.  The following rules of investing are adapted from Larry Burkett’s book, Family Budgets That Work.

investor

Rules of Investing:

  1.  Never invest money you cannot afford to lose.  All investments have an element of risk and the possibility exist that you might lose all or a portion of the money you have invested.  One only has to look at the variability in the stock market to see that this is true.
  2. Never get involved with things you don’t understand.  Don’t try to buy individual stocks unless you know the company well and have confidence that it is well-run.
  3. Demand sufficient information to thoroughly evaluate the opportunity.  Take the time to thoroughly research possible investments.
  4. Seek good, non-involved Christian counsel.  There are many knowledgeable Christian financial counselors who will discuss your needs and goals and help you to make wise investment decisions.
    • Proverbs 19:20  Listen to advice and accept discipline, and at the end you will be counted among the wise.
  5.  Set a minimum time to pray and seek God’s direction.  Don’t let anyone rush you into an investment decision.  If the opportunity is only available for a limited time, it is probably an opportunity you should forgo.
  6.   Once you have God’s direction, write out an investment plan.  A written plan will help you keep your goals in mind and help you make investment decisions that are consistent with your goals.
    • Proverbs 20:5 The purposes of a person’s heart are deep waters, but one who has insight draws them out.
  7. Avoid ‘get rich’ schemes.  Plan for slow, steady growth.  If it sounds too good to be true, then it almost always is.
    • Proverbs 21:5 The plans of the diligent lead to profit as surely as haste leads to poverty.
    • Proverbs 28:20 – 22  A faithful person will be richly blessed, but one eager to get rich will not go unpunished.   To show partiality is not good—yet a person will do wrong for a piece of bread. The stingy are eager to get rich and are unaware that poverty awaits them.

Honoring God With Our Money: Savings Plan

Most financial experts recommend that everyone should make a regular habit of saving 5% of their income.   A goal for savings should be to accumulate enough savings to cover 3 -6 months of living expenses as a cushion for periods of unemployment due to layoffs and extended illness.

For those who are struggling financially and are unable to meet current expenses, savings is not an option at present.  Everyone else should make a goal to save at least a small amount out of each paycheck and to increase that amount as circumstances allow. 

Getting into the savings habit can be difficult, so I offer the following steps to assist in getting started on a regular, steady savings plan.

Tips for Developing a Savings Plan

1)     Acknowledge that God’s word tells us that it is wise to save in the good times for lean times.

Proverbs 6:6-8  Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

Proverbs 21:20  The wise store up choice food and olive oil, but fools gulp theirs down.

Story of Joseph in Egypt:  Genesis 41: 29 – 36

Seven years of great abundance are coming throughout the land of Egypt,  but seven years of famine will follow them. Then all the abundance in Egypt will be forgotten, and the famine will ravage the land. The abundance in the land will not be remembered, because the famine that follows it will be so severe.  The reason the dream was given to Pharaoh in two forms is that the matter has been firmly decided by God, and God will do it soon.
And now let Pharaoh look for a discerning and wise man and put him in charge of the land of Egypt. Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.”

2)      Develop a system for putting money directly into savings.

a.  Use a company payroll automatic savings deposit, if possible. This puts the money directly into savings before you receive it.

b.  Set up an automatic bank transfer from your checking account to your savings account.

c.  Write your savings account a check just as if it were a creditor.

3)      When an existing debt is paid off, allocate any extra money toward the next largest debt. When all consumer debt is paid off, then reallocate that money to savings.

4)     Set goals for which you are saving, such as a new couch or a vacation.  Having a goal for savings will keep you focused and less likely to fritter money away on things that are not truly needed.  This money should be in addition to your long-term savings for ’emergencies.’

5)     Use the money savings tips provided in an early blog to reduce expenses and have more money to put into savings.

Honoring God With Our Money: Maintaining Good Credit

This week lesson in our series on honoring God with our money covers way to deal with debt and to build credit.  Today we will look at ways to maintain good credit and improve poor credit.

A good credit score is important to maintaining a good reputation.

Proverbs 22:1 A good name is more desirable than great riches; to be esteemed is better than silver or gold.

It is easier to maintain good credit than it is to rebuild a poor credit rating.  A  credit score of about 680 or higher is generally considered to be good or excellent.  If your credit score is not good, you should take steps beginning today to rebuild your credit.

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A good credit score:

1)      Improves your chances of being approved for a loan.

2)      Allows you to get better interest rates on loans and credit cards

3)      Lowers your car insurance premiums.

4)      Helps you to rent an apartment.

To maintain a good credit score or improve your credit score,

1)      Always pay bills on time.

2)      If you missed a payment, get current and stay current.

3)      Never take on more debt than you can repay on your current income.

4)      Keep credit card charges to 30 – 40% or less of your credit limit.

5)      Don’t close old accounts as they contribute to a longer credit history.

6)      Review your credit report annually to check for errors, identity theft, and issues that are pulling your credit score down.  Checking your credit report and/or score does not hurt your score.

7)      Minimize the number of credit cards you have.  Opening new accounts lowers your score.

8)      Have different types of credit, such as a mortgage or lease, education loan, car loan, and credit cards.

9)      If you have never had credit, you will have no credit history.  This can make it difficult to be approved for a mortgage or lease.

10)   When shopping for a new car, do so in a short period of time, so it is viewed as a single inquiry rather than multiple.  Multiple inquiries in a short time period will lower your score.

You are entitled to a free copy of your credit report each year from each of the three major credit reporting agencies:  Experian, Equifax, and Transunion.  To request your free credit report, go to

www.annualcreditreport.com

Honoring God With Our Money: Dealing With Debt

This week lesson in our series on honoring God with our money covers way to deal with debt and to build credit.  Today we will look at steps to pay off debts and ensure that debt does not entrap.

Steps to Dealing with Debt

1)      Determine in your heart to repay all your debts, as the Lord enables you.

Psalm 37:21 The wicked borrow and do not repay, but the righteous give generously.

2)      Establish a payment schedule that includes all creditors.

    • Make a list of all debts from smallest to largest and/or according to interest rate.
    • Determine to first pay off either (1) the smallest debt or (2) the debt with the highest rate of interest.
    • Make minimum payments on all debts but the one to be paid off first.
    • Allocate as much money as possible each month to paying off the debt being retired first.
    • When one debt is paid off, concentrate efforts on the next debt to be paid off.

3)      Contact creditors and asks for a lower interest rate.  Many lenders will lower the interest rate to avoid default.

4)      Contact all creditors, honestly relate your problems, and arrange an equitable repayment plan.

5)      Buy on a cash basis, and sacrifice your wants and desires until you are current.  Allow God to meet your needs without taking on more debt.

Psalm 37:7  Be still before the Lord and wait patiently for him

6)      Do not cosign for another person unless you are able and willing to pay off the debt if he/she cannot do so.

Proverbs 22:26-27  Do not be one who shakes 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.

7)      Do not count on future raises to pay for today’s expenses.

James 4:13-15   Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes.  Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that.”

If you are dealing with overwhelming debt, you may need to seek assistance from a debt counselor.  Also seek help from the One who supplies all of our needs.  God wants to help you and is waiting for you to bring your burdens to Him.  Psalm 55:22, “Cast your cares on the Lord and he will sustain you; he will never let the righteous be shaken.”

Please feel free your tips for dealing with debt.

Honoring God With Our Money: Steps to Budgets That Work

Steps to Budgets That Work

The information below is adapted from Larry Burkett’s book Family Budgets That Work.

1)      Include periodic debt (quarterly insurance premiums, annual HOA fees, etc) in your budget.  Set aside a fixed amount each month so that you have the money available when it’s time to pay these irregularly occurring bills.

2)      Set aside amounts to replace furniture, appliances, and fixtures that wear out over time and for replacing automobiles.  This can be included in your savings account, although you don’t want to dip into emergency savings for these items.

3)      Set aside money for family vacations and recreation.  If possible, budget 6% of your income for recreation and leisure.  If you don’t have room in your budget for a nice vacation, consider inexpensive options such as camping and stay-cations.

4)      Control impulse spending.  Make a ‘rule’ to wait at least 24 hours before buying items that you weren’t specifically shopping for.  Often the desire to purchase the item will go away once you have left the store.  If you decide you really want and/or need the item, purchase it only if (1) it fits into your budget and (2) you have the money to pay for it.

5)      Plan for gift-giving.  Set aside money each month for Christmas and birthday gifts.

6)      Watch miscellaneous spending.  Miscellaneous spending is a problem area for most families.  Track all of your cash spending for a month to determine what your problem areas are and then make a plan to deal with the problem areas.

7)      The bookkeeper should be the partner who is best at it, but spouses should work together to establish and maintain the budget.

8)      Develop a good system of keeping records.  Some people prefer the envelope method–put the budgeted amount of cash in an envelope at the beginning of the month and spend only the money in the env elope. Other people use Quickbooks, an Excel, or phone apps to track spending.

9)      Get out of debt.  Pay off debts with highest interest first, while making at least the minimum payment on all debts.  Once the highest-interest debt is paid off, apply that money to the next highest-interest debt, etc.

10)  Commit to using at least 50% of any “windfalls” to paying off debt.  The remainder of any windfalls should be used to meet shortages in other areas, including clothing and leisure.

11)  Set family goals. If your children are old enough, include them in your budget discussions. You will be starting them on the road to good financial management and they will better understand why you cannot always buy them the things they want.  Goals should include:

  1. Trust in God to supply your needs
  2. Save money regularly
  3. Family sharing time
  4. Husband and wife time
  5. Ministry to other people