Tag Archives: compounding

The valley of the shadow of debt

The causes of bankruptcy tell a deep dark tale. Every year, government agencies which administers bankruptcies publish a list of the top reasons people give for going bust.  It usually universal throughout the world.

Here are the usual suspects, but the number one reason given by bankrupts was unemployment or loss of income. Then there are adverse legal action as a result of having guaranteed a debt, relationship breakdown, excessive use of credit facilities and ill health plus a lack of medical insurance.

If there is one attitude that should be changed, it’s this: never underestimate the power of debt. It’s a slippery slope that’s hard to climb. Some even call it a curse. People fail under it, so make sure you know what you’re up against.

Secondly, bad things happen to indebted people. There seems to be an attraction (or opening) for more bad stuff.  Some say it’s a law of attraction. Maybe that’s why it’s called a curse. But if you borrow money you owe it to yourself to ensure you can pay it whatever happens.  This means factoring in the cost of taking out credit insurance into your borrowing. (sound ironic). But be aware it can prove expensive.  This is possibly the most profitable form of insurance ever invented.

It is especially important to take debt seriously if you have kids, although loading up with debt for luxuries can have a big impact on your ability to own a roof that’s over your kids’ head.

Thirdly, don’t be fooled into the blurred lines of good debt versus bad debt. The case for good debt would be appreciating assets like houses and student loans, bad debt would be for cars, boat and LCD TV screens. No doubt there is some true in the case for good debt, but it is a pretty fuzzy line to cross. House prices can fall, student loans can be a self-justified reason to get a car. Ultimately, can you control the debt, or will debt eventually control you. But without doubt, debt is such a serious burden it should not be taken on “miscellaneous” expenses like mag wheels, cosmetic surgery or fashionable clothes.

What is often overlooked is the interest incurred especially when you purchase an item by instalments. Debt is what you use today to buy what you can’t afford tomorrow while you’re still paying for yesterday. Eventually, you’ll get so tied up paying, it will result in an uncontrollable spin downwards.

And the sad truth is that there are two groups of debtors – those who get indebted by choice and those who do so as a result of a family crisis but because they are on low incomes and have no savings it is impossible to cope without borrowing. It’s tough to plan for the future when you are too busy fixing the things you did yesterday.

Money borrowed today must be repaid tomorrow. Borrowing money has its price – and it is a cost far greater than you realise. Anytime you use credit to borrow money, you pre-commit your future income. The effects of such a decision can range from simple inconvenience to financial disaster. Indebtedness is not something that seems to really bother Americans – until a financial crisis strikes.

If the financial situation is dire, and the financial forecast calls for difficult times ahead, you should work to get rid of all your debt. To do otherwise is to presume upon the future. If you want to ride out your own financial crisis and prepare for the next economic crisis, it stands to reason that we will want to operate from a position of financial freedom.

Getting out of debt may be hard, but it is not impossible. And it has a high price to pay. The best way to get out of debt is to cut spending. Cancel that magazine subscription, or high speed broadband access, or cable television service, forego restaurants and movies. Frugality will eventually pay off. In uncertain times, gone are the days where you “shop till you drop”, but instead, be frugal till you pay off your debts.

Establish a realistic repayment plan and discipline yourself to follow it. Establishing and following this plan is critical to the success of your debt-retirement strategy. There is no quick or painless way to get rid of debt. Once your plan is in place, you will need to take the long walk of self-discipline to make it work.

Never use your credit cards to pay for debt. The debt amount will just keep mounting. Many people justify indebtedness with the thought that they are making an investment when they purchase items. That’s an unwise assumption. And don’t apply for new credit cards you don’t need.

Many of these principles are laid out in our successful course, the Scriptural Financial Freedom series. To learn more, you can download the Small Groups kit from our Store.

Today’s Bottom Line

It pays to be debt free and financially free. Be a debtor to no man.

Transfer of wealth – a study

Wealth transfer is indeed scriptural, and it is truly real. That should be wonderful news, isn’t it? So the question you probably have is “where’s mine?” A legitimate question. However, so many Christians fail to understand that, according to the bible, you need to go through a process.

But first, let’s check out the most quoted verse from the bible about wealth transfer:

and the wealth of the sinner [finds its way eventually] into the hands of the righteous, for whom it was laid up. Pro 13:22 (AMP)

On the surface, it sounds great. Money and wealth are being tucked away by others and for you. However, so many Christians interpret this verse and all the other passages to mean that they don’t have to do anything but wait. And “wait” is all they do. They say: “I’m righteous, so the money is being stored up for me.” And then they start to get impatient.

They want God to hurry and send them that lottery ticket. And when the money doesn’t flow in, they say things like: “It’s all in God’s time…” or “maybe God is teaching me how to be patient first.” I’m sure you heard phrases like that a million times.

The problem here is that they aren’t following the process of God’s plan.

The Wealth Plan

One of the greatest examples in the Bible about the transfer of wealth is the life of Joseph. Like Joseph, there are promises and dreams in the Bible about blessings and God’s plan to prosper His children.

Joseph moved from a position of hopelessness, to a position of not just great wealth, but great authority. However, there needs to be a process. A moulding. The testing of your faith. Understand also, the purpose for this transfer of wealth. It’s not about hoarding wealth for yourself, but for helping others and the saving of lives. For building schools and orphanages, for missions and evangelism. Freely receiving, freely giving. It’s about your faithfulness.

Joseph was given the wealth of the entire nation. He was even given control of all of Egypt’s business and economy. That plan, as laid out by Jesus in the parable of the ten Minas in Luke 19, is straight forward:

“‘And he said to him, Well done, excellent bond servant! Because you have been faithful and trustworthy in a very little [thing], you shall have authority over ten cities.’ Luke 19:16-17 (AMP)

God is looking for people He can trust with this wealth. That is why Paul the apostle wrote, “He which soweth sparingly shall reap also sparingly; and he which soweth bountifully shall reap also bountifully” (2 Corinthians 9:6). This promise deals with God giving to us today as well as in the coming days of wealth transfer.

 

Transfer of wealth

The Lord gave the people favor in the sight of the Egyptians, so that they gave them what they asked. And they stripped the Egyptians [of those things].Exodus 12:36 (AMP)

 

God promised Moses that when the Israelites came out of Egypt, they would leave with the wealth of the Egyptians. And it says God gave them favor. Favor? Think of what it was like when the Israelites went to the Egyptians, who had just lost sons and been ruined by all the plagues. Yet these same Egyptians gave them their wealth. Yet, God released huge amounts of wealth  from the pagan Egyptians to His people. They did not earn this money from making  bricks without straw. It was a supernatural transference.

 

Real Wealth

Often, we are given the word so we can contend to see it fulfilled. It is important to remember the enemy does not want you to reap the benefits of the promises of God, so spiritual warfare may be needed. The word gives us hope to stand and believe in the midst of adverse circumstances. Though our prayers are immediately answered by the Lord in the spiritual realm, it takes persistent prayer for those answers to manifest in the physical realm.

Remember the story of Daniel. After praying and fasting for the freedom of Israel from Babylon, an angel finally arrived. He told Daniel that God had heard his prayers, but a principality, who was the ruling power of darkness over the region, had held him back for 21 days. Though Daniel’s prayers were heard and acted upon instantly, it was his prayers of perseverance that allowed the angel to ultimately break through!

What if Daniel had become frustrated before his breakthrough and given up? He would have never seen God’s plan fulfilled. So therefore it is important that you commit everything to persistent prayer if you really want to see breakthrough.

 

 

Go forth and…. multiply?

Starting a new family is tough these days – financially. When considering the purchase of a home, we should apply these criteria as for undertaking any debt loan. First of all, does it make economic sense to incur a home loan? To determine this, there   are two rules to follow:

Women's Buying Power

The cost to borrow (after-tax interest) must be less than the economic benefit received (interest, yield, and/or growth in value). Rule two: there should be a guaranteed way of repayment.

Secondly, if you’re married, are both spouses free from any anxiety regarding this home loan? The principle indicates that there must be unity between the spouses. Can the home loan be undertaken with peace of mind? If you experience a lack of peace when you picture yourself taking on this home loan, do not enter into the debt.

Thirdly, ask yourself, what personal goals and values am I meeting with this home loan that can be met in no other way?

These criteria are practical, pragmatic, and biblical and should be applied unemotionally to every debt loan opportunity. The counsel to young couples who   are considering the purchase of a home or those intending to purchase a new home, is never to become so attached to the home   that they could not give it up if the debt could not be paid. Jobs are not nearly   as secure today as they were in the past. Inflation will certainly go up,   and fixed low interest rates may very well be a thing of the past.

The psychological burden of home mortgage debt is more severe than most people think,   especially if a woman whose centre of influence and security is in her home is involved. Studies have shown that having mortgage debt is a stressful factor and   that degree of stress relates to the amount of the mortgage.

The question of whether or not to pay off the mortgage, if that is an option, is really an economic, psychological decision. Economically, it may not make sense to pay off a low interest rate mortgage, even if one has the funds to do so. However,   psychologically, it may be, by far, the best course. Again, I would remind you   that finances are nothing more than a resource to accomplish other goals and objectives – they are never an end in themselves. Therefore, even if it does not make economic sense to pay off a mortgage, there may be higher priority goals and objectives that need to be met. Money then becomes merely the resource to meet those goals. The decision does not have to be always an economic one. That counsel is, of course, good for all decisions.

But we’re not just talking about having children, raising kids. How about multiplying your finances? There is an interesting phenomenon in money management that makes it seem as though money is growing on trees. It’s called  interest compounding.

Compounding is when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the   principal is called compounding (i.e. the interest is compounded). The principal amount, for example, may have its interest compounded every month: in this case, $100 initial principal and 1% interest per month would have a balance   of $101 at the end of the first month, $102.01 at the end of the second month, and so on.

It’s interesting to realize that this principle has its source found in His Word. Dishonest money dwindles away, but he who gathers money little by little makes it grow. Did   you catch the basic concept there? Gather money little by little, and thereby make it grow. By the way, did you know that if you invest any amount into a deposit at 6% interest, your principal amount will double in 12 years? In other words, your $20,000 will double to $40,000 in 12 years. Your $100,000 will double to $200,00 in 12 years.

That’s   precisely what compounding does. Whether you start with $100 or $1000 or $10,000 or more, the results over time invested at a reasonable rate can be phenomenal. The factors in compounding are time, amount and interest rate. But the most important key to compounding is being debt free. That’s because compounding will work against you the moment you take a loan.

As managers, we’re charged to manage His resources as efficiently and effectively as possible. The story of the talents which we read earlier, indicates that investing money wisely – and reaping the benefits financially – is a practice He encourages.

And that makes the magic of compounding a concept that’s crucial for us to understand… put to work, and it can help produce a positive cash flow.

A positive cash flow margin is also absolutely essential if you are to accomplish either long-term or short-term financial goals. Without a cash flow margin, you cannot accumulate in order to meet long-term goals. In addition, each of the four other short-term goals – tax reduction, increased giving, debt reduction, and increased living expense – can only be met by having a positive cash flow.

In order to reduce taxes, either additional expenditures must be made for such things   as increased giving, IRA’s, tax sheltered investments, and the like, or income must be reduced. Either increased deductible expenses or reduced income will result in tax reduction. However, both require that there be a positive cash flow to begin the process.

Without a positive cash flow, increased giving is not an option. Once there is a positive   cash flow, however, and it is used to increase giving, that decision results in   decreased taxes because charitable contributions are deductible. There are many people who plan all of their tax reduction through giving. However, they had to have a cash flow margin to begin the process.

Obviously, if you want to reduce your debt principle payments, you must have the excess cash to do so. If you are “going in the hole” by overspending, then there is no way to get out of debt until you generate a positive cash flow. After debt retirement that extra amount can be used to reduce debt further, which in turn increases the cash flow.

The first key to riding any financial crisis is to be debt free. The only absolute way to become debt-free, in the first place, is to have a financial   plan prepared at the beginning of each year that does not allow for the use of debt, and that you will stick to through self-discipline.

The major problem most people face is how to get out of the debt that they are already   in. there are only two ways to get out of debt after making the decision to avoid the use of debt: Examine the assets you have to see which ones could be sold in order to reduce debt; and in the absence of assets to sell to eliminate debt, set up a repayment schedule and strictly adhere to it.

To learn more, you can  download the Financial Freedom Small Groups kit.