Is Money Good or Bad?

Is Money Good or Bad?

The Bible is often misquoted as stating that money is the root of all evil. Not so. The Bible actually states that “the love of money is the root of all evil” (1 Timothy 6:10, emphasis added). That is a very important distinction. Money is not inherently bad. In fact, great good can be done with money when it is used properly. Good people are often empowered to do even more good when they have money. Think of the Good Samaritan in the Bible. If he were penniless, his ability to care for the man who had been mugged would have been severely diminished, because he would not have been able to pay the inn keeper (see Luke 10:25-37). Thousands of charitable organizations which do a tremendous amount of good throughout the world could not exist without the generous donations of many affluent people. On the other hand, when we set our hearts upon our possessions, hoard them all for ourselves, or covet other people’s riches, we are headed down a dangerous road that will certainly lead to misery. We must learn to love people, not money. What Should We Do with Our Money? Obviously, the primary purpose of money is to provide for the basic necessities of life: food, clothing, and shelter. After we have met these three basic needs, the choices for what to do with our surplus are endless. I believe that someday we will be accountable to God for how profitably we utilized our resources throughout our lives. Everything we have comes from the great Creator of the universe. When we die, we cannot take...
3 Keys to Financial Independence

3 Keys to Financial Independence

Asset Building First Have you ever heard the phrase, “pay yourself first?” That is a very good rule of thumb after taxes, tithing, and protection considerations. “Pay yourself first” means we should save for future needs before buying the things we want now. Most people find it very difficult to build significant assets because they do not have the discipline to sacrifice what they want now so they can have what they want most at some future date. They erroneously believe that they just need to get lucky with a risky investment or win the lottery to be wealthy. Building wealth can be a relatively simple process. All we need to do is consistently save a significant portion of our income and invest it wisely. If we are not willing to do this, we may never be able to get ahead financially or retire with a decent standard of living. Although it is simple, it is not always easy. Lifestyle Spending Second Finally, we get to spend some money! If we can be disciplined enough to take care of all the preceding concerns first, then live within whatever is left, we will essentially be financially bullet-proof throughout life. When we know we are taking care of the other essential areas, spending money is more fun because we do not have to feel guilty or wonder whether we can really afford to spend it. Most people are stressed out about money because they have it all backwards. They spend everything they make—or even more than what they make—to meet their current wants, then hope that nothing bad ever happens to them....
What Kind of Debt Is Acceptable?

What Kind of Debt Is Acceptable?

Acceptable Forms of Personal Debt Although I have been harsh on debt and believe we should pay cash for as many things as possible, I acknowledge that some forms of debt may be the best way to meet some of our most critical spending needs. When used wisely and sparingly, it can provide tremendous opportunities for economic improvement that may never be available otherwise. In my opinion, the most responsible use of personal debt would be limited to reasonable amounts for education, a modest home, and basic transportation. It may also be prudent for businesses to incur certain forms of debt at sensible levels for expansion that would be impossible otherwise, but we will limit our discussion here to personal debt. Why am I okay with debt for these purposes? Since higher education often dramatically improves potential earning power, and since our ability to earn an income is typically our greatest asset throughout most of our life, student loans may produce a higher long-term return than any other investment we could make. If a student’s parents or grandparents cannot afford to pay higher education costs for her, she may never be able to save up enough money on her own to pay for the schooling required to increase her earning power so substantially. In this case, student loans can be a very valuable tool. Still, we must be careful not to spend more on education than we can reasonably expect to be able to pay back based on the earning potential of employment opportunities related to our field of study. We can minimize the use of student loans by...
Creating a Spending Plan

Creating a Spending Plan

Whether they make a lot of money or squeak by on a meager salary, most people shiver when they hear the word “budget.” Since the “B word” typically evokes such negative emotions, I prefer to call it a Spending Plan. I enjoy thinking about how I am going to spend my money much more than I enjoy contemplating how to restrict myself by living within a budget. After all, money is ultimately meant to be spent, right? Creating a spending plan is a beautiful thing because it is the only way to ensure that our money will go to the things we want most, not just to the things we want now. This is a critical distinction, because the two are often mutually exclusive. We can never have enough money to buy everything we want. Therefore, we should think of our spending plan as a friend who helps us get what we want most, not as an enemy to all happiness. If we have already allocated the proper amounts to taxes, tithing, insurance, and savings, then we are most of the way there. In fact, we do not even have to keep track of where the rest of it goes if we do not want to. The most important thing is to distinguish between fixed, totally necessary expenses (such as mortgage payments and utilities) and discretionary expenses (such as eating out and taking vacations). We must be sure we have enough to cover the fixed expenses first, and then we can spend whatever is left on the extras. In our family, as we have learned to discipline ourselves we...
Pay Off Debt or Invest For the Future?

Pay Off Debt or Invest For the Future?

Often people ask me whether they should pay off all debts before saving for the future or save first in hopes of earning a higher return on investments than they are paying in interest on debts. This is an age-old debate, and I have heard convincing arguments from Financial Advisors on both sides. The “Pay Off Debt” Argument Some advisors recommend that we liquidate all of our savings and investments except a very small amount, even as low as $1,000, to immediately pay down as much debt as possible. Then they recommend that we use every discretionary penny from each paycheck to eliminate the remaining debts as quickly as possible. After we are completely debt-free, then we can start saving and investing for the future. I admire people who are disciplined enough to follow this extremely aggressive strategy, but it is risky because it does not leave an adequate safety cushion. A $1,000 savings account would not be enough to cover unemployment, major unexpected expenses, or serious extended illness. What would happen to my house if I could not make my mortgage payment for six months due to unemployment? Would the bank cut me any slack because I had been paying them extra for the past year in hopes of paying my mortgage off sooner? Not likely. We should always maintain at least three to six months of living expenses in liquid savings, even if we have debt. The “Invest it All” Argument On the other extreme, some people recommend borrowing as much as the banks will allow and investing it all because they declare we can make more...
Where Should We Put Our Money?

Where Should We Put Our Money?

Although the amount we save is likely to have a bigger impact on our well-being than how we invest our money, we still need to invest it wisely. Choosing among the myriad of savings and investment options available can be overwhelming. How can we know where is the best place to put our money? Here’s some perspective from an investment advisor. Everybody Wants to “Help” You Invest. Countless financial institutions are constantly clamoring for us to park a piece of our pie with them. Why? That is how they make money. Unless we bury our money in the backyard, someone is going to make money off of our money no matter where we park it, even if it merely sits in a bank account. This is not a problem as long as we receive the benefits we expect in return. In order to be sure that the financial institutions meet our objectives and not just their own, we must be clear about what we are trying to accomplish with each dollar we deposit. My motto for savings and investment advice is “safety before speed.” Would you buy a car that can go from zero to sixty miles per hour in less than three seconds if it were not also equipped with excellent brakes, seat belts, and air bags? The potential rate of acceleration is much less important than the ability to avoid or minimize the impact of a crash. Without the safety elements, you may never reach your destination, no matter how fast you can go. Money works the same way. Many people lose the opportunity to be financially...