Debt and Borrowing Session 12

Transcription

1 Debt and Borrowing Session 12 Session Summary: In this session Ron Blue will discuss the economic and spiritual criteria for borrowing, as well as the dangers associated with borrowing. He will offer a perspective on debt that is counter cultural, Biblical, and makes financial sense. Common questions regarding debt will also be asked and discussed. Lessons from the Walt Meloon video: 1. Life on earth is, not punishment. 2. All debt repayment is paid back with tax dollars. 3. It took them 18 years to pay back debt that had been forgiven. 4. One can get into debt quickly, but it takes a long time to get out of debt. 5. The Meloons learned: a. Freedom from love of things they did not really need b. Forgiveness Session 12 Kingdom Advisors Training 1

2 To Know: 1. The kinds of borrowing 2. The difference between borrowing and debt 3. The of borrowing 4. The economic criteria for borrowing 5. The spiritual criteria for bankruptcy 6. The wisdom of paying off the To Believe: 1. is not a sin. 2. Borrowing may deny an opportunity to provide. 3. Borrowing always upon the future. 4. Debt is almost always symptomatic of spiritual issues. 5. Consumptive borrowing will sentence one to a standard of living in the future. 6. Husband and wife must always be in when making a borrowing decision. To Do: 1. borrowing 2. Be able to articulate: a. The five kinds of borrowing b. The questions to ask before borrowing c. The dangers of borrowing 3. Be able to lead clients to reduction or elimination 4. Be able to apply criteria to borrowing decisions Possible Questions: 1. Why do people borrow? 2. What is the relationship between debt and? Typically there is a direct relationship between debt and lifestyle. 3. What is the relationship between debt and? 50% of couples get divorced and 50% of those are finance related. 4. What is the relationship between debt and income families? Often we see spending and debt go up with two income families as they think they can afford a higher lifestyle, but fail to take into consideration the increase in taxes, tithe, and costs associated with working. Session 12 Kingdom Advisors Training 2

3 The World s Perspective: Consequences: Session 12 Kingdom Advisors Training 3

4 Cultural Perspectives: 1. Cultural beliefs Credit cards are okay. It used to be that people who did not pay their bills were deadbeats. Now credit card companies refer to people who pay off their bills every month as deadbeats. 2. Growth in credit card borrowing 3. Increase in bankruptcies 4. (Other Peoples Money) Biblical Wisdom: "The rich rules over the poor, and the borrower becomes the lender's slave." (Proverbs 22:7 NASB) There are no exceptions to this verse. No one borrows there way into prosperity. If one is going to choose to borrow, one must realize they have accepted the role noted in this verse. Come now, you who say, Today or tomorrow we shall go to such and such a city, and spend a year there and engage in business and make a profit. Yet you do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away. Instead you ought to say, If the Lord wills, we shall live and also do this or that. (James 4:13-15 NASB) The reality is that we do not know what tomorrow holds. When considering borrowing one must consider whether one is presuming upon the future. The only way to not violate the principle of this scripture is to have a guaranteed way to repay. "Suppose one of you wants to build a tower. Will he not sit down and estimate the cost to see if he has enough money to complete it?" (Luke 14:28 NIV) 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 beds will be snatched from under you. (Proverbs 22:26-27 NIV) Session 12 Kingdom Advisors Training 4

5 Dangers of Debt: 1. Economic a. Compounding works you b. Getting in is easier than getting out c. is always repaid with after tax dollars d. Borrowing always mortgages the 2. Spiritual a. Always presumes upon the future b. May deny God an to work 3. Psychological 4. Marital Husband and wife should be in % agreement in a borrowing decision. 5. If I get to a point where I cannot repay my debt then I am potentially damaging my witness and testimony. The Magic of Compounding: When considering the economic dangers keep in mind the magic of compounding. The rule of says that: 72 divided by the interest rate reveals the length of time it will take for your money to double 72/3% = 24 years 72/6% = 12 years 72/12% = 6 years 72/24% = 3 years For a $10,000 investment over 24 years 3%=$20,000(2X) 6%=$40,000(4X) 12%=$160,000(16X) 24%=$2,560,000(256X) Session 12 Kingdom Advisors Training 5

6 Illustrations: Investing a lump sum of $10,000 and leaving it for 40 years: 1. 25% return compounds to $75,231, % return compounds to only $54,559, % return compounds to $102,857(10 times) Investing $1,000 per year for 40 years: 1. 25% return compounds to $30,088, % return grows to $767, % return compounds to $154, $3,000 per year grows to $464,286 The Point: 1. Start The earlier I start and the more money I can put in, the greater opportunity I have to see compounding work for me. Money compounds dramatically if I can invest it and leave it there. 2. The Cost of Consumption If we borrow we give the lender money we could have earned had we invested the money rather than borrowing it. To borrow $40,000 costs us $767,000. ($1000 a year for 40 years at 12%) 3. Get rich Live within your means year after year and wealth begins to accumulate. Session 12 Kingdom Advisors Training 6

7 The Rules of Borrowing: 1. Economic must be greater than the economic cost. (Luke 14:28) Session 12 Kingdom Advisors Training 7

8 2. There must be a guaranteed way to repay amounts borrowed. (Proverbs 22:26 27) 3. must be in agreement. (Ephesians 5) 4. There are no other alternatives. Five Kinds of Borrowing: 1. Credit card 2. Consumer Business 5. Investment Ron s Personal Convictions on Debt & Borrowing: 1. Borrowing is not a. 2. Borrowing deny God an opportunity to work. 3. Borrowing always upon the future. 4. Debt (bondage) is the inability to repay amounts borrowed on a timely basis. 5. Debt is almost always symptomatic of problems. 6. Consumptive borrowing will sentence one to a reduced in the future and will also limit financial flexibility and future financial freedom. 7. Husband and wife must be perfect agreement regarding the use of borrowing. Missed Fortune or Missed Opportunity? Today there is a school of thought pushing the idea that if you do not take the equity out of your house and invest it then you are missing a fortune. An alternative view would be that it would be a tragic missed opportunity to not pay off ones home mortgage given the ability to do so. If one has a $100,000 mortgage at 6%, then one will pay $6,000 in interest and $4,200 after taxes. There is no risk associated with the economic return of paying off a home mortgage. Session 12 Kingdom Advisors Training 8

9 The missed fortune promoters claim that if one pays off their home mortgage then he or she will run out of liquidity. However, running out of liquidity is a consequence of poor planning rather than a consequence of paying off a home mortgage. I would counsel a client to: 1. Pay off credit and consumer debt. 2. Build. 3. Use excess cash flow to pay off home mortgage. The result would be a client who could end up in retirement with liquidity and a paid off mortgage. Client Counsel Objectives on Borrowing and Debt: 1. To move clients to using borrowing only for economically productive purposes Don t let your client kid him/herself or you, as to what is economically productive. God s way always makes economic sense, but it does often go against the grain. 2. To move clients over time to all debt 3. To help clients understand that debt repayment may be an investment 4. To help clients understand how using debt may deny God an opportunity to provide supernaturally Session 12 Kingdom Advisors Training 9

10 Questions to Ask: 1. Does it make economic sense? Is the economic return greater than the economic cost? 2. Do I have a way of repayment? 3. Do my spouse and I have unity in this decision? 4. Do I have peace of mind when I project making this borrowing decision? 5. Do I have when I pray through this borrowing decision? 6. What personal goals and values am I meeting that can be met in no other way? (i.e. What are my?) Please take the time to complete your first pass at your own personal convictions related to this session on the Personal Convictions Worksheet. Session 12 Kingdom Advisors Training 10