“Cash is king!” is a popular financial phrase used to describe the strength of adequate cash flow or cash reserves particularly during a crisis or downturn. It sounds good to the ears, is memorable and easy to believe, but it is not true. I happen to own a 100 trillion-dollar bill. That is a one with fourteen zeros behind it, i.e. 100,000,000,000,000. It is the largest denomination of currency printed in modern times, possibly in history. It was printed in Zimbabwe and retired in 2008 after it was no longer capable of purchasing a roll of toilet paper.
In Venezuela, the minimum wage has been increased 50 times in the past 20 years. In May 2020, the average citizen receives a total of 800,000 bolivars per month, making them millionaires on paper. Because of inflation, it is the equivalent of four or five US dollars per month.
You get the point. Don’t believe financial advice just because it sounds good at face value or because it is popular in the culture.
Proverbs 16:16 takes aim at the philosophy of “mo’ cash = mo’ brains.” It says, “How much better it is to get wisdom than gold! And to get understanding is to be chosen rather than silver.” You see, “wisdom is better than money” does not roll off the tongue so easily. Yet, it has proven time and again to be true.
Cash, no matter the amount, is meaningless without wisdom. Is it good to save money? Of course. Is it good to view it as a king with god-like power? No. Will it save you from peril? Not without wisdom.
The phrase, “A fool and his money are soon parted,” probably had its origins in Proverbs 21:20 which says, “The wise store up choice food and olive oil, but fools gulp theirs down.” Seek wisdom. The money will follow.
Here is my short list of bad financial advice.
“Use your home equity like a bank account!”
In a very recent conversation with an acquaintance, he explained to me that he was using his home equity like his bank account to get through the crisis. I asked him to explain. He continued, “Well, I have paid down the mortgage on my house to about 50% remaining, so with that equity I use a Home Equity Line of Credit (HELOC) to be able to get cash whenever I need it. It works perfectly!” Not really. A HELOC is not accessing cash whenever you need it. It is taking out an expensive loan and putting your house up for collateral every time you need it. The Bible says that a better way is to learn to save like an ant. They have tiny little bodies, with tiny little brains, but when they show up at a picnic they do not feast on the crumbs on the spot. Rather, they take them home without eating them and store them for a future date when times are lean. Proverbs 6:6 says that if we will do the same, we will become wise.
“There is good debt and bad debt…”
Modern finances gurus have worked hard to convince us that there is a good way and a bad way to use credit. I will agree but only to this slight modification…. there is bad debt and less bad debt. Less bad debt enables you to purchase an asset or make an investment with the potential to support the repayment of that loan. Bad debt is used for buying liabilities, things that do not appreciate in value and will not help you pay back the loan. Credit card debt is bad debt. Student loans are less bad debt. Both are debt which means you are paying for someone else to supply you the money you need. I have even heard some try to convince others that it is good to borrow for a car purchase even if you have the money to repay the loan. Uh. What?
Proverbs 22:7 says, “Just as the rich rule over the poor, so the borrower is a slave to the lender.” I truly believe that Christ wants us free from every form of slavery and bondage, including being in debt to MasterCard or your car payment or your student loan. So, repeat after me: there is no such thing as good slavery. If you have to borrow money, remember three simple rules: borrow as little as possible, for as short of a term as possible and pay it off as quickly as possible.
“My credit card is my savings account.”
Card issuers divide the world into two groups: “transactors” are those who use their cards for purchases and pay off the balances each month; I/we use one credit card and am definitely a transactor. I avoid interest or fees or late payments, but accumulate a lot of bonus miles. The other are called “revolvers.” This group carry balances on their cards, paying interest charges month to month. To pure transactors, the balances on their cards aren’t really debts at all, since any purchases will be paid off before interest charges are applied.
One person I was helping called my radio program once and wanted to shout, “I am debt free.” I told her that was a different radio program, but I asked her to tell me how she got debt free. She explained that she had been able to transfer her credit card debts to a single card that charged no interest for one full year. I said, “You are not debt free.” She said, “well it feels like it because my credit cards are what I use for my savings account.”
Thirty-seven percent of U.S. households are “revolvers.” They endlessly pay revolving credit card debt from month to month. For this group, they consider it a victory to pay down their spending limits below the maximum so they have some breathing room to put any emergencies on the card should the need arise.
This is definitely bad debt, unwise and flying blindly into a mountain. We all need a real emergency savings account. Here is what that looks like. Put 1,000 dollars (minimum) into a safe at home, a bank account or in a sock under the mattress. This is money you only spend in a real emergency, so you don’t have to use debt. If you use it, pay it back so you are your own personal banker. As you are able, increase this amount to three to six months of your living expenses.
For full disclosure, at one time in my life, I believed or at least practiced all of this bad advice listed above; every…single…one of them. And it was painful, which turned out to be a good teacher. I did not know good financial advice from bad financial advice until my life was changed in a Bible study produced by Crown on God’s financial principles. I would be happy to see you experience the freedom that I have had since learning how the Lord wanted me to manage money.