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Financial Black Holes
Financial Black Holes
Perhaps you have heard the humorous
definition of a boat. It is a hole in the water into which one pours money. This
view reflects the frustration that can arise over uncontrolled or unplanned expenses
that can accompany ownership of a boat.
Of course, many pertinent examples could be used to describe unwise drains on our
financial resources. The prophet Haggai described it as putting one's money in a
bag with holes in it (Haggai 1:6). Along similar lines, astronomers speak of black
holes in the universe that suck up the matter, and even light, in their surrounding
areas. In this chapter we will consider some financial black holes that can undermine
and sabotage our financial planning.
Credit cards
One of the greatest financial conveniences is credit cards. Besides eliminating the
need for the inconvenience of carrying cash, credit cards make it possible to buy
goods and services at distant locations via phone and the Internet. If one pays off
all credit-card charges each month, there is no fee to the cardholder. The service
is paid for through fees assessed to merchants who accept the card in lieu of cash
or a bank check.
When one does not completely pay off the balance each month, however, little plastic
cards quickly turn from lovely conveniences into financial black holes. Some of the
highest interest rates allowed by law are assessed on balances that are not paid
off but carried over from month to month.
Many people use their cards so frequently they are actually spending credit rather
than spending income. In the United States credit-card debt is the fastest-growing
portion of consumer debt. It's no coincidence that bankruptcy filings are growing
alongside consumer debt.
When people make only the minimum payment (often 2 percent of the balance) each month,
the cost of each item charged to a credit card almost doubles by the time the debt
is paid off. In the long run we are much better off waiting until we have saved up
the purchase price of an item before buying it rather than financing it with a credit
card.
The best way to use credit cards is to pay off the entire balance every month. For
those who need to borrow money, other options (such as mortgages, home-equity loans
and car loans) are often available with lower interest rates than those usually offered
through credit cards.
Late fees
Some creditors impose late fees for bills that are not paid on time. In the case
of utilities, reconnection fees can be charged if services are shut off because bills
have not been paid. These kinds of fees can be avoided simply by making sure bills
are paid when due.
Eating out
Instead of preparing and eating meals at home, many people choose to eat out. Growing
numbers of restaurants are taking advantage of this trend. Even grocery stores are
recognizing and responding to the desire for more convenience foods that require
little preparation.
Although the convenience is attractive, especially when both a husband and wife work
outside the home, this practice almost always adds considerable expense to the food
budget. Sometimes eating out is justified or a helpful change of pace, but care should
be taken to minimize the practice.
The most economical way to make one's food budget stretch the farthest is to buy
food in bulk and prepare it at home. This also goes for taking lunches to work instead
of purchasing meals. Eating out is enjoyable and sometimes a good decision when both
husband and wife are tired from long days at work, but a price must be paid for this
pleasure.
Entertainment
Doing things that are fun is an important part of life, and every budget should include
some funds for this purpose. Unchecked spending in this area, however, can quickly
devastate even the most carefully prepared budget. Entertainment does not have to
be expensive. With careful planning, enjoyable activities such as visiting parks,
hiking and attending free concerts can be incorporated into an entertainment budget.
Impulse buying
Although many other financial black holes could be identified, a common problem is
impulse buying, which is simply uncontrolled spending. When this happens, some people
are tempted to say that budgeting does not work for them or that a budget ruins their
fun. Budgets, however, are simply plans for spending our money, and we alone choose
how we will spend it.
Impulse buying is an important basis for many sales. Advertisers understand that
the desire for instant gratification is a powerful influence, and they often urge
us to buy their products so we will feel good about ourselves. We may even be told
that we "deserve" to have their products.
Instead of making snap decisions, the Consumer Credit Counseling Service of Sacramento,
California, recommends setting spending limits we will not exceed without thinking
about the decision overnight. Nor should we use shopping as entertainment. This service
also suggests consumers go through a short list of questions before making a purchase
(see "A Buying Self-Test," ).
Identifying financial black holes
One of the easiest ways to identify areas that drain our financial resources is to
look closely at the things we buy. By keeping records of our expenditures for one
or more months and totaling them by category (housing, food, clothing, entertainment,
etc.), we can see which areas consume the most money. These are the areas we can
then examine for ways to economize and manage our spending.
What do we do when our budget is full of black holes? Such a situation calls for
immediate and decisive action.
In Case of Emergency
Occasionally everyone incurs unexpected expenses. Cars and appliances break down
and must be repaired or replaced. Medical emergencies requiring extra funds can strike
without warning. Although temporary situations can be covered through savings,habitual
excessive spending requires special attention.
What can we do when we find ourselves in a prolonged financial crisis? How does one
plug up financial black holes and reverse poor monetary decisions? Here are a few
steps that can help resolve some long-term financial difficulties.
The first step for someone who wants to structure his life according to God's instruction
is to ask Him for wisdom in setting financial priorities and for the self-discipline
that will be needed to carry out a sensible plan of recovery. James 1:5 says, "If
any of you lacks wisdom, let him ask of God, who gives to all liberally and without
reproach, and it will be given to him."
When our spending exceeds income, common sense tells us of only two solutions to
the problem. First, we must increase our income, or, second, decrease our spending.
In some cases we may be able to do things on the job that will increase our salary.
Other options include taking a temporary second job or starting an additional part-time
business, but these options may bring unwanted side effects to a couple or family.
If we cannot increase income, the alternative is to cut expenses. We can do this
by controlling the typical financial black holes mentioned in the previous chapter
and by carefully analyzing each expense. Expenses that are necessities -- such as food,
clothing and housing -- could possibly be cut back. Expenses for luxuries, ones we can
live without, are candidates for drastic reduction or elimination.
Ideally, when facing a cash-flow problem, we should strive to increase income and
decrease expenses. Striving to incorporate both of these principles yields the fastest
results.
Avoiding bankruptcy
Some people facing financial difficulty assume bankruptcy is the simple solution
to their problem. Generally speaking, however, one should try to avoid it if at all
possible.
Sometimes viable alternatives to filing bankruptcy can be found. Timely communication
with creditors can result in temporarily
lowered interest rates and payments. Sometimes consolidation loans, in which all
outstanding debts are lumped together for a single monthly payment, can be helpful
remedies if the interest rate is lower than that of the other debts.
Additionally, creditors will occasionally accept settlement plans in which they receive
a percentage of the balance due (usually after the account is past due) as payment
in full. In such cases a creditor may decide that partial payment is better than
no payment.
In addition to studying personal money management, one can often find nonprofit organizations
such as the Consumer Credit Counseling Service ((800) 388-2227 in the United States)
with free or low-priced services to help find alternatives to bankruptcy and work
out financial-recovery plans.
When bankruptcy is the only option
Sometimes people get so far in debt they may have no other choice than to file bankruptcy.
This should be a last resort, after all other methods for resolving a financial problem
are exhausted. Bankruptcy has a negative affect upon one's ability to obtain credit.
Laws vary from country to country. Appropriate legal advice should be sought if one
chooses this course of action.
Although bankruptcy can leave people feeling ashamed and embarrassed, we should understand
that God recognized there would be times when people made mistakes or encountered
circumstances that brought them to financial ruin. Mistakes can be rectified and
lessons can be learned through all of life's experiences.
In compassion, God gave the nation of ancient Israel some important principles designed
to help those in financial crisis. These included not charging usury (Exodus 22:25)
or looking disparagingly on the poor (Exodus 23:3). Portions of fields and vineyards
were to be left for them to glean (Leviticus 19:10; 23:22). Israel was to take care
of its poor (Leviticus 25:35).
Moses explained these principles this way: "If there is among you a poor man
of your brethren, within any of the gates in your land which the Lord your God is
giving you, you shall not harden your heart nor shut your hand from your poor brother,
but you shall open your hand wide to him and willingly lend him sufficient for his
need, whatever he needs. Beware lest there be a wicked thought in your heart, saying,
'The seventh year, the year of release, is at hand,' and your eye be evil against
your poor brother and you give him nothing, and he cry out to the Lord against you,
and it become sin among you.
"You shall surely give to him, and your heart should not be grieved when you
give to him, because for this thing the Lord your God will bless you in all your
works and in all to which you put your hand. For the poor will never cease from the
land; therefore I command you, saying, 'You shall open your hand wide to your brother,
to your poor and your needy, in your land'" (Deuteronomy 15:7-11).
The same chapter tells us that debts were canceled every seven years (verses 1-4),
giving each person an opportunity to be freed of the burden of perpetual debt. God
well understood that poor financial decision-making and poverty are perpetual problems
and made provision for people to start afresh. Bankruptcy may be an option to allow
someone to start over.
Although times have changed since these instructions were given, the principles of
treating those in need with dignity and respect remain.
©1999 United Church of God, an International Associtaion
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