Dodging debt

Poet and humorist Ogden Nash once lent some insight on the pernicious nature of indebtedness when he observed, “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” Yes, people like to borrow money because it allows them to swap it for material things right there and right now—consumerism and instant gratification, two defining characteristics of modern Western society—but it has massive side effects as they try to get rid of the debt.

According to a finder.com.au June 2016 survey, 70.19 per cent of Australian adults hold a credit card. But is this such a big deal? After all, we need to manage life, right, and credit is an essential part of economic growth and prosperity. Reserve Bank of Australia figures show that the nation’s consumers together owe more than $A51b on their credit cards, of which some $A33b is interest. The average credit card balance is $A3130 and the average interest accruing on it is $A1936. It means on average, more than 70 per cent people in Australia—card holders—become poorer by almost $2000 every year simply because they pay interest. That’s where the fun side of borrowing money ends and the ugly side takes hold of people’s lives.

There’s more to this downside of debt. Financial pressures on households have left a third of Australians living pay cheque to pay cheque. And more than ever are desperately seeking help with their money troubles.

Figures from 2017 show nearly 14,600 Australians used phone services to seek financial counselling, an increase of about 11 per cent from the year before.

As debt can put significant financial pressure on households, it’s important to do all we can to manage our spending. The advantage for everyone who reads and follows the Bible is great: The wise (and mega wealthy) King Solomon said of debt, “The borrower is servant to the lender” (Proverbs 22:7). In other words, debt doesn’t just buy you the pleasures it promises but it sells you into slavery.

But debt is not the real problem. Rather, it’s a symptom of a greater problem, already alluded to, which is consumerism. Research reveals that, as a rule of thumb, people spend about 20 per cent more than they earn regardless of their earnings.

Fuelled by the media, advertising and pride, people want to have even more things because they think they will be happier if they have them. If I have this latest iPhone, I will be happier; if I have this cool D&G handbag, I will be happier; if I drive this head-turning car, I will feel important. But the truth is, if we draw happiness and significance from things we own, we’ll never be satisfied, as there will never be enough; there will always be something newer, and someone else will always have a better car.

As someone once put it, Christmas is the season when you buy this year’s gifts with next year’s money. Don’t be enticed into this bottomless pit. Rather, follow the plain advice of Thomas Jefferson: “Never spend your money before you have it.”

How do you do that? Here’s a formula used by many wealthy people, which has helped me become financially liberated:

Divide your earning into three groups:

1. Giving (at least 10 per cent). Truly wealthy people give, regardless of their status and religion.
2. Paying yourself (least 10 per cent). This money is saved to be used as seeds of future investment.
3. Living expenses (limit to less than the remaining 80 per cent). By allowing yourself to live only on 80 per cent of your income (or less) you will likely need to simplify your lifestyle and lessen your consumption. Remember that people usually spend more than they earn not because they need more but because they choose to live beyond their limits. By doing so they rob themselves of becoming financially free as they accumulate debt, which is slavery to creditors.

And to conclude, here’s some good news. If you earn an average wage in Australia, you’re already set to becoming a millionaire well before your retirement—but only if you start living by this formula in your 20s. That’s about $10,000 a year over your working life of 40 years—at compound interest. So make a start now.

And there are better reasons than just wealth. Read Jesus’ parable in Matthew 25:14–30. God has given you many “talents,” and a regular wage is one. You can use it wisely, invest and multiply it, or waste it by spending it all, much of it paying off interest, or worse, accumulating debt that robs you of your own freedom in life.

And one final maxim: Don’t save what’s left after spending; spend what’s left after saving.