Financial freedom is magnificent, but it’s also rare. Why? Financial freedom doesn’t come to us naturally; we must continually fight for it.
Imagine an intense battle raging on four sides of your financial territory. Think of your financial world as rectangular in the shape of a credit card or a $20 bill. The top edge represents the inflow of your earnings. The bottom side represents your personal consumption. The left edge, covered in our last article, represents the two types of sharing, both of which require strict discipline: voluntary sharing (generosity) and involuntarily sharing (taxation).
Finally, in this article, we will look at the right side, dealing with saving and investing. Most of us find it hard to save money and even harder to invest prudently. In reality, successful money management is no easy task.
Get Rid of Debt
Usually, the first form of wise saving is to stop serving creditors by our indebtedness to them. Not all debt is the same, and some loans are worse than others. Begin your debt elimination with the smallest consumer debt, and finish by paying off tax-deductible debt for appreciating assets.
Business debt is the least evil since it reduces your taxes, especially when it's for an asset that grows in value or generates income. The interest you pay on your personal residence does not reduce your taxes. I put more emphasis on being mortgage-free than on having a big retirement fund. Forget about savings until you have paid off your credit card balance each month, which is the worst kind of debt.
If you have much debt to eliminate, use the “snowball” approach: make a list of all your debts and the amounts owing. Start by paying off the smallest one first, then go on to eliminate the next debt on your list. As you reduce your debt load one by one, your confidence will grow. With your debt repayment plan in hand, ask your creditor to reduce the interest rate on your debt or adjust the debt due dates. When creditors see sincere attempts to repay they will often negotiate more workable terms. The worst they can say is ‘no,’ but if you don’t ask, you’ll never know.
Saving Is Not Spending
Saving is a habit that needs to be consciously developed, although some people are better at it than others. When it comes to financial coaching, I like to listen to the advice of Canadian Tom Copland. On saving money, Copland puts a lot of emphasis on heeding the warning given to us in the Bible, “Fools spend whatever they get.”1 Copland has an excellent website and presents many case studies gained over decades of financial counselling and coaching. His material is all Canadian for all Canadians. Saving is a deliberate decision that must be made before spending begins.
Beware of spending to save. It’s a popular marketing technique to promote bulk-buying or cash back or reward point schemes to get us to buy things we don’t need just because they are on a 60% off sale. It’s like the husband who told his wife coming home with boxes of shoes all bought on huge discounts, “Darling, we can’t afford to save so much money.”
Don’t Waste Resources
Do you remember reading about Jesus feeding thousands of men women and children with just a few loaves and fish? Everyone was hungry and Jesus provided an endless supply of free food while no one was cutting back on consumption. Yet after the miracle was over, Jesus said, “Pick up the broken pieces so that nothing may be wasted.”2 My point is that abundance—even endless supply—does not excuse wastefulness.
We have a lot to re-learn in our culture about wastefulness, especially about not wasting food. As new immigrants to Canada, our family was shocked to see Canadians scrape food off their plates into the garbage. My parents made sure we ate all the food on our plates, as they had experienced the hardship of scarcity during and after WWII. Their approach often was reduce, repair, re-use and then recycle. Lately, it seems that we’ve been dumbed down to a one string banjo of “recycle, recycle, recycle.”
Don’t skip savings just because the amount seems small. The development of the habit is more important than the amount of money being saved. God gives us valuable advice on the art of saving money in Proverbs 13:11. It is tricky to translate. The English Standard Version says, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” The Christian Standard Version reads, “Wealth obtained by fraud will dwindle, but whoever earns it through labor will multiply it.” Look at the last part of the verse. It is “little by little” or “by labour.” In Hebrew the word means “by hand.” Thus, it might mean a handful at a time, or it might mean by physical labour.
I think it means both, with the emphasis being on small, regular, conscious, humble amounts. It is painless to save just a little bit at a time. The Bible seems to say that the best way to save is the slow and steady method. Predetermine that you will save a percentage of every pay cheque into a TFSA, RESP, or RRSP. Set up a pre-authorized withdrawal from your bank account, even if it is only $25 per pay period. If we make the practice of saving simple and easy, we won’t quit.
My dad lived through the horrors of WW2, subsequent Communist tyranny in eastern Europe, and the hardships of bringing a young family to Canada. He said, “Save when you have plenty since you have plenty. Save when you have little since you can’t afford to waste anything.”
Look back at the right side of that rectangle and go on the site wisdomwithwealth.org. Search under keywords bf saving (bf stands for battle front) to find 27 verses on some aspect of saving.
Without knowing it, the habit of saving can turn into hoarding or being miserly. Both are dangerous but real. On the streets of Montreal in January 2001, a bag lady froze to death. Although this sort of tragedy occurs often, what was unique in this case is that she had $40,000 cash on her person. She could have checked into a hotel or even a hostel to avoid the bitter cold. Her love of money stifled her love of life. Tragic. Insane, you might say. Yet many of us give up freedom, health, or time with loved ones just for more money.
Hetty Green (November 21,1834 - July 3, 1916) was nicknamed the Witch of Wall Street. She was extremely wealthy (a multi-billionaire in current dollars) yet also very miserly, even at the expense of her own children's health. Once her son had a serious leg injury, and she shopped around for the cheapest doctor. It took her so long to find a low-cost doctor that, by the time she finally found one, her son's leg had to be amputated. Her love of money made her wise in her own eyes but extremely foolish in the eyes of all others. Unless we master our money, it will master us. Having too much money is just as dangerous as having too little.3
In summary, save before you spend but after you share. Dethrone consumption and selfishness. Unlike most financial planners, I don’t recommend that you pay yourself first. Pay yourself second. Go to my previous article to find out more on this topic. Don’t follow the advice of the guy who said, “Get all you can; can all you get, and then sit on your can.” The secret to happiness with money is not in having but in giving. Hoarding is dangerous as one super wealthy farmer learned the hard way.
After you have learned to share and save, you are ready to begin investing. Once you have accumulated some savings, invest them into different asset classes. The clearest biblical advice on diversified investing is this, “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”4 The earliest reference in the Bible to asset classes is found in Genesis 13:2 where we read that Abram was very wealthy in livestock, silver, and gold.
Adjusted to modern non-agrarian investments, I understand livestock to be a living, reproducing, labour intensive asset class which produces a regular yield in the form of dividends or interest and can even undergo stock splits.
Silver is a store of value, which for millennia was used as a medium of exchange and a unit of measure. This equates to cash and short-term investment.
Gold is an internationally recognized store of value, which, unlike any fiat currency, is limited in quantity and is universally respected even in modern times. But remember, the Bible states that in heaven gold will be used like pavement. My point is this: diversify your wealth into differing non-correlated asset classes. Start with a “living” asset class which includes consumer staples.
As this is my last article in the series, let me say three things:
- Don’t confuse net worth with self worth.
- The secret to happiness with money is not in having but in giving.
- Eliminating debt and steady saving facilitates giving.
Written by Tom Lipp
Tom Lipp is the president of Financial FOUNDATIONS Limited and a representative of PORTFOLIO STRATEGIES Corporation. Most of what Tom learned about wise money management came from his parents. They immigrated to Canada from communist Europe in the late 1950s. Tom's father left an executive position in the Polish coal industry to work night shift at Hunt’s Bakery in Toronto. His mother started work in a steno pool at Sears and ended her career as a bilingual legal secretary. To enhance the financial education he received from his parents, Tom graduated from York University with an MBA and is a professional accountant. He has worked for an international petroleum company, as a tax consultant, a private school business manager, and for nearly twenty years as a financial planner.
Tom’s passion is to re-introduce Biblical truth into the financial industry in such a way as to restore order and bring hope to a world in economic despair. He sees the key as being dependent on the living God, Who trumps the power of both gold and government. Tom has been building a website based on the unchanging financial guidance from the book of Proverbs, http://www.wisdomwithwealth.org. He plans to expound on the multifaceted benefits of wise charitable giving. He and his wife Priscilla live on an acreage just outside Calgary with three of their ten children. They also enjoy six grandchildren living nearby.
Tom can be reached by phone at (403) 255-3944 or on his business website.