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Prosperous Living is Debt-Free Living

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God's Commandment:

            Romans 13:8 "Owe no man any thing, but to love one another:"

          Proverbs 22:26 "Be not thou one of them that strike hands, or of them that are sureties for debts."

Part I. The Strategy

          We need a new outlook on living in this world that is in accordance with the Biblical command to "Owe no man anything but to Love one another."

          It is virtually impossible to reach the goal of being debt- free by following the wisdom that we  have learned in the world. If men lived by the correct Biblical principles, they could live most of their lives debt free, and  be able to build up a financial nest egg that would allow them to live off the interest by retirement age, without needing income from the government and without being dependent upon anyone for support. I'm not talking about multi-millionaires or those who were stingy or greedy to accomplish financial security. You can give to the Lord, and to those in need, and still be out of debt and even save for special needs, emergencies, and for future use. There's no difference in that and the Church having a savings account for future needs, such as travel requirements (because the immediate cost of travel can be so high).

          The reason most people never become debt-free is because of the "conventional" wisdom concerning finances, which is all wrong. This "wisdom" is promoted by the businesses that profit from us when we pay them thousands of dollars for services we do not need. As a result, most hard-working people will remain poor all their lives to make someone else rich.

          The concept of buying a house on a thirty-year mortgage is an example of how the establishment has misled and deceived the people. And, as if that isn't bad enough, now in times of low interest rates, they have promoted the adjustable rate mortgage, so that they can profit from rising interest rates in the future, and not you. In the course of an average thirty-year mortgage, you can expect to pay three times the cost of the house you buy: which means that two-thirds of what you pay is interest alone! The mortgage company will receive 200% interest on the life of the loan. And the interest rate on cars and credit cards is much higher than the interest rate on a mortgage for your home. At one time in my life, I paid up to $150.00 interest per month on credit cards and other personal loans, in addition to my house note. Think about this: by retirement age, that would have been $81,000.00 in savings if it was stuck under a mattress (without interest).   With interest it would be hundreds of thousands of dollars. That money is lost to you, but a profit to them.

          Advisors will tell you that houses and property are your best tax shelters. I recently received information from my bank "reminding" me of that fact?! But that's a lie. In reality they are saying, keep on paying a dollar in interest to get back 20 to 30 cents in tax deductions, for the rest of your life. Any tax accountant or investment counselor that gives you such advice doesn't know what he is doing and needs to be fired. Most counselors are just doing what they were taught and do not know why or what they are doing. It is a true case of the blind leading the blind. And what is the result of that? I used to be a financial consultant, and I know what they teach. Financial consultants, like other professionals, work first for number one and what benefits them. Have you ever heard the statement, "figures don't lie, but liars figure"? It is so true, particularly in any profession that deals with money. 

          Matthew 15:14 "Let them alone: they be blind leaders of the blind. And if the blind lead the blind, both shall fall into the ditch."

            Luke 6:39 "Can the blind lead the blind? shall they not both fall into the ditch?"

          Car loans used to be made for a maximum of three years, and now it's seven years. At higher rates of interest, they will make you pay them 50% profit for your loan. People with poor credit, or who don't know better, will pay up to 50% interest per year to buy a car. That's what happened to a couple that we know. They bought a car on an eighteen-month loan, paying back 46% interest per year. It was not simple interest that  could be saved by paying off the loan in advance, but it was interest charges for the life of the loan, even if the loan was paid in advance. And that was from a dealer, not a small corner lot.

           Another way we are wasting money is by buying insurance we do not need. Life insurance companies have never lost a penny on their policies. When life insurance companies go broke, it is because of bad investments, not from paying off life insurance policies. For the occasional policy paid off on a young person, there are hundreds of people paying on policies all their lives without ever getting a return. Even worse is the "whole life" rip-off policy, that has a "savings" attached, that builds up money you get back at a later date. If you want a savings account, don't go to an insurance company for it. They were paying 2 1/2% interest when the banks were paying 6% and money markets were paying 12% to 15%. It's a numbers game that is stacked in their favor. Most people pay thousands of dollars in life insurance premiums in their lifetimes, and never collect anything.

          They will also "take you to the cleaners" with many other kinds of insurance rip-offs, such as extended warranties, car insurance you don't need (like medical when you have full coverage at work; towing, when you belong to an auto club), credit-life insurance for your credit cards, mortgage payment insurance, a full homeowner's policy for your house, etc. They wouldn't be selling these policies if they did not make money on them. There are only a few types of insurance that the companies may loose money on, one being homeowner's insurance, because of natural disasters.

          The establishment has taught you to give away all your hard earned money. Two of the most misapplied and misunderstood concepts of finances we have been taught is "Save money, a little at a time, as you go along through life," and "You need to develop and always protect a good credit rating." Many authorities will tell you to save 5% or 10% of your pay check as a "nest egg" for the future. This is not the efficient way of saving. Efficiency comes from focusing on ONE task at a time. The best and fastest way to save money is to first eliminate all debt, and then save.

          Secondly, they say you need a good credit rating. If you follow the Biblical exhortations concerning money, you will not be concerned about your credit rating, because you won't need it. You will hate the very idea of borrowing money and paying interest on it. You will understand that the borrower is in bondage to the lender.

          Proverbs 22:7 "The rich ruleth over the poor, and the borrower is servant to the lender."

          One of the biggest problems today for the average person is  knowing how to handle their financial resources and properly utilize them. Most know only what they have learned by television and other advertising media, which tells them what to buy and how to live, to arrive at a certain status level in life. They even learn how to invest for the future in the same way. They teach you that you need the latest fashions, the finest of life and to keep up with the Jones'. They appeal to the lusts of the eyes, and they promote covetousness because it makes them money. Think of it. Earlier this year our President was urging people to spend more money to help our economic recovery. Everything revolves around you parting with your hard earned dollars.

          Even when they show what is supposedly "information only" financial programs, the experts on these programs are usually just sales people for investment companies that sell the products they just happen to be recommending on the program.

          I have no products to promote nor anything to sell. I will simply tell you the means to financial independence in the shortest time.  A bigger home or fancy new sports car will not make you nearly as happy as being debt-free, and having no  monthly installment payments for these things.

          The goal of a financially free person is to drive an acceptable car and have a comfortable and/or adequate place to live, free of payments; your money is spent only for food, utilities, minimum legal taxes, and other needed items. Then you will be insulated from layoffs, economic downturns, inflation, and all the other woes that mentally and emotionally squeeze the average worker. You will be in a place few people reach because they were misled to waste that which the Lord gave them. They were talked out of their God-given resources.

          What is the strategy, based on pure mathematics and probability, for being debt-free and building wealth (if you choose) in the shortest period of time, while protecting your family from the bad things that have a reasonable probability of actually happening to you?

          The key is: understand the management of compound interest. It is more powerful than you think, and stacked against most people at this moment. The first thing you must do to get debt-free is to sort out the compound interest working against you and eliminate it. Now, turn the funnel around so that the power of compound interest can work for you instead of against you. You need to be in control of any compound interest working in your life.

  As you follow this advice, you will not need to buy any insurance except personal liability for you car, or fire insurance for your house while you have a mortgage.

          The three stages of the Financial Freedom Strategy are: (1) Pay off ALL DEBT FIRST. (2) Operate strictly on a cash only basis. (3) Focus all available cash on wealth accumulation (savings), and investing in the kingdom of God.

          This strategy will enable you to reach financial independence in a few years and you will never need credit again.

STAGE I

          The first stage is to PAY OFF ALL DEBT FIRST. The key to this is commitment. We are about to see a fool-proof method for changing your financial future and outlook. It is not impossible or unbearable to implement, but it may be challenging and seem somewhat painful at first. So we will begin by looking at some reasons why you should follow through with this plan for your Financial Freedom.

          The huge ball of debt that most people carry today will be more than they can bear in their older years, or even before then. Your debts can crush you just as debts have crushed  many others. Debts are a bondage, for the debtor is servant to the lender. Debt is like a chain about your neck, and it robs you of your future. Just look at the U.S. government for an example of what debt can do. Our national debt has been nothing more than living off our future and that of our children; for when the government goes bankrupt and can't pay its interest on the debt anymore, much less anything on the principle, it will bring great financial disaster to this country. When all your money is going to interest, it is making someone else rich at your expense. Most people will pay 50% to 75% of their income on taxes and interest. That leaves them very little buying power. When you buy on credit, you are mortgaging away your future buying power and your future. If you think those figures are high, then consider these facts. You will probably pay about 25% on income taxes: some pay less, and some more, depending on income level. Middle class Americans are in the 28% income tax bracket. You will also pay Social Security taxes of 7%, and Sales Taxes of 8.25% in Houston, and Property Taxes of 3%. Some states have income taxes of up to 7%. Then most will pay about 25% of their income on a mortgage payment. Some people pay as much as 33%, which is mostly interest. Or, if they are leasing, they will give it to someone as rent. Then they will pay additional interest on car loans and revolving credit loans that can eat up an additional 10 to 15% of their income, and in some cases more. Do you see how easily some people loose up to 75% of their income on taxes and interest?

Accelerator Margin

          Before you can begin paying off bills, you need what is called an "Accelerator Margin," to help focus on paying off your debts. This is the amount of money you will add to the monthly payment of each bill, one after another until they are all paid off. This process may take a number of years, depending on the amount of debt you are in, and the accelerator margin you have.

          If you are not yet buying a house, you will use this method to first pay off all revolving credit, whether bank or store. Then you can use the total of what you were paying on your monthly bills to save for a down payment on a house. Then as soon as you buy a house, you will work to pay off the mortgage as fast as you possibly can.

          Part of this plan of debt elimination includes this: Don't save any money until all debt is paid! To some this may sound crazy, because it's the opposite of anything you have ever been taught by any economist, financial planner, estate planner, etc. Why? Because they are doing what they were taught to do, which makes the most money for the banks. You will achieve your goal of being debt-free faster by focusing all of your total available finances to pay off the debts,   than you will by spreading your finances  too thinly, and in different directions at the same time (trying to pay off debts and save at the same time). Besides, you will save more money in the long run by following this method, than by trying to pay off bills and save money at the same time. This is because the interest paid to you on your savings is less than what you will be paying on your debt, by a factor of about 1 to 3. If you want to set aside an emergency fund first, that is fine, but you need to start paying off your bills as soon as possible, and concentrate your finances on that first.

          Now let's see why. Say you currently need $2,000.00 net income each month to cover your bills and expenses. Let's further say you can presently put together 10% of your income, $200.00 as your accelerator margin. If you use the logic that you want to build up a six month cash reserve first, before starting debt elimination, then you need to save six times $2,000.00, or $12,000.00 To build up a cash reserve of that amount will take you a full 60 months, or five full years before you would even start your debt elimination.

          That is not the best way. If you will first work to pay off all existing debt, you will most likely be debt free, or close to it within that same five years. How? Simply by paying off all debts first.

          If you just recently bought a home, with a 30 year mortgage, or even if you have been paying on one for 5 or 10 years, you can calculate the difference between paying off your mortgage while saving a little money on the side, or using the money you would have saved to completely pay off the mortgage, and then save. By the end of the same period of time, your savings will have multiplied several times over what it would have been if you had paid your mortgage and saved at the same time.

          For this strategy to work, you must concentrate your finances on one thing at a time. First pay off all debt, then save money afterward. Why? Because of the power of compound interest. When Albert Einstein was asked what was the greatest invention that he had ever seen, he responded, "Compound Interest." This power can be made to work for you instead of against you, as it is if you are paying debts and mortgage payments. In this first stage; while you are paying off bills, you do not want to weaken the mathematics by trying to save a portion of your income at the same time.

          If you need further proof and motivation to focus all your money in the pay-off direction first, consider the interest on both the bills you are paying off and the savings side of the equation. If you are saving money in a money market account today in late 1993, you are earning about 3% interest. Some may be earning as much as 4%. You may have a CD from years past that is earning 5% interest. Now, how much is the interest you are paying on credit cards and revolving credit accounts such as department stores? The interest rate runs between 14% and 18% on most accounts. Some  credit cards  have interest as low as 11%, but usually these require a yearly use fee, instead of being free to carry. The fees to have certain credit cards run from a low of $25.00 to a high of $85.00 per year. That's equal to a good bit of interest, up front, like pre-paying them, and they get it even if you don't use the card. So the equation looks like this: If you are earning an average today of about 3% on your savings, and paying out about 14% interest on revolving credit, then you are moving backwards, loosing 11% as you go. As long as you are paying that interest on credit, your savings are doing you no good. It is far better to take the money in your savings, and pay off your loans, and you will immediately be 11% better off. It's like getting an 11% raise, because your money is going further, and doing more for you. That amount can be a bit less or more depending on your savings rates on accounts, and the average of your interest-paying accounts. Also, you will pay taxes on the moneys in your savings accounts, and thereby loose more of it, besides the difference between your savings and credit interest rates. Every dollar you put into a savings account, while you have an interest-bearing loan, is earning you less than it could be. The principle of paying off interest-bearing loans first even applies to your house mortgage, if you have one. Though it will be a smaller percentage than your revolving credit rate, it will still be higher than any interest you could possibly earn.

          Indebtedness could cause you to loose everything you own, including your home, if you loose your job. Debts are a terrible burden and the person with a debt does not really own what he has until it is fully paid for. A car can be repossessed and a house can be foreclosed. You can loose all the moneys you have put into them, no matter how much, or how many years you have been making payments. The creditors will give you nothing from the proceeds when they sell it.

          Get out of debt. Then you won't be vulnerable and maybe loose everything you own, because of living on the edge of your income and being in debt up to your neck. Being in debt beyond the ability to pay for everything you are trying to buy can cause bankruptcy: an effort to survive and start over. If you have paid for everything in full, then it belongs to you and no one can take it away. When you own everything outright, including your house, you are insulated from layoffs, inflation, and any other financial crisis that can happen to the economy. It will reduce the stress that can come with debts, and leave you free, while other people are being paralyzed by their financial problems. Do not worry about the "loss" of your mortgage interest tax deduction, or concern yourself with any other tax consequences of paying off your mortgage. This strategy has one purpose, and that is to make you completely financially independent in the shortest time possible. Financial independence doesn't necessarily mean that you have a large income or savings account, but means that you are debt-free. Once you are debt-free, you will then be free to invest your money and you will have a lot more money on your hands than from saving a few pennies on your taxes by deducting mortgage interest. When you are ready to invest your money, you can put it into real tax shelters.

          To make this last point more clear, look at it this way. If your tax rate is 25%, then for every dollar you spend on your mortgage interest, you get back or save 25 cents in taxes. Well, if you want to invest your money, with that kind of return, 25 cents back from every dollar, which is a 75% loss, then I'll let you invest all the money you want with me, and at the end of the year, give you back 25% of what you have given me during the year. You would say, no way! Yet, that is what all the financial advisors and investment counselors tell you to do. Why? Because they were taught that by the people who want you to give them all your money.

 

Reduce Spending to the Minimum

          In trimming your expenditures, consider every avenue of spending, so you can maximize the amount of money you can put into your pay-off formula. Look for ways to reduce spending in the following areas: insurance premiums for house, car, and health; discretionary spending such as food (beginning with eating-out expenses) and entertainment.  Buy clothing only when it is on sale.  Save on personal and household items by buying discount and using coupons, and take advantage of rebates.

          The bottom line is to focus all your available money into paying off all debts. This doesn't mean that you can never eat out, or do anything for recreation, like a trip to the beach to go swimming. But just remember the trade off of these things, and limit them. Going out to dinner could mean another month till you will pay off a bill, and therefore until you will be debt free. Think of it that way. If it is worth the trade to you, then go ahead. The purpose is to limit unnecessary spending and concentrate all your resources on paying off your bills. Then you will have money to do the things you enjoy and want to do, without paying the price of indebtedness with your future.

          Actually, beware of the urge to not give yourself any lee-way in discretionary spending, as for eating out, or recreation. That could cause you to get frustrated and quit your efforts entirely. So it is all right to indulge occasionally, if you can justify it, and know it is worth the trade-off.

STAGE II

          Operate on a strict cash basis. When everything you own, including your house, is paid for, you will never again need credit. Within a few months of getting out of debt, by investing the money you were using to pay off your debts, you will become your own bank, and credit card company, so to speak, and you will never need the credit of the rip-off artists who want to rob your wealth, again. Why do you think that God forbade His people to charge interest (usury) to other people of God? Let's look at some scriptures on the subject.

          Exodus 22:25 "If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury." [This is a commandment].

          Leviticus 25:36 "Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee."

          Leviticus 25:37 "Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase."

          Deuteronomy 23:19 "Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:" [These verses are not options to God's people].

          Deuteronomy 23:20 "Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it."

          Nehemiah 5:7 "Then I consulted with myself, and I rebuked the nobles, and the rulers, and said unto them, Ye exact usury, every one of his brother. And I set a great assembly against them."

          Nehemiah 5:10 "I likewise, and my brethren, and my servants, might exact of them money and corn: I pray you, let us leave off this usury."

          Psalms 15:1,5 "Lord, who shall abide in thy tabernacle? Who shall dwell in thy holy hill? ... He that putteth not out his money to usury, nor taketh reward against the innocent. He that doeth these things shall never be moved."

          Ezekiel 18:8-9 "He that hath not given forth upon usury, neither hath taken any increase, that hath withdrawn his hand from iniquity, hath executed true judgment between man and man, hath walked in my statutes, and that kept my judgments, to deal truly; he is just, he shall surely live, saith the Lord God. If he beget a son... that ... (v.13) Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him."

          Ezekiel 18:17 "That hath taken off his hand from the poor, that hath not received usury nor increase, hath executed my judgments, hath walked in my statutes; he shall not die for the iniquity of his father, he shall surely live."

  Ezekiel 22:12 "In thee have they taken gifts to shed blood; thou hast taken usury and increase, and thou hast greedily gained of thy neighbours by extortion, and hast forgotten me, saith the Lord God."

          Now, we will look at a positive verse concerning interest.

          Luke 19:23 "Wherefore then gavest not thou my money into the bank, that at my coming I might have required mine own with usury?"

          Notice: When you put your money into the bank, you can make interest from it, instead of them taking your money by interest. Putting your money into the bank for others to borrow and pay you for the privilege, is not "lending" to your brothers in Lord. Above, Deuteronomy 23:20 said that you can loan money to a stranger for usury. That's one who is a stranger to God. Not in covenant with God. To a brother in the Lord, you do not do such a thing, for it is forbidden and called an abomination. God knows the power of compounded interest and what it can do to your future wealth and buying power.

          We have been taught to believe in credit, that we need it, and that it is good for us, kind of like 'our best friend.' I just received a letter from a credit card company with a check for me to "cash" or deposit for holiday spending money. They told me how versatile they were, how I would only have to pay about 2% of the bill per month after Christmas. And gave me a check for $3000.00 and said, if this isn't enough, call this 1-800 number for more. Well, it's obvious that if you paid the minimum, you not only would not pay the debt off in a year, but you wouldn't pay it off in several years. All the while, they would willingly send you another one next year, and that alone would make it keep going up and keep the interest rolling to them; even if you never used their credit card during the year. They call that giving you flexibility. Let me ask you one question. Why do you need a "good" credit rating? It's only for one reason. So you can get more of their credit, and get deeper in debt, and make them richer. It's a vicious trap.

          Credit is not your friend. Credit does only one thing. It takes away your hard earned money, in fact, more money in cumulative interest than the actual value or purchase price of the things you buy on credit, especially a house. That interest you give them is your future buying power. For most older American's today, credit single-handedly robbed them of the retirement the could have had, and that they worked for all their lives, and didn't accomplish. The only thing that most people will need credit for is their first house purchase. However, even without credit, with sufficient patience, even that could be accomplished. The sad reality is that people are literally giving away their future wealth and buying power to have a few extra things RIGHT NOW, because they don't want to wait until they can afford them. They don't understand the true cost of using credit and so they drown in credit interest. What is the underlying problem? We are a society trained in covetousness for material things, taught that you don't have to delay gratification of your desire to have something that you can't afford at this time. We have been made to believe that we need not wait, or do without, because we can have it now, if we just "charge it".

          Know this. Once you break this credit habit, this bondage of debt, you are free to operate on cash that is working for you, 100%, and not for someone else. Think about it. Once you have all your debts paid and you are putting that money in the bank which used to pay off credit, and the washing machine breaks down; when most would be digging our the "plastic" to repair or fix it, you can just fix it or buy a new one; cash! After you have your house paid off, if you were buying one, and all that money that used to go on credit cards and mortgage is going into the bank, and the car is on it's last leg, you can just go buy a better car, cash. Just don't be fool enough to buy a new car. Always buy a car at least two years old, because the first two years is when the greatest loss in value occurs.

          Also, once you own a house and you want to buy a bigger house, or to move to a new area, you would simply sell the house you own, get the cash, add some more from your savings, and buy a new house with cash. You won't be like everyone else begging at the feet of mortgage lenders, and doing everything possible to prove to them that you are worthy to have the privilege of paying them three times what the house you desire to buy is worth, if they will just let you use some of their money, which they got from robbing other suckers just like you.

          Let me throw one more at you. Just a few years ago; in fact for many years, revolving credit was running 18 to 20%, and some cases a bit higher. Say you bought $2000.00 worth of furniture and kept paying the minimum payment. Well, at that rate, it would take you 31 years to pay off that one debt, and you would have paid an additional $8200.00 in interest for that furniture that you long ago threw away, gave away, or sold in a garage sell for almost nothing. Are you starting to understand the power of compound interest?

          You will find that if you are operating on a cash basis, it will be harder to spend your cash on something that you don't really need, than it was when you just plopped down the "plastic" to buy it. Purchasing on credit leads to impulse buying, things you don't really need but just desire and lust after. It leads to more covetousness of things you don't have. You will think longer and be less likely to plop down your cash on something you don't really need. You will consider the full cost or payment of what you are buying against your need for it, and not just think, "I can pay $10. per month on this" and so it isn't too bad after all. You are more likely to think you can afford it, when you don't need it, when you are thinking that way; and that's why the credit people have trained everyone to think in terms of small monthly payments to make big unnecessary purchases, like an expensive diamond ring, or fur coat, or a bass boat, etc.

Stage III

          If you were just looking at the natural, and wanting to build a retirement nest, now that you are debt free, and operating on a cash only basis, you would begin to focus all your available resources on building wealth. What I have showed you this far, is something that is good for everyone, and would help everyone live a better life, and make their money go further, and would allow them to do this next natural progressive step, which would be to accumulate wealth by investing all the money that would have been put on interest and mortgage payments into investments: tax free investments, which would give them a much better tax deduction than their mortgage interest ever began to give them. It would not only be investing the money that went on interest, but doing it tax free, plus making tax free interest on that investment. Then they would be making the power of compound interest work for them.

          However as Christians, here is where we part or divert from that path which the unbeliever would follow. There is no value in building up enormous wealth to leave behind, while you end up in hell. But, you can see the reasoning in the first two parts of this paper because it is purely natural and mathematical in nature, and not in any way spiritual in itself; except that God has commanded us to owe no man anything but love. That is what makes being debt-free a spiritual principle.  That which God gives you, the pay check that you worked for all week, is available for your use and for God's work, and not for making greedy men rich off of your hard work. Debts are a bondage and a curse.

          Nehemiah 5:3 "Some also there were that said, We have mortgaged our lands, vineyards, and houses, that we might buy corn, because of the dearth."

          Proverbs 22:26 "Be not thou one of them that strike hands, or of them that are sureties for debts." What is even worse than being in debt yourself for something you bought, is being in debt because of someone else for whom you co-sign.

          Proverbs 6:1-3 "MY son, if thou be surety for thy friend, if thou hast stricken thy hand with a stranger, thou art snared with the words of thy mouth, thou art taken with the words of thy mouth. Do this now, my son, and deliver thyself, when thou art come into the hand of thy friend; go, humble thyself, and make sure thy friend."

          Proverbs 11:15 "He that is surety for a stranger shall smart for it: and he that hateth suretiship is sure."

          Proverbs 17:18 "A man void of understanding striketh hands, and becometh surety in the presence of his friend."

          Proverbs 20:16 "Take his garment that is surety for a stranger: and take a pledge of him for a strange woman."

          Proverbs 22:26 "Be not thou one of them that strike hands, or of them that are sureties for debts."

          These verses make an absolute statement. Do not co-sign for anyone, period, especially a stranger, but not even for friend or family.

  When you're ready to invest your money for savings, and future needs, then you need to do so in the wisest way possible. Invest to make a reasonable return, while saving on taxes and not taking a big risk, as many investments are speculative. You don't want to risk loosing all you have. It isn't worth it. The best way is to not try to get rich quick. That is the wrong way to do things and will most likely result in your financial ruin. Don't try to build an investment by gambling with high risk investments, just because there is a "chance" of much higher returns. There is also a chance of no returns. You wouldn't think of trying to use the lottery, or Las Vegas gambling as your savings and investment method. Why? It's no different in other investments. The safest way to save is to invest in different kinds of mutual funds.

          To start with, you would want to use a money market fund or an assets management account to set aside your six months income in a place where it is easily accessible, in other words, where you have liquid cash. All you have to do to access your money is to write a check.  This will give you extra cash for most anything you would need in a hurry and for emergencies. This type of account works just like a bank checking account.

2004. Becasue this information was written for my son when he was 17 (in 1989) this is not the latest, most current information available below, but all the principles of this article have not changed.

  One of the best available is with Charles Schwab & Co., called a Schwab One account. It not only allows you to write checks, but also allows you to get a Visa debit card with it. This allows you to use the Visa card in the place of writing a check, and the money comes right out of your account the same as if you wrote a check. The advantages are two-fold. One, many places won't take a personal check, or it is simply easier to use than writing a check; and it is also using cash, and is not a debt card, and carries no interest as a regular credit card. It is good for as much as you have cash in your account. So it's use-ability grows with the account. You can also manage a Schwab One account by not only going into a local office, but also by their telebroker automated telephone system, or even by on-line trading with their EQUALIZER PC software system.  This account is also a one-stop-shop brokerage and portfolio management account for making and managing all your investments later after building up your liquid emergency fund. Charles Schwab & Co. have over 80 popular mutual funds at zero commission, which is also preferable over the type that charge commission. With loaded funds, you start off in the hole with a loss due to brokerage fees. Zero commission funds are called no-load funds.  Another of the best brokerage companies is Fidelity Investments, which has some of the best growth funds historically, as the Magellan fund.

          The next step is to put your funds into less liquid, but higher growth investments. Again, for the most part I am only talking about different mutual funds, and not direct investing in any kind of stock, etc. At this stage you need to really consider the effects of taxes on your interest return from your investments. There are two types of investments to consider: tax-free (called tax-exempt), and tax-deferred investments.

          Tax-free investments are usually debt obligations of a governmental body. The most popular are tax-free municipal bonds. They are free from federal income taxes, in states where there is a state tax, they are free also of state taxes (called double tax-free) bonds. Tax-deferred investments let the interest accumulate without having to pay current taxes on the interest income. To know the value of a tax-free investment, you have to compare its interest with that of a fund using after-tax investment money. You have to consider the money lost on taxes on the investment money, and the taxes on the interest it will bring in a non-tax-free account, to determine which is best for you. It normally depends on your present income bracket. The higher your income bracket, the more desirable the tax-free account becomes.

          Deferment is usually until  you reach retirement age and withdraw your funds. The most common are the IRA (Individual Retirement Account), the Keogh (for self-employed) and the 401K plans offered by many employers. A tax-deferred plan should definitely be a part of your investment strategy, because there is an increased value of having your full interest compound each month without taxes being taken out of the income that you invest. Over a period of 20 to 30 years it can make a difference of hundreds of thousands of dollars in interest earned. Tax-deferred accounts have a tax penalty, presently 10%, for early withdrawal (before retirement age).

          We will pause here, but at a later time will offer more details on these three stages of moving from debt to financial independence.


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