The Bible and The Bard Agree on this Financial Principle
Last summer my wife and I took off for an overnight getaway - just the two of us - and ended up in Staunton, VA near Charlottesville. The draw to this particular place was the American Shakespeare Center’s Blackfriars Theater . Here’s a blurb from their website:
The American Shakespeare Center is an internationally acclaimed theatre company that performs Shakespeare’s works under their original staging conditions — on a simple stage, without elaborate sets, and with the audience sharing the same light as the actors. Home to the ASC’s resident troupe, the Blackfriars Playhouse has been established as one of America’s premier Shakespeare destinations.
I was just searching for something to do and came across the town and the theater and was intrigued by them. So we made some reservations and set off to Staunton to see Shakespeare’s Merchant of Venice . I was blown away! The theater experience was amazing and I had so much fun that evening! If you are ever in the area, I would definitely recommend checking it out.
At the end of the play, I turned to my wife and said, "You know what the takeaway from this evening is? Never cosign a loan!"
C’mon - what else would you expect from a guy who has a personal finance blog!
As a reminder, here’s a brief summary of The Merchant of Venice from sparknotes.com :
Bassanio is desperately in need of money to court Portia, a wealthy heiress who lives in the city of Belmont. Bassanio asks Antonio for a loan in order to travel in style to Portia’s estate. Antonio agrees, but is unable to make the loan himself because his own money is all invested in a number of trade ships that are still at sea. Antonio suggests that Bassanio secure the loan from one of the city’s moneylenders and name Antonio as the loan’s guarantor. Antonio and Bassanio approach Shylock, a Jewish moneylender, for a loan. Shylock nurses a long-standing grudge against Antonio, who has made a habit of berating Shylock and other Jews for their usury, the practice of loaning money at exorbitant rates of interest, and who undermines their business by offering interest-free loans. Although Antonio refuses to apologize for his behavior, Shylock acts agreeably and offers to lend Bassanio three thousand ducats with no interest. Shylock adds, however, that should the loan go unpaid, Shylock will be entitled to a pound of Antonio’s own flesh.
So not only has Antonio cosigned the loan for his friend Bassanio but he has also put his life on the line for it! Of course, in the end things do not work out as bad as it could have been for Antonio…but if you want to know the entire story and experience it in a supremely entertaining way - go check out the Blackfriars Theater! (though that particular play is not playing there any more, I’m sure any of them would provide a wonderful evening)
The Bible cautions against cosigning loans also
I was amazed to learn that God actually talks about co-signing a loan in the Bible.
My child, if you have put up security for a friend’s debt or agreed to guarantee the debt of a stranger. If you have trapped yourself by your agreement and are caught by what you said—
follow my advice and save yourself, for you have placed yourself at your friend’s mercy.
Now swallow your pride; go and beg to have your name erased. Don’t put it off; do it now! Don’t rest until you do. Save yourself like a gazelle escaping from a hunter, like a bird fleeing from a net. Proverbs 6:1-5 (New Living Translation)
Again, cosigning a loan for someone is not a good thing to do. The Bible informs that you should "swallow your pride" and "go and beg" to have yourself removed from the loan. And don’t even wait until tomorrow it urges - "do it now!" This is serious and urgent advice! It certainly does not appear to me that cosigning a loan is something you should do.
Why does someone need a cosigner?
Remember, the reason that your friend needs a cosigner on a loan is because the bank (or whoever) is fairly confident that your friend will pay back the loan. If they thought your friend was good for the money, they would not have required a cosigner. And if you friend does not pay back the loan….guess who will be. So, my advice is (obviously) do not cosign a loan for someone else. And if you do consider cosigning a loan, assume that you will be the one who has to pay back the loan. Make sure that your finances, your family relationships, and you relationship with your friend will survive the probable event that you will be paying for it. It might be hard to say "no" to someone asking you to cosign for them, but that still might be a lot easier than doing serious damage to your personal finances and serious damage to your relationship with your spouse and/or family!
Photo Credits: ryanrocketshipMusings on an Efficient Afternoon
I love efficiency. I love doing tasks in such a manner as to reduce the overall time it takes or the effort exerted. This manifests itself in a number of different ways depending on if the task in question is a household chore or home improvement project or shopping trip, etc.
I also love accomplishing things. I am a list maker and I feel great when I get to cross items off the list when completed. In fact, if I do something that wasn’t on my list, I will add it to the list and then immediately cross it off to get that feeling of satisfaction! (Do other people do that?)
Anyway, so with those two things in mind, This is what I did one afternoon last week:
- I returned some pillows we had purchased
- I got four new tires put on my wife’s "ivic"
- I had an eye doctor appointment
- I bought some milk
- I bought some compact fluorescent lightbulbs for my dad (he was along for the trip)
- I filled up the car with gasoline
The interesting thing about this day was that all of this took place at the same store . For accomplishment’s sake, I was able to do a ton of things in a very short period of time. For efficiency’s sake, I was able to get them all done very quickly with no extraneous driving around from store to store. I also was able to overlap waiting for the tires to be installed with the eye appointment and shopping.
What has the world come to where you can buy milk, get new tires installed on your car, and get an eye checkup at the same place? Though maybe this is actually more like how shopping used to take place years and years ago when a town would have only a general store to get everything you needed (or at least everything that was sold in a particular town)?
Though I do love efficiency and I do love checking things off my list, it is true that I don’t really love spending lots of money. So, from that standpoint, it was somewhat of a downer of an afternoon as an eye doctor appointment and four new tires are quite expensive nowadays.
Photo Credits: WroteWhere’s My Bailout?!?!
The US government is going bailout crazy. Once they loosed the genie from that particular bottle, everyone and their brother is showing up at the trough hoping to get a bite. Who knows anymore what the original intent was - a banking bailout, a wall-street bailout, a bailout of AIG, isn’t it supposed to have something to do with a housing bailout, and now the domestic auto companies and even credit card companies are clamoring for a piece of the pie (I think that sets a new personal best in the category of "most cliches used in a single paragraph!").
Some people actually acted responsibly over the past few years…
All of this, as might well be expected, has a number of people up in arms. Even in the midst of the housing craziness of the past few years, there were actually some responsible people who bought a house based on how much they could afford to pay for it as opposed to how much loan they could get (no stated income, interest-only, negative amortization anyone?). These silly people actually eschewed irresponsible purchasing and did not buy a McMansion because they held to some crazy belief that you should be able to afford the things that you purchase. And what do they get to show for it? Nothing (maybe even worse than nothing!).
And now you get to pay for the people who did not
The government has swooped in to save the day and take care of those who overspent and overindulged while the responsible pay for it through their taxes. Some of the responsible could swallow the original argument that it was for "everyone’s good" because eventually all the foreclosures and their resulting effect on the economy would bring down the value of their home as well and possibly cost them their job. So, they swallowed the bitter pill and moved on. But now they are talking about bailing out people who ran up too much credit card debt - this is getting ridiculous!
So, what can you do?
Well, nothing really. Let’s be blunt: you are going to get screwed. The government is handing out their candy to everyone else except you. (Isn’t it interesting that if do something stupid and mess up, you have to deal with the consequences. But if enough people do something stupid at the same time , the government will come in and clean up the mess). The obvious answer is to get involved politically. Call you representatives. Tell them how you feel. Get involved in whatever way you can.
Your only consolation is that at least you did the right thing
I agree that it stinks that the foolish are bailed out by the prudent (and by "prudent" I don’t mean the government). It is annoying how, in this situation, stupidity is seemingly rewarded at all levels (buying a $650,000 house with a salary of $55,000? Well, the bank wouldn’t let you do it if they weren’t confident you could repay it so you must be able to afford it! You’re going to give a $650,000 loan to a person who makes only $55,000? Sounds like a good idea to me - so what are you going to spend your commission on? You really think buying a whole bunch of irresponsible loans will make all the risk go away? You fancy finance guys sure are smart! Better yet - why don’t you borrow a bunch of money so you can buy even more of those loan package deals and greatly multiply your gains!)
And you’ll probably try to do the right thing tomorrow too
Let’s be honest here…you, as a fiscally responsible person, will not learn your lesson. Tomorrow you will go out and attempt to make more responsible decisions. You will even try to learn from the borderline decisions you made yesterday. And after you purchase big items, you will probably pay back the money that your borrowed, right? For those of you making such "foolish" decisions, remember this:
The wicked borrow and do not repay, but the righteous give generously. Psalm 37:21 (NIV)
Remember, it doesn’t matter what everyone else is doing. It doesn’t matter who is not paying for what they bought nor whether they experience any ill effects from it. The Bible tells us to be responsible in our decision making and then to honor any debts or obligations we undertake. While we’re on the subject, here’s another thing to remember:
In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. Psalm 21:20 (NIV)
So, what have we learned?
When you were younger, I’m sure your mother told you not to do something just because everyone else was doing it ("If Johnny jumped off a bridge, would you jump off one too?"). So, we need to continue to follow that advice now. Continue on the path of financial responsibility because you know it is the right thing to do. Continue to not spend more than you earn and continue to pay off any debts you have incurred (and try to stay away from any new debts). It might not work out optimally for you in all cases (as current events are showing) but when you go to sleep at night, you can rest comfortably knowing that you are attempting to follow God’s mandates for living responsibly and being a good steward of your resources.
Do not be bitter that your neighbor has all those fancy toys that he put on a credit card and/or a home equity loan and now he might get some help from Uncle Sam to pay them off. Bitterness will certainly do you more harm than good. Do not covet what your neighbor has, for along with the mortgage and credit card help will come the trashed credit score - and I’m sure you don’t covet that!
Photo Credits: Mike LichtIs all this Technology Good or Bad for my Finances?
Like most people these days, my wife and I carry cell phones everywhere we go, read news and blogs via laptops, check our bank accounts, brokerage accounts, and retirement accounts online, pay our bills online, and arrange automatic saving and investing online. I thought it might be interesting to take a minute to examine the effect all of this technology has on our finances?
Stuff costs money
First of all, money is required to purchase a lot of this technology which hurts our finances. Cell phones typically cost money upfront and on a monthly basis. There is always the pull to get a newer and fancier model with a more expensive monthly plan as well. I currently have a basic cell phone, but most phones nowadays enable the user to check new and even stock prices through them. In fact, Etrade recently released a mobile platform that you can access from a smart phone.
There are also costs associated with getting online to do all the tasks (and more) I listed above. Of course a computer is required and high-speed internet access (I couldn’t imagine going back to dial-up now). If you use a laptop, you’ll probably want a wireless router as well. All of this costs money…and the more money you are using to purchase new technology, the less you get to keep.
This technology provides convenience and knowledge
With that being said, there are still many tangible advantages that comes along with all this technology. If I am not sure what my checking account balance is at any hour of the day, I can check exactly how much the bank thinks I have in less than a minute (3 minutes if I have to boot-up the computer). If I forget to mail a check to pay a bill, I can log into my online banking account and have the bill paid more conveniently, in much less time, and with less risk (and less expensively) than filling out a check and dropping it into the mail. From a purely financial standpoint, a cost savings in envelopes and stamps is realized and that doesn’t even take into account the time savings which is typically much more significant.
Also, current technology provides many tools for managing your finances (yes, I know for some a pencil and calculator work just fine, but maybe others of us need a little more help) There are numerous net worth tracking tools available online to help you stay on top of your financial situation. Also, there are many budgeting software options to facilitate managing and tracking your income and expense. These are just but a few of the advantages that come along with these technological advances.
Investing is much easier though that is good and bad
It is also much easier to invest money in stocks, mutual funds, and options via online brokerage accounts and in US Bonds at TreasuryDirect.com. A wonderful byproduct of these advances are that online brokerages have driven the cost of investments down drastically. Whereas in the past you would have to call up your stock broker and pay who-knows-how-much to request a trade, you can now buy and sell stocks for $5 online (or even free in some cases). On top of this, the internet provides an amazing wealth of useful information on investing to educate you how to invest. As such, there is really no excuse for someone not to be able to invest in mutual funds and/or bonds for long-term growth.
On the other hand, the easy availability of this information and the ability to trade can be a negative as well. Sure, it is easy to invest in stocks, bonds, and mutual funds, but on the downside, it is easy to invest in stocks, bonds, and mutual funds! Making careless decisions because it is cheap and easy can lead to real difficulties down the road. I’m sure you’ve seen the ETrade television ads of the baby buying stock - maybe this is becoming a little too easy (and that spit-up one is nasty). This can lead to irresponsible day trading and the real possibility of losing a lot of money. It seems so easy to try to time the market and make a big score and it only costs $7.99 per trade! I personally think this might be too enticing.
Furthermore, not only is there a generous amount of information related to finances and investing on the web but there is also a wealth of bad information out there. There are numerous online investing newsletters available to help you under-perform the market. I’m sure a simple search would return plenty of websites eager to hawk penny stocks in an attempt to have you make them a bunch of money. Even from reputable sources like online magazines, too many of the articles are geared towards enticing you to stray from your long-term plan to try to time the market. Already I’ve seen an article for the best stocks to buy during the Obama presidency. You can always find articles on "the hottest six stocks for next month" and "where to put your money for 2009." The point is to be very cautious in the information you rely on.
Overall I feel technology has a beneficial effect on finances - if we use it responsibly
Of course, there are pitfalls, but when you look at the big picture, I think we are much better off due to the advances of banking, investing, and personal finances compared to a few decades ago. If you can resist the urge to drift from your long term investing plan, there is great convenience and cost savings to be had making use of the internet. I love my online banking and being able to access my Vanguard account online. Setting up automatic transfers from my checking account to a high-interest savings account at a different bank and to my Vanguard account makes it very easy to setup and stick to a savings and investing plan. Technology will always advance, so we might as well figure out what pitfalls to avoid and what advances to embrace to make it easier to realize our goals.
Monthly Net Worth Check Point: November (still dropping)
Scares! Shrieks! Is it Halloween, you ask? No, it’s time to check all our account balances and update our net worth for the month. Check out this page if you want to see the spreadsheet I use to track it and a video tutorial on how to create and update it . If you don’t like spreadsheets (who doesn’t like spreadsheets?!), I also have a post on some online tools for tracking your net worth .
Over at One Caveman’s Financial Journey, recently there was a post on why your net worth isn’t the best gauge of financial health . It’s an interesting post with some valid points. I agree that the usefulness of your net worth as an indicator of financial health is clouded by external forces such as the stock market. That is actually the main reason I created my net worth spreadsheet in such a way as to provide a information on different account categories. For instance, it might not be very illuminating to simply see that our net worth decreased 4.5% this month (OUCH!) but being able to see how our liquid savings did separately from our accounts with stock market exposure is still useful, I believe.
Our assets dropped 2%
Just like last month, I expected our assets to drop more than they did. Every account with stock market exposure dropped significantly. For instance, our taxable investments dropped 12%, our retirement accounts dropped 7.5%, our 529 plan dropped 5.7%, and my stock options dropped a whopping 49.5% in value! My options have been hammered lately, dropping 48%, 33%, and 49% over the last three months. That means compared to their value in August, my stock options are down more than 82%! (Luckily, I guess, they weren’t worth that much money to begin with)
All of this was buffeted by the fact that our liquid assets increased 9.9% this month. So, for the past two months while all of our accounts exposed to the market have been tanking, our liquid assets have balanced this out somewhat as they have grown 25%. So, I feel that looking at our increase or decrease in liquid savings is probably the best measure to see how we’re doing financially in this current environment.
Our liabilities decreased by 0.49%
Another very important financial metric to me is our level of liabilities (seeing that level go down to be specific). Our mortgage drops a similar amount each month and our lone remaining debt (my wife’s contractual obligation if she stops working) drops a set amount. As long as this keeps decreasing, I’m happy. I do not have any plans to accelerate our mortgage repayment in the near future, but it is an idea with which I am toying.
Our net worth decreased approximately 4.5%.
All of this adds up (subtracts up?) to a 4.5% loss in net worth this month. At least the downward decline is decelerating compared to our 8% drop last month. Again, the most important measures to me are the direction of our liquid savings and our liabilities. As long as our liquid savings are going up and our debts are going down, then I feel like we’ve been successful for another month.
I am still not overly concerned about the stock market
I am not super excited about the drop in our stock market accounts…well, in a strange way, I am actually somewhat happy about it (in a very selfish way, I admit). I am in a position that I do not need to draw on my retirement savings for decades and hopefully our emergency fund will prevent us from having to cash out any mutual funds or stock options in the near future. In that respect, the lower prices for stocks are actually helpful as we continue to purchase more every month. In fact, I recently increased my 401k contribution 4%.
I know it’s not pretty looking at the current numbers; instead I try to focus on how many more shares I am purchasing each month compared to the number I was buying last year at this time. If I stay focused and calm and continue to dollar cost average each month, it has the potential to pay off in the long term when the market recovers. (that assumes, of course, that the new president-elect and democrat controlled congress will attempt to stabilize the economy instead of causing it crash and burn so they can switch us over to socialism)
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