Borrower is a Slave

Today, we are talking about a principle found in Proverbs 22:7:

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“The rich rules over the poor and the borrower is slave to the lender.”

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Verses 26-27 of the same chapter continue the thought:

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“Be not one of those who get pledges, who put up security for debts, if you have nothing with which to pay, why should your bed be taken from under you.”

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The Threat of Debt

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These are a couple of powerful lessons from Solomon about debt. In Proverbs 22:7, we learn that it is better to be a lender than a borrower; to receive interest rather than pay it. But what the writer of this proverb is getting at has to do with servitude; being a “slave to the lender.”

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A borrower is enslaved by their debt and may actually be required to do things they don't want to by their lender. For example, if you were to borrow money from a bank or lender to get a business off the ground, they may require you to meet certain financial criteria.??They may limit how you can conduct your business, or place constraints on your ability to grow and be agile.

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In verses 26-27, the risk of borrowing is greater than its reward. You may be tempted to borrow on an item when you don't have the money to pay up front. Naturally, you begin thinking of ways to acquire it, but run the risk of losing the item if you fall short on payments. The risk is even greater if you've been paying high rates that can even be called usury, like those you pay to credit cards. You end up losing the item and more money due to high interest rates.

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The Power of Strategy

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Strive to live within your means via “deferred gratification”; save money and pay as you go. Develop a budget, prioritizing the principle of giving to others and setting money aside from each paycheck for the future. Then, address your normal expenditures and reserve money for offerings or special things you want to do for God. Many believers are not giving regularly to the Lord or the poor. Luxuries come last. Americans tend to prioritize luxuries and bend everything else around them.

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There is one exception to these budgeting guidelines that we’ve made a principle here at Lord and Richards: that’s real estate. The cost of modern real estate can make buying a home with cash impossible. The only solution may seem to be renting, but then you are a slave to the landlord. And often the cost of renting or leasing can exceed the cost of a monthly mortgage (when mortgage rates are favorable). The landlord is typically borrowing as well and making payments. They need to make more for both maintenance of the property and their own profits for it to be lucrative.

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The threat of losing your home is no greater with owning than renting. Your mortgage payments are more consistent and predictable with fixed notes. The only numbers that increase are your taxes and insurance, which are unavoidable. By contrast, rental payments can increase dramatically and won’t necessarily follow the reasonable increases of taxes and insurance. When the rental market increases, people are able to make more on the property than when they started.

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Beware of purchasing in today's market conditions. A common rule of thumb is to buy low, sell high. However, many people are checking that principle at the door and buying while the market is high.

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One other exception is the use of capital to earn money through real estate. Often, people will invest in real estate and borrow to invest. Though it's best to buy in cash, investment real estate has potential to appreciate capital (as long as it’s not your primary home). Unlike Proverbs 22:26-27, no one is going to take your bed from under you.

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These are all principles that lead back to building a comprehensive financial plan. At Lord and Richards, we touch on every area of your financial life, and help you identify your goals, priorities, and dreams to achieve financial independence in retirement.