The Wisdom of a Surplus

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Two principles the Bible discusses a few times are spending less than we earn (and having a surplus as a result) and saving in times of plenty for times of want. Here are two verses that specifically address these issues:

In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. Proverbs 21:20

Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest. Proverbs 6:6-8

In my post titled You Need to Plan for Bad Times During Good Times, a reader made the following comment that I thought was worth sharing with the rest of you:

Times like this always remind me of Joseph's Interpretation of Pharaoh’s Dream.

The interpretation and the knowing that 7 years of plenty would come but would be followed by 7 "lean hungry years" gave them the motivation to save 20% of all the crops from the 7 years of plenty that got them and neighboring nations through the 7 years of famine.

My response to this is that you don't need the dream. Has history not taught us that boom is always followed by bust? 7 years of plenty do come and they are followed by 7 years of famine.

You are exactly right and the story in the Bible of Joseph is a perfect analogy of how this is supposed to be handled.

We are now in the famine. Those who didn't prepare during the feast are now starving. It will always be this way. As Solomon said, "There is nothing new under the sun." And this is nothing new either, yet most people never seem to get it.

For reference, here's the story of Joseph interpreting pharaoh’s dream and the "nothing new under the sun" quote is from Ecclesiastes 1:9.

I thought both the reference to the story of Joseph and the following words were right on target. Plenty is almost always followed by want (or at least "not-so-good-times" always follow "good times.") In finances, this is why we all spend less than we earn and use the difference to create an emergency fund -- so when tough times occur, there's a bit extra around to help us weather the storm. Those that don't do this are playing with fire -- and setting themselves up for very tough times when things turn not-so-rosy. I think we're seeing a lot of these situations playing out in today's economy. Don't let this happen to you.

Comments

[the weakonomist]

What is simply amazing is that we continue to live beyond our means. Many Americans grow up in Christian households, but many of the people I know with the worst spending problems are active Christians. You'd think by studying the Bible, they might learn some lessons.

Though the Bible is filled with many stories, even atheists could learn some things from the wisdom of those words you quoted at the top.

[gmsc]

I was out of work for over a year, and money was very naturally tight. Things really looked bad when I needed a root canal.

Fortunately, I've been a saver (including an emergency fund) for as long as I can remember. I scheduled my root canal, payed for it, went home, and recovered.

Even better, this experience is now locked in my mind as a strong positive reference that encourages my savings.

Oh, and for those who don't get the point about the Joseph story, maybe these videos will help:
http://www.youtube.com/watch?v=ExvDlW6-NrA
http://www.youtube.com/watch?v=wxRfRV0asRY
(The full series of videos is available at: http://www.youtube.com/view_play_list?p=F539B52C591FB6B2 )

[cmadler]

We always talk about living within your income and building an emergency fund. Obviously, if you have to draw on your emergency fund, at that point you are no longer living within your income. How do you (and others) decide whether to try to increase income/cut spending or to draw from your emergency fund?

[FMF]

Cmadler --

If I was in a situation where I didn't have a surplus, I'd do both -- try to increase income AND try to cut spending until I had a surplus (and a comfortable one if I could stretch it that far.)