Money Matters

 Scary Debt Statistics 

• The average American household has 13 payment cards, including credit cards, debt cards and store cards. There are 1.3 billion payment cards in circulation in the United States.
• Americans made $1.1 Trillion worth of credit card purchases in 1999. 78% depend on credit cards for emergency funds.
• Americans carry, on average, $5,800 in credit card debt from month to month. If one were to make only the minimum payment on that debt every month, it would take 30 years to pay off – and include an additional $15,000 in interest.
• According to the American Bankruptcy Institute, 302,829 people file for bankruptcy in the first quarter of 2000.
• On average the typical credit card purchase is 112% higher than if using cash.
• 90% of people in our culture buy what they can’t afford.
• 96% of all Americans will retire financially dependent on the government, family, or charity. (
  U.S. Dept. of Health & Human Services)
• Almost one out of every 100 households in the United States will file for bankruptcy.

Since there are strong injunctions against Interest/Riba/Usury in the Quran, some Muslims may look at the above statistics in glum satisfaction “This is why our religion is perfect; we won’t get trapped in that cycle.”

But reality on the ground speaks a different tale. There are many financial pitfalls that people get into; and it is not enough to simply say “Interest is Haram! Therefore stay away” without having the tools and savvy to negotiate the debt traps that are laid everywhere around us.

Other Muslims have legitimized the Fatwas (rulings) on the exemption of buying a home to extend to all other purchases. Others still don’t really care about the Fatwas; and simply do what they have to do to survive and “succeed” no matter the cost. For them the mantra is: “This is how the society is, and we are doing what the Romans do”

 Some do care, but are trapped by life’s circumstances; a medical emergency, an accident, etc. that forces them to be in debt. But Muslim, Christian, Jew, Buddhist, and whatever your creed may be; everyone at the end of the day dreams of financial freedom. The cost of being in debt, in terms of stress, pressures, being-stuck-in-a-job-you-hate, ulcers, family breakups (number one reason for divorce) etc is taking a tremendous toll on the American psyche.

Just recently I came across Dave Ramsey on the Radio (while searching on the AM channels for some fanatic Right winger to keep me awake on my commute). He does not talk of negotiating through the credit/debt system in
America in order to succeed (read that Suzy lady on TV); instead he stresses on completely staying DEBT FREE and living like that.

But beyond talking about it (since we, Muslims have been saying that forever); he gives people the tools and specific steps to stay out of Debt, including mortgage (or better yet paying 100% down on the house); building an emergency fund, investing, and building wealth (in a legitimate and risk free way).

Here are some excerpts from his book “The total Money Makeover”.

Debunking Debt Myths:
Myth: Debt is a tool and should be used to create prosperity

Truth: Debt adds considerable risk, most often doesn’t bring prosperity and is NOT used by wealthy people nearly as much as we are led to believe.

He goes on to quote all the really wealthy people’s stance on debt Henry Ford thought it was a lazy man’s method to purchase items, even Sam of Walmart drove around in a used truck until he died.

Myth: If I loan money to friends or relatives I am helping them.

Truth: The relationship becomes strained; as the borrower is servant to the lender. You should just give it to them if you are in a position to do so.

Myth: Cash advance, payday loans, Rent to Own, Title pawning, are needed to help lower income people get ahead.

Truth: They are rip offs designed to take advantage of the poor.

 Myth: “Ninety days same as cash” equals using other people’s money for free.

Truth: IT is not same as cash. 88% of people don’t pay it off on time hence getting charged rip off interest rate of 24-38%.

Myth: Car payments are a way of life; you’ll always have them.

Truth: Staying away from car payments by driving reliable used cars is how the average millionnare got to where he/she is. If you invest $378 a month (average car payment) for your working life period (25-65) you would reap over 4.5 million dollars when you retire.

Myth: You can get a god deal on a new car at 0% interest

Truth: A new car loses 60% of its value in the first four years; that’s not zero percent.

Myth: Get a credit card to build credit

Truth: You don’t need credit to live a debt free life; except for mortgage (maybe) and you don’t need a credit card for it.

Myth: You need a credit card to rent a car, check into a hotel, etc

Truth: A debit card will do that.

Myth: If you pay off the credit cards every month you are using other people’s money for free.

Truth: 60% don’t pay off their credit cards on time.

Myth; Get a credit card for a teen to help them be financially responsible

Truth: It’s an excellent way to teach them financial irresponsibility; and they are the number one target for credit card companies. He then deals with money myths in the same manner and gives logical truths for each of them.

Steps to Get out of Debt: 

What are the steps he proposes to get out of debt and stay ahead?

Start with a written zero sum budget that allocates every single penny at the beginning of the month to a plan and stick to it (for more details check out his book). Use cash as much as possible; plastic encourages you to spend more.

 a) Start with a Mini Emergency Fund: $1000 to catch any little emergencies that spring up on you.

 b) Start the Debt Snowball: Arrange the debts from smallest to largest and tackle them one at a time. Why smallest to largest and not interest rates? Because as you close the small accounts you get the motivation and excitement to move progressively forward.

 c) Build a real emergency fund of 3-6 months worth of threadbare expenses: 49% of Americans could cover less than one month expenses if they lose their income.

d) Save 15% of your income in retirement account. (I don’t know what the detailed ruling is for this but for Muslims out there check out Amana Funds and other Muslim investing companies; at least research their principles and how they manage those funds and what makes them different from conventional companies).

e) Save for your children’s college tuition. Read his chapter on that.

f) Pay off your mortgage: He goes on to debunk some myths on why people hang on to their mortgages (tax deductions: you are basically paying 10,000 or more in interest to save $3,000 from the IRS?); and other common ones.

He talked of a couple that both worked and lived on one income for three years; then turned around and bought a home CASH! How amazing is that?

 He even stated if you have to do if for five years it’s worth it in the long run.

Check out his site for more info: www.daveramsey.com

It’s not a get quick rich scheme, it’s about changing your spending habits, having the discipline to save, and making lifestyle changes (living below your income).  

What amazes me about his philosophy (and reconfirms my belief) is that he speaks from a Christian perspective heavily quoting the bible, and it strikes me how similar the Islamic stance is when it comes to finances and living and most importantly Giving.

It’s sad that we fight and kill each other in the name of our respective Religions when the very thread that weaves between all of them; is the same Divine Truth.

Now let’s hold hands and sing to a better and freer society.