Proverbs 22:26

Do you live as risk-free as possible? God expects you to manage risk carefully. He did not give you what you have to lose it by slothfulness, foolish optimism, naïve dealings, or poor risk management. Part of wisdom is to perceive risks and avoid unnecessary losses.

God expects you to be prudent – to look ahead cautiously, see potential trouble, and protect yourself (Pr 22:3; 27:12). If you presume God will protect you in spite of foolishness or sloth, you sin by tempting Him (Matt 4:5-7). He expects you to use means to reduce risk, while you trust Him to bless the use of the means (Pr 21:31; Ps 127:1-2).

Risk management is an important part of financial prudence and success. In an uncertain world, where you do not know what will happen tomorrow, where many do not repay their loans, where political winds change frequently, where criminals devise new ways to defraud honest people, where the Internet exposes you to every financial fraud and hoax, you must pessimistically assess your risks and protect yourself from unnecessary losses.

King Solomon warned his son against foolish financial risks. It was a common temptation, especially for a wealthy prince, to guarantee others’ debts. The desire to help those in need, whether from charity or pride, could be hazardous to his wealth. The wise king saw the danger of his son over-committing his capital and often warned against it for economic prosperity for his son and for you (Pr 6:1-5; 11:15; 17:18; 20:16; 27:13).

Striking hands – shaking hands in our world – used to seal a deal (Pr 6:1; 17:18; Job 17:3; Ps 144:8,11). This simple gesture of commitment could have severe consequences. Done hastily without due regard, a man could create enough contingent liabilities or be obligated to pay off enough debts of others to wipe himself out financially (Pr 22:27). Small risks are one thing, but risking your home and furniture is unacceptable.

Neighborly or brotherly kindness to help a poor man in need or a successful man with a sound investment are two possible uses of co-signing, if the amount of the liability could be easily paid. But the over-confident assuming of debt to impress others is vainglorious folly and a recipe for disaster. Give the poor what he needs instead of assuming a liability that may be forgotten. Tell the businessman to find his investment funding elsewhere; if the deal is as good as he claims, there will be plenty of funds available for it.

Are you prudent with income and assets God has given you? A symptom of this foolish time is many personal and corporate bankruptcies. Most nations are also near insolvency. Wise men minimize debt, shun needless risk, avoid co-signing loans, maintain savings, invest cautiously, value liquidity, purchase insurance, and work diligently in a secure trade and industry. They do not get in a situation to lose everything by bankruptcy and transfer their folly to others. They take responsibility to protect themselves and others.

Consider a way that Americans strike hands and take on foolish financial risk. They will reach for the plastic with the slightest temptation or urge. They flash credit cards for frivolous and discretionary spending, and then the bill arrives with a 21% interest rate attached. Many never get out of this black hole. They stay afloat temporarily by making only the bank’s minimum payment and/or using other cards to fund their lifestyle. But disaster is just ahead. The cost of high living will drown them. Solomon warned you.

Governments today encourage citizens to over-spend and take on financial risk, so do not listen. Modern governments with central banks have little fiscal restraint, because they want to buy the votes of their constituency, solve every problem, satisfy every lobbyist, and secure the friendship of other nations’ leaders doing the same things. While they can manipulate an economy to save their jobs, you cannot do the same, so protect yours.

They write checks, approve budget deficits, and make promises with little knowledge or regard for the total cost, for they believe they can create or raise money by fiat or printing press to pay their bills. (Or they hope they can survive until retirement when the next administration will be stuck with the bill.) Governments will generally keep spending until the whole house of cards (their financial system) collapses one way or another.

When the boom-and-bust economic cycles show up in a recession or depression, they blame consumers for not spending enough. Though a nation may have a negative savings rate for its overall populace, the government will call for even greater spending by its citizens in an attempt to resurrect the former days of prosperity – but the fear of losing jobs and other results of a recession force even spendthrifts to slow their consumption.

Modern advertising, marketing, and purchasing convenience also encourage persons to spend beyond their means. A constant barrage of seductive displays and implied needs overwhelm the financial caution of most. With new credit cards arriving regularly in the mail, it is easy to join the spending generation on the way to the poor house. Wise governments should require warning notices on credit cards, rather than on cigarettes.

Prudent men do not put their eggs in one basket, no matter how attractive a deal appears. They diversify their investments and sources of income. They do not enter business deals under-capitalized, for they know that is a sure invitation for trouble. And they do not over-extend themselves by building too big, buying too much, or living too high.

They emphasize the negative side of any expected return. If they calculate a 50% probability of gaining 25%, a 30% probability of breaking even, and a 20% probability of losing everything, they flush the idea without remorse. They do not spend their waking hours adding up their new wealth from improbably success. They understand that even a modest probability of a large or total loss is too much for a prudent man to consider.

They are properly fearful and skeptical of any naked position where an investment is exposed to significant loss. They do not scoff at the idea of hedging or protecting their investment with an appropriate offset. If an investment idea is truly valid, then it will make a good return even hedged. But the crowd mentality and greed of most investors cause them to bull ahead in wishful thinking for raking in huge profits and returns.

Insurance does not show a lack of trust in God. It shows the fear of God. A man who properly fears God will use whatever means he has to protect what God has given him, for he will give an account of it in the Day of Judgment. God and Solomon classified the man who wastes his assets right beside and related to the lazy and slothful man who has none (Pr 18:9). Insurance is a cheap source of protection to easily fulfill this proverb.

Wise men know that riches are not forever, so they are diligent to assess every aspect of their incomes and the security of their assets (Pr 27:23-27). They understand that naivety or optimism is not a result of faith, but of folly. They know that working hard every day without looking to the future is ignorant and dangerous. They periodically assess their resumes, their company, their industry, their nation, and any other significant factors.

A wise man always asks, “What if?” His question is not, what if this venture is wildly successful, how will I spend my millions? His question is rather, if this venture goes bust, can I still support my family and fulfill my obligations? Solomon warned against any financial choice that creates unnecessary or dangerous risk. You have been warned by a rich king, who could have paid off any liability or obligation. His advice is true and wise.

There is a much greater risk you face – being cast into the lake of fire by an angry God in the Day of Judgment (Rev 20:11-15). What precautions have you taken against that risk? Instead of merely losing your job and house, eternal torment with the devil and his angels is beyond comprehension. Wisdom in this crucial matter demands you run to Jesus Christ and beg for mercy (Luke 6:46-49; 16:1-6; Rom 10:9-13; I Tim 6:17-19; II Pet 1:5-11).