26 Weeks Till Christmas

26 Weeks until Christmas

 

26 Weeks until Christmas

Breaking News … This year … Christmas will be in December! 

As you probably know all too well, the holiday season can be a major financial drain each year. Many of us don’t budget or plan for holiday spending throughout the year.  The result is that Americans whip out the plastic for Christmas spending and use credit to finance Christmas costs.

A survey from Magnify Money indicated that: 44% of shoppers racked up more than $1,000 in holiday debt last year and 5% accumulated more than $5,000 in debt. 

Paying off those balances can take months or even years. Only half of those surveyed expected to repay the debt within 3 months. Almost a third of the survey participants (29%) said they need more than five months to pay it off, often leading to growing balances on their credit cards and lots of money wasted paying interest. More than 10% of people surveyed said they would only be able make minimum payments on their credit cards. 

So let’s go thru a real life example of Christmas credit card debt. If the shopper spent $1,054 on Christmas and pays a minimum payment of $25 each month. He will be paying down the balance from Christmas 2019 till 2025. With an average interest rate of 15.9% the consumer will pay $500 in interest – that’s half of what they spent initially. And if they take on an extra $1,054 in debt every Christmas, the amount of money wasted paying interest grown exponentially.

It is easy to understand why the number one fear of people during Christmas is debt. Unfortunately, people willingly put themselves in that position. There is no law requiring us to overspend at Christmas—it’s a choice we make!

That’s not what Christmas is all about. Do you think the Lord wants us to celebrate the birth of Jesus by taking on debt which takes years to pay off?

That’s why we’re talking about Christmas in summer… because we are 6 months into the year. It’s not too late to start saving now to avoid the Christmas debt. You still have 5 months to build a Christmas nest egg.

Now I can hear a lot of you thinking that you can’t possibly save 1/5 of your Christmas costs over the next 5 months. So my question to you is “How can you possible afford to pay for all those Christmas costs PLUS INTEREST in the months and years following Christmas?”

The reason so many people get into debt for Christmas is simple—they haven’t planned ahead. They haven’t saved or given thought to how they may be able to creatively reduce the cost of Christmas. If you haven’t already developed a budget for Christmas do it now and start saving money to avoid the Christmas debt trap and eliminate the post-holiday stress.

Our cost savings plan for Christmas is that we do not exchange gifts with each other. That may make us sound like scrooges but we aren’t.  Our priority is to go places and have experiences instead of collecting more stuff. At this point, our ability to travel is so much more important to us that simply buying things.

We already have enough stuff and we don’t really need anything so why should we rack our brains trying to come up with a unique idea that neither of us really wants?

And we don’t need to spend money to prove we love each other. We have a strong marriage and a good relationship and we don’t need a holiday to remind of us of how important we are to one another.

The other reason we don’t buy each other gifts is because we have a limited amount of money and higher priorities. The more we avoid spending on non-essentials, the more cash we have left to fund the goals that are most important to us.

Don’t put your important long term goals at risk by spending money buying gifts people don’t want or need. You probably have much higher priorities. Once your priorities are in order, keeping the Christmas spending under control becomes easier.

Start by figuring out how much you spent last year for Christmas, including travel, parties, special meals, gifts, decorations, etc. Divide that total by the number of paydays till Christmas. The result is how much you have to save each paycheck to have a debt free Christmas.

If things are tight, decide to cut down on the number of gifts you’re giving until your finances are in better shape. Instead of trying to buy gifts for each person, decide to draw names and each person buys for one other person. Now is the time to have the discussion with other family members and friends about cutting back on Christmas spending–they will probably be as relieved as you are to simplify things.

We had a mom share with us her simple formula for Christmas gift giving.

Each child gets 5 presents:

  • Something to wear
  • Something to share
  • Something to read
  • Something they need
  • Something they want

This family discovered how to keep their Christmas spending in bounds with their budget.

As a family focus on the real reason for the season—to celebrate the birth of our savior. Make a commitment to focus on the spiritual side of Christmas by centering on celebrating the birth of Jesus.  Now is the time to discuss how you can do that–otherwise you are into the holiday season and it is too hard to change what you’ve always been doing.

The most important thing you and I can do is to remember why we’re celebrating Christmas—the birth of our savior, Jesus Christ. In the busyness of the season, it takes an intentional effort to focus on the true meaning of Christmas, to have a spirit that’s ready to worship the Christ of Christmas.

Start that journey now by prayerfully making the commitment not to go into debt this Christmas. The only gift anyone really needs at Christmas is the Baby Jesus.

Tune into the Compass catholic podcast for more on how to prepare financially for Christmas.

Mid-Year Tax Review

We are a few months past tax time, and as usual there were lots of complaints. One of those complaints is that taxes are not biblical. Remember the verse from Mark 12:17: “So Jesus said to them [Pharisees], ‘Repay to Caesar what belongs to Caesar and to God what belongs to God.’ They were utterly amazed at him.”

Even in biblical times, over 2,000 years ago, Jesus was telling people to acknowledge the government and pay taxes as required. He didn’t add any qualifiers about how the tax money is used by the government or whether we agree with government policies, only that we are required to pay taxes.

The other complaint we heard this year is people getting smaller refunds than last year. Keep in mind that refunds have nothing to do with how much you paid in taxes. In order to see how much you paid in taxes, look at your W2 form for this past tax year and compare that to your W2 form from the previous year.

Looking at how much you paid in taxes is a totally different animal than how much you got in your refund.

Many people make the mistake of claiming zero dependents on their W-4 (even though they have 4 kids), and pay way too much in taxes each payday, then celebrate when they get a big check back from Uncle Sam in the form of a tax refund.

All a big refund means is that you paid the government too much in taxes and they gave it back to you. You gave Uncle Sam interest-free use of your money, which you could have been using through the course of the year.

The flip side of paying too much is paying too little. Maybe you are self-employed and you ended up paying taxes plus a penalty last year because you had not been paying enough in taxes.

Your goal should be to stay as tax neutral as you can be, which means not paying in excess and not getting anything back. That’s pretty hard to do, but a mid-year tax review will help you see your current tax situation to determine if you need to make any adjustments. A mid-year review makes sense whether you are an employee or self-employed.

Whether you’ve been paying in too much or too little, it’s best to figure this out now rather than in December when there’s no time to make adjustments.

In order to figure out if you’re underpaying or overpaying this year, start by calculating how much you’ve already paid throughout the first half of the year. Your latest pay stub from the end of June should show you the year-to-date paid in taxes. It’s a line titled, “Federal Tax YTD.” Take note of it, then double it. That’s the amount you’re on pace to pay this year. So if you have already paid $2,000 at the end of June this year, you are on pace to pay $4,000 at year-end.

Once you know how much you are on pace to pay this year, pull out your tax form from last year and do a comparison. Is your salary the same as it was last year? Is it less or more? Do you have additional income this year that you did not have last year? Part-time job? Inheritance? Bonus?

Go through each line of last year’s return and enter in an estimated amount for this year to help you calculate the total estimated taxes you’ll owe for the current tax year. Do your estimates show you will get a refund or are you going to have to pay? Remember, the goal is to be tax neutral.

If your calculations show you will owe more than you will have paid, it’s time to make some adjustments to avoid the penalty that comes with underpaying. If you are underpaying, you want to use as many legal tax breaks as possible to bring your liability back to zero:

  • Increase the contributions to your Health Savings Account
  • Increase your tax-deferred investment contributions (401k  and IRA.)
  • Decrease the number of dependents on your W-4 to start paying in more taxes. Use the IRS Withholdings Calculator: https://www.irs.gov/individuals/irs-withholding-calculator.

If you are overpaying, the solution is also simple. Use that same IRS Withholding Calculator to update your W-4 and increase the number of dependents. Try ticking up the number of dependents one at a time until you get to the correct contribution dollars. And that’s it!

If you got a $2400 refund last year (which is a little less than average) changing the number of dependents you claim means increasing your monthly income by $200 each month. Would you rather have the $200 to spend on your family or would you rather make a monthly $200 interest-free loan to the government?

We encourage you to do a mid-year review to be sure you are as tax neutral as possible. If you can keep more money in your pocket instead of giving a free loan to the government, do it!

Just remember that getting a big tax refund check is not a reason to celebrate. It simply means you gave the government more money that you needed to and they gave it back to you. You could take that amount of money and bury it in the back yard each month to achieve the same result.

This blog started with the Bible verse from Mark 12:17 which said to pay to Caesar what belongs to Caesar, but if Caesar creates rules that allow you to pay less . . . then take advantage of those opportunities!

Check out the Manage Your Money God’s Way podcast for more on doing a mid-year tax review.

Birthdays on a Budget

A child’s birthday should be fun, but not so over the top that it drains the family finances. The focus should be on thoughtful gifts, fun simple activities and family traditions, not on spending money, exhausting yourself and driving the kids into a frenzy.

Time is the one truly valuable thing in our lives, and there’s nothing more worthwhile than to give your time to you child. An ideal way to spend time with your child on their birthday means paying attention to them, talking with and listening to them, and engaging in some kind of activity together.

It’s rare that a birthday party works out to be on the same day as the child’s actual birth date, so try to make the day of the birthday special. Wake them up by singing Happy Birthday. Make a special request breakfast or maybe buy a special birthday dish that the birthday person uses for all their meals that day.

Gather the family to make a homemade dinner of the child’s request. It’s much less expensive than a restaurant meal where the kids have to wait for a table then sit still through dinner. And if the whole family participates, it gets the other children involved in doing something special for the birthday person.

After dinner, let the birthday child pick a family activity that everyone can do together. The activity needs to be free and involve the whole family. Ideas are: movie night or game night, trail walking, water balloons, egg toss, sledding, or swimming. There are any number of free fun activities to do. The key is to spend time together as a family creating memories.

A birthday is a good time to talk about “growing up” as each birthday is a step toward independence. You can help your child mature by marking the milestone with a discussion about their new age, which helps make the day special in a different kind of way.

Talk about the changes to chores, bedtime, allowance and privileges. There are any number of ways to acknowledge how your child is growing up and add special meaning to each birthday. Not only is this an opportunity for focused one-on-one attention, it also maintains the sense that this day is a day of growing maturity.

The time spent together is much more important than over the top expensive birthday parties, so don’t even think about keeping up with the neighbors. If other parents want to have inflatable slides and bouncy houses and pony rides and balloon animal makers and all kinds of crazy things, it doesn’t mean you have to do it. The kinds of decisions made by other families can be different than the decisions you make in your own family. Learn to use the phrase “That’s not how we do it on our family.”

Rather than receiving a mountain of gifts, be sure you get one thing your child really wants. It’s a lot easier to control spending if you’re giving a relatively small number of gifts. Once the child opens the third gift or so, each subsequent gift begins to seem less important and less interesting. 

After a gift-giving event, people tend to gravitate toward just a few of their gifts even if they liked all of them. In other words, once you get past the third gift or so, the rest are overkill.

Be sure their gift is the one thing they REALLY want. People (kids are people too!) tend to appreciate receiving the one thing they want most even more than receiving most of their wish list. It seems counterintuitive, but kids tend to be thrilled when they receive the main thing they wanted, so their other desires tend to fall by the wayside in comparison. When you really nail something they want, nothing else matters.

Keep the party simple and the guest list small.  The more children, the more overwhelming it will be for you and your child. Large parties are expensive, and if they are too large, the kids can’t even play with each other in the chaos. Center the party around a simple activity or easy to run games, such as an art party where the kids can paint birdhouses or  pin the candles on the cake. Lay out bubble wrap on the floor and have children take turns gently walking across it. Whoever doesn’t pop any bubbles wins! Have a bowl full of cotton balls and an empty bowl in front of the child. Hand them a spoon and blindfold them. Whoever moves the most cotton balls into the empty bowl wins!

Rather than buying a birthday cake from a bakery, make it at home. Homemade cakes are far less expensive than bakery cakes and you can get everyone in the family involved in making it. Let the birthday child personalize the cake. If your child loves the purple cake with the lopsided icing truck, that’s all that matters!

Who says you have to have cake? Maybe your birthday child would prefer a different dessert such as ice cream, pie, strawberry shortcake, cupcakes, cheesecake, or cinnamon rolls,

An expensive party and a pile of expensive gifts might be exciting for a child, but does it really mean anything? Does the birthday celebration build family and friendship bonds? In the end, it’s the time you took that makes the memories special.

Building those bonds and creating memorable moments doesn’t happen by throwing money at a big expensive party and lots of gifts.

It happens with time and attention, which are always the best gifts you can give to your child, period. If you give those gifts, then the physical gifts are secondary. Teach your child to appreciate the things in life that are really important–relationships, fun, sharing, conversations, traditions and spending time together.

Those gifts are so much more precious than any amount of money you can spend.

Checkout the Manage Your Money God’s Way podcast for more.

Master Your Money

In our culture, our faith is disconnected from the more secular aspects of life. We spend one hour a week in church and worship the gods of consumerism and materialism the rest of the week.

When we step away from the consumerism and materialism, we can ask ourselves this question: “Is what I am doing with my life helping me be the person God wants me to be?” The purpose of our lives should be to live in a way that pleases God in all areas.

Once we put God in first place everything else seems to fall into place.  This is the basic premise of being a good steward–God first in all ways.

Too often when we hear the word Stewardship, it’s related to giving. There is a need for an offertory increase in the parish. There is a capital campaign. It’s time for the yearly giving pledge, or the bishop’s annual appeal. But real stewardship is NOT about giving it’s about living in all areas of our life.

Applying Stewardship to our life and living a stewardship lifestyle on a daily basis can be difficult. It means analyzing our actions and their motivation. Am I greedy?  Do I make hasty decisions and later regret them? Am I generous? Am I overrun with debt? Do I gave money a place of importance it does not deserve?

Once we have deeply examined our habits, including how we give, save and spend, managing money becomes simply an administrative matter. We can escape from the pressure society puts on us by telling us that we must have lots of money and lots of stuff in order to be important or worthwhile.

Money is simply a medium of exchange. It is not a statement on how valuable we are. Yet so many times, we give money an influence over us that is unhealthy. The purpose of our lives is to know, love and serve the Lord. If the way we are handling our money hinders our ability to do that, then how we manage money needs to be changed!

Acknowledging that God made and owns everything (Deuteronomy 10:14) is a practical first step in handling money properly. Managing our money wisely is our way of showing God that He reigns in our hearts.  And knowing that we possess material things to help fulfill our calling as a Christian helps us to differentiate between how the world tells us to live and what will please God.

Think about the story of the rich fool (Luke 12:16-21). He had become so wealthy that he wanted to tear down his barns and build bigger ones. It never occurred to him that he could have built an additional barn. He also never thought about sharing his wealth with others. The rich man was unwilling to give up his material things because they had the number one place in his heart.

Jesus never condemned the rich man for being rich. But Jesus was sad that the rich man was not willing to walk away from his wealth. His money took priority even over Jesus Himself.

The issue of money is as difficult now as it was when Jesus began His public ministry.

Money is one of those things from which we should be able to walk away. Being able to walk away from anything and everything for Christ reveals a pure heart.

Do we give money first place in our hearts—a place where God should be? A prideful heart is an obstacle to the pure heart that God wants from us.  All too often, financial issues have their root in spiritual issues. What is in our hearts becomes evident through outward signs.  When we give money an importance it does not deserve, when we use money to find personal fulfillment, when we are greedy or stingy with the money God has blessed us with, when we are overrun by debt and buy things we don’t need, then we may be giving money an importance it does not deserve. Recognizing these problems can be difficult.

The parable of the talents teaches us that God is looking for faithfulness in the little things. The talents were a form of money. The man who entrusted money to his servants expected a return. Two of the servants managed their money well and were rewarded with more of their master’s goods. The third servant managed the money poorly. When the master returned he punished the one servant for the mismanagement of his goods. He told the servant that if he could not even handle this little task, then he could never manage or enjoy the fruits of greater responsibility.

So mastery over money is mastery over ourselves. Mastery over money provides the ability to know, love and serve the Lord. As we better know, love and serve the Lord we become more obedient in all areas of our lives. As we become more obedient we are showing that we can be trustworthy. As we become more trustworthy the Lord bestows greater blessings on us.

We are not saying that if we are generous we will get more money. We are saying that when we submit ourselves to the Lord many blessings come to us in the form of peace, joy, gratitude, and contentment

The foundation of mastery over money is serving the Lord as our number one priority and knowing what God wants us to do with our lives.

Odd as it may sound, spending decisions need to be thought of in terms of our faith. Asking yourself how this purchase helps you be a better steward prior to making the purchase is much more beneficial than beating yourself up after the credit card purchases stack up.

If your attitude toward money needs adjustment, take time to sit in front of the tabernacle and listen to the Lord. It takes a conscious effort to change your mindset and adjust your attitude. But once you master your money, nothing is the same.

And that’s a good thing!

Checkout the Manage Your Money God’s way podcast for more.

Learning to be Content

There was a recent article in our newspaper titled “Despite Having Nothing I am Happy.”

It was about a couple who experienced Hurricane Maria in Puerto Rico and moved to the panhandle area of Florida. When they got to Florida they had nothing. In fact, they tell a story about scavenging in a dumpster and finding a few notebooks and art supplies which they cleaned up and gave to their granddaughter as a present for Three Kings Day.

The few possessions they were able to accumulate disappeared when Hurricane Michael hit the panhandle area in October of 2018. Hurricane Michael was the third major hurricane they endured in about 18 months. The husband of this couple said “Despite having nothing I am happy.”

What a blessing to hear.

Wouldn’t it be nice if we could all discover the contentment this family feels so we could all say that we are happy with what we have. Being content with what you have—whether it’s a little or a lot—is a real gift.

Contentment is in pretty short supply in our country and in our culture because the advertising industry creates discontent in our lives.

Just look at the Smarter Image website to find lots of stuff intended to make you discontent, starting with the name of the business. You will buy their products if you are SMARTER and want a better IMAGE.

They offer a hover helmet—it’s a big metal C-shaped device where you put a major league batting helmet between the two ends of the C and the helmet hovers there. It’s $120. How about a heated fog free shower mirror for $130? Or the World’s First At-Home Professional LED Lip Therapy Device to get rid of lip wrinkles for $120.

None of these things will add any significant value to your life. Yet if we believe the advertising, we really need to buy them in order to be happy. The ads are telling us we are not good enough—we need a SMARTER IMAGE! Which they provide if only we buy what they are selling.

And there lies the problem.

All too often discontent leads us to use debt to buy things we don’t really need and things that will never really satisfy us. Maybe it’s something as useless as the items mentioned above or something BIG that’s easy to justify like a new car. Or it’s something that’s just NEW like the latest version of a smart phone

Any time you buy something in an effort to be happy, it will not make you happy for more than a few days. After a few days, the happiness wears off and you are on a quest for the next best thing to buy. Have you ever felt that “if only” you had more whatever it is you are craving, then you’d finally be content? But if you’re not content with what you have today, you’ll never be content when you get that nicer home, that newer car, the upgraded smart phone or more money.

As stewards of God’s blessings and the talents we’ve been given, we should always seek to improve our circumstances. But improving our circumstances does not mean accumulating things and buying stuff. A never ending quest for more and more can be very dangerous spiritually because if you’re not content with what you have, you’ll never be content when you get what you want.

Paul wrote Philippians 4:11-13 from a prison cell. This is what he said:

“I have learned to be content in whatever my circumstances. I know how to get along with humble means, and I also know how to live in prosperity; in every circumstance I have learned the secret of being filled and going hungry, both of having abundance and suffering need. I can do all things through Christ who strengthens me.”

Paul learned to be content, it’s not an instinct we’re born with, we must learn it. And the foundation of contentment is being grateful for what we do have.

As Americans we live in one of the richest countries that ever existed. Even if you are barely making ends meet, you are still among the richest people on earth when compared to the standard of living in most other countries.

So if you struggle with being content, meditate on Phil 4:11-13.

The poorest people can be content, while all the money in the world can’t make you content. Look at all the wealthy people who are miserable. Being content has nothing to do with how much stuff you have or how new your stuff is or how much money you have. It has everything to do with being grateful for what you do have.

The families mentioned at the beginning are a great testimony to how you can learn to be content no matter how much or how little you have. Wouldn’t it be nice if we all learned how to be content?
The Compass Podcast has more on learning the virtue of contentment.

Heal Financial Infidelity

Couples saying their wedding vows don’t promise to be completely honest about all financial information from this day forward.

Maybe they should, because not being honest about finances can wreck a marriage.

Signs of financial dishonesty may be:

  • A concealed bank or credit card account
  • Cash missing from accounts
  • Late payments on bills because money is not available
  • Hiding or lying about purchases

If dishonesty about finances is putting your marriage at risk, a good place to start the conversation is by having a weekly money date. It may not sound romantic but handling money well as a couple affects every area of your marriage. These weekly money dates are vital because they establish the habit of regular financial conversations when there’s no crisis.

Too many couples don’t even begin a conversation about money unless a problem has surfaced and the panic button has already been pushed. Tension can reach the boiling point in a hurry when blame and defensiveness take over. That’s when it gets personal and hurtful when the couple is in conflict with each other instead of working together to resolve the problem.

The first thing to do on a money date is to start by praying together. Jesus makes this remarkable promise in Matthew 18:19-20, “If two of you agree on earth about anything for which they are to pray, it shall be granted to them by my heavenly Father. For where two or three are gathered together in my name, there am I in the midst of them.” When a couple prays together about their finances, they invite the God of the universe to be personally involved with how they earn, spend, save and give.

After praying, review your income and spending to make sure that you are both aware of your current financial status. Focus on the facts and don’t argue or nag one another! Instead, use it as a time to discover the facts, because couples simply make better decisions when they are both fully aware of their financial situation. In addition to looking at the past week, consider what is coming in the future. Is there a big expense on the horizon that needs to be planned? For example, your money dates in July are a perfect time to discuss back to school expenses.

Your money date should end by celebrating success, no matter how small those successes are. Celebrating is important because you are more likely to continue your progress if you celebrate along the way. Maybe the first date is simply celebrating the fact that you have started a conversation.

Married couples will always face financial challenges, and the best way to face those challenges is by intentionally creating a culture of prayer, encouragement, gratitude, and celebration.

Financial infidelity can be a very challenging matter to overcome in a marriage. It’s often a core symptom of two people who aren’t communicating well and have different visions for their future, which results in a damaged relationship.

One way to build trust and communication skills is to share your goals because a discussion about goals naturally includes a discussion about finances.

Each of you should separately make a list of ten goals that are truly important to you. What things do you want out of life in the next 5, 10 or 20 years? Don’t worry about what your spouse may be writing, just write down what is most important to you. Then when you each have your list, compare them.

Like any couple, you are going to have some shared goals and you’re going to have some personal goals. That’s a good thing—it’s healthy and normal.  What’s not healthy is when you allow your personal goals to overtake your joint goals as a couple. By sharing what is important to each of you, as a couple, you can agree to focus your financial efforts on the items that overlap.

As you work through these goals together, you may discover things you didn’t know. Maybe your spouse has hidden some financial transactions from you.

Let’s be honest. We’re all human. We all do things that we regret, usually because we put a very short-term emotion or desire above a long-term plan or goal. If you do discover secrets, forgive your spouse’s mistakes. Jesus tells us we must always forgive. In Matthew 18:21-22 we read: “Then Peter approaching asked him, ‘Lord, if my brother sins against me, how often must I forgive him? As many as seven times?’ Jesus answered, ‘I say to you, not seven times but seventy-seven times.’”  Instead of concentrating on past mistakes, concentrate on moving forward.

If you and your spouse can’t get through financial differences on your own, you may want to consider marital counseling. For some couples, that can be incredibly helpful. If you’re truly struggling with financial infidelity and the trust in your relationship has eroded, counseling will help. Financial infidelity can be overcome, of course, but it requires honest effort from both parties.

Accusations won’t solve the problem, nor will anger. It takes time, trust, communication, and calmness. And it takes a lot of prayers. Moving forward isn’t about “winning” or “losing,” it’s about finding a new direction that works for both of you. In Mark 10:8, we hear the verse about how two will become one flesh.

And that mindset is absolutely required in a marriage—even when it comes to finances.

Listen to the Compass Catholic podcast for more on this topic.

The Benefits of Using a Financial Planner – Part 2

John Kennedy, CFP® has been our guest for the last two weeks on the Manage Your Money God’s Way podcast.

Last week we talked about what to consider when you are looking for a financial planner, the questions to ask and the background work you need to do. This week is about the benefits of using a financial planner.

John and his wife have taken both the Navigating your Finances God’s Way and Set Your House in Order Bible studies. They could be considered financial experts. John is a certified financial planner and has responsibility to his clients as a fiduciary. John’s wife has a career in corporate finances. Even though both of them had financial backgrounds and were “numbers geeks” the Compass Bible studies were critical to their financial communications as a couple.

The Navigating Your Finances God’s Way study taught them skills that are helpful to everyone, especially a married couple. With John being a financial planner, it was easy for him to slip into the role of expert when it came to family decisions on how to give, save, invest and spend. And it was easy for his wife to allow him to assume that role. A game changer for them from the Navigating class was that all financial matters in a marriage are joint decisions between a husband and wife who need to be in agreement. He also indicated the studies opened his eyes to situational awareness of working with a married couple in his financial planning practice. 

The experience of John and his wife are in support survey results that indicate 78% of the couples who took the Navigating class together said their marriage was strengthened. Money can be a controversial area in a marriage and the Compass Bible studies provide a non-confrontational platform for financial discussions.

Early in their married life, John and his wife set a priority of saving 20% of their income and because that goal was set, they were able to stick to it through career and life changes. Their savings is allocated for various purposes; emergencies, retirement, college funds, investments, and Health Saving Accounts.

According to John (and many other financial planners), the best time to start saving for retirement is the first day you start working. The more you save and plan ahead, the longer time your money has to grow, based on the principle of compound interest. So, do yourself a favor and start early.

The amount you should have saved for retirement varies based on age and income. Income during working years relates directly to the income you will need in retirement. How much you should have saved for retirement at any point in time is based on your age.

The link below will help you walk through plans for retirement. Pages 13 and 14 provide a checkpoint for how much you should have saved based on your age and current salary. For example, on page 13 if you are 50 years old, making an income of $70,000. You should have 3.9 times your salary ($273,000) saved to provide the income you need to maintain your current lifestyle in retirement.

J. P. Morgan Guide to Retirement

If you find your savings are short of the benchmark for your age, take advantage of any and all matching funds your employer offers. If you pass up the matching funds, you are leaving free money on the table, so why not take advantage of it! 

Very few people understand the employer match. They may think they can afford to save one or two percent, but they think 6% is too much. What they fail to understand is that employer match is based on pre-tax money so your take-home pay is not reduced by 6%.

Here’s an example. Joe makes $2,000 gross per pay period and his deductions are 22%. With no retirement savings, Joe’s net salary is $1,560. Joe decides to maximize the 6% employer match. Six percent of his gross pay is $120, with the employer matching Joe’s contribution dollar for dollar. Joe adds $240 to his retirement account each pay period.  His take home pay is reduced by $94. ($2,000 – $120) x 22% – $1,466. That is a deal too good to pass up!

In addition to matching retirement funds, many employers also offer matching funds for Health Savings Accounts (HSA), which are for high deductible health care plans. These funds provide triple tax advantages as they are from pre-tax income, they grow tax-free and are used tax-free. There are rules for use and most of them will roll over to the next year if not used. The HSA is different from a Health Flex Spending Plan, so be sure you know which you have and the policies you have to follow.

Many employers are now offering an incentive for their employees to pay off student loans. If you are in your early 30s, retirement savings is impossible if you are buried in student debt. If your employer offers matching funds to pay off your student loans, jump on it!

The benefit of using a financial planner is that they will take a look at your entire financial picture and provide you with the information you need to make informed decisions to help you meet your goals. If you have not saved anything and are worrying about retirement, they can take a look at your total financial picture and give you advice on how to get from where you are to where you want to be in a logical and organized fashion. Maybe you need to increase the amount you are saving by one percent every 6 months, or maybe you need to concentrate on paying off high-interest debt or maybe you just need to rein in your spending.

A financial planner can provide wise unbiased counsel to help you meet your goals by taking a look at your total financial picture and offering advice.

Listen to the podcast here. 

The Benefits of Using Financial Planner: Part 1

Would you give yourself a root canal? Probably not! You may think it’s crazy to pay a financial planner to keep track of your money, but if you don’t have the skill-set and knowledge it may be crazier to do it yourself.

A financial planner can save you time and headaches in addition to helping you tackle financial goals, such as retirement, saving for college, or estate planning. 

Before talking to a financial planner, get a handle on your personal finances. How much do you make each month? How much do you spend each month? How much debt do you have? How much do you have saved in what type of accounts (401K, 403B, IRA, Roth, stocks, mutual funds, stocks, annuities, passbook savings, etc.)?  What are your financial goals for the next year? 5 years? 10 years?

Once you have a high level picture of your current financial situation and your goals, seek counsel from godly people to find a planner. Sirach 32:19 tells us, “Do nothing without counsel, and then you need have no regrets.” Friends, relatives, and neighbors may all have recommendations about financial planners they trust. They may also have some suggestions about planners to avoid!

Once you have a list, start investigating. You can find a financial planner by entering their name and “CFP” in a google search. Look at their website. Does it appeal to you? Be cautious if they or their business does not have a website.

To investigate a financial planner, check the Financial Industry Regulatory Authority (FINRA.org) website. Enter the broker’s full name, the Company’s full name, and the zip code to get a report on whether the financial planner has any criminal charges and convictions, formal investigations or disciplinary actions initiated by the regulators. The report will also disclose situations such bankruptcy, unpaid judgments, liens, customer disputes and arbitrations.

After gathering information, set up an interview—we recommend interviewing at least three planners before deciding who you want to work with.

Start with questions about their practice in general terms, such as their investment and client philosophy. Your intention is to be sure the services they offer match your needs. Here are the questions to ask:

  • How many clients do you work with? 
  • Are you currently engaged in any other business, either as a sole proprietor, partner, officer, employee, trustee, agent or otherwise? 
  • Will you, an associate or a team be working with me? 
  • Will you sign a fiduciary oath? 
  • Do you provide a comprehensive written analysis of my financial situation along with recommendations? 
  • Do you offer advice in:
    • Goal Setting
    • Cash Management/Budgeting
    • Tax Planning
    • Investment Review and Planning
    • Estate Planning
    • Insurance Needs
    • Education Funding
    • Retirement Planning

Anyone can call themselves a financial planner, so be sure and ask if they are recognized as a certified financial planner. A CFPÆ designation means they have passed a rigorous test administered by the Certified Financial Planner Board of Standards. It also means they must commit to continuing education to maintain their designation. The CFPÆ credential is a good sign that a prospective planner will give sound financial advice.

After you learn the basics, find out more about their qualifications.

  • What is your educational background?
  • What are your financial planning credentials/designations?
  • How long have you been offering financial planning services?
  • Do you have clients who might be willing to speak with me about your services?
  • Will you provide me with references from other professionals? 
  • Have you ever been cited by a professional or regulatory governing body for disciplinary reasons? (Also available on the (FINRA.org) website.)
  • What more can you tell me about your experience in providing financial planning services?

Ask for the code of ethics they follow. Certified Financial Planners are held to the CFPÆ Board’s Code of Ethics, which requires them to act as a “fiduciary.” In short, this means the planner has pledged to act in a client’s best interests at all times. This point is critical.

If an investment professional is not a fiduciary, anything they sell you merely has to be suitable for you, not necessarily ideal or in your best interest. The difference between ‘best interest’ and ‘suitable’ is an important fine line for you to consider.

The next important question is how they get paid. Financial advisors deserve to get paid for managing your money and since you are paying the bill, you need to understand how it works.

  • How is your firm compensated and how is your compensation calculated?
  • Do you have an agreement describing your compensation and services that will be provided in advance of the engagement? 
  • Do you have a minimum fee?
  • Do you receive referral fees from attorneys, accountants, insurance professionals, mortgage brokers, etc.? 
  • Are there financial incentives for you to recommend certain financial products? 
  • How do you pay for their services. How often? Are the fees deducted from your account? Are you expected to pay by check?

If a financial planner is paid on commission they could have an incentive for steering you in a direction, which may not be in your best interest.

You might pay them a flat fee, such as $1,500, for a financial plan or their fees may be calculated on an hourly basis.

They may be paid a percentage of your portfolio. It is often 1-1.5% of all the assets in your portfolio—investment, retirement, college-savings, etc. The more your money earns for you, the more it earns for them so they have an incentive to keep your portfolio growing.

Ask how much contact they normally have with their clients. Some planners hold an initial planning meeting and then only meet with clients once a year. Others may have quarterly meetings.

  • Do they offer continuous, on-going advice regarding your financial affairs, including advice on non-investment related financial issues?
  • Do they offer an online platform or some level of technology integration so you can view your account, net worth, budget, etc.? 

Financial plans will vary based on the planner and the company. Be sure that what they provide will meet your needs.  You may get overwhelmed with 40 pages of facts and figures or you may want more details.

As the meeting ends there’s one last question you want to ask yourself: Did they seem interested in you or did they do 90% of the talking? If they asked about you, your life and your goals that’s a good sign. 

Don’t let someone con you into working with them because they promised to make you rich.  Nobody can make that promise and keep it.

Choosing the right financial planner is important, but ultimate peace of mind comes from the confidence that God alone is our true provider and protector.

Thanks to John Kennedy, CFP, Co-Founder of CandorPath Financial for his expertise in this podcast and blog.

Keep your Old Car or Replace it?

Would you be better off repairing your current car, or is it really time to buy another one? There’s no clear-cut answer to this question, but analyzing the pros and cons for each option will help you make a more informed decision.

First of all, decide if you really need a car. For today’s average family, owning at least one car is a necessity and two cars makes life much easier in many ways. But consider the possibility of using public transportation or carpooling to eliminate the need for one of the cars, which may result in significant savings.

Once you decide that a car is a necessity, it’s usually less costly to repair the existing car than to replace it with a newer model (unless your car is totally worn out with over 200,000 miles or more.)

The least expensive car is usually the one you are driving right now. Repairing it will keep you from making a hasty purchase you may regret in a few months. It will also give you more time to save up and get your finances in order before spending a lot of money on a replacement vehicle. 

You may want to seriously consider replacing your car if you are running into one of the following scenarios.

  • The repairs are becoming more frequent, and the costs are hard to keep up with. 
  • The car often leaves you stranded, putting you and your family in a potentially dangerous situation 
  • The repair in question will cost more than half the value of the vehicle.
  • You had already planned on getting something new, but your mechanic clues you in on an impending major repair on your old car.

Even if you’ve taken good care of your car, some high-priced repairs are unavoidable, due to excessive wear or time itself. Rubber belts and hoses dry out and crack, metal on rotors warp or wear too thin, and electrical parts stop working. Wear-and-tear items such as axle boots, belts and brake rotors will eventually need to be replaced.

The timing belt has long been a big-ticket item on high-mileage cars. On many cars, it needs to be replaced at around 100,000 miles. Dealership service advisers will often recommend replacing the water pump and the other drive belts in the car at this point. This “timing belt package” can cost between $600 and $1,000. Repairs such as this begin to surface between 90,000 and 120,000 miles. Yearly repairs for the typical American car average about $1,200.

If your car isn’t paid off, do everything in your power to keep it until it is paid off.  Otherwise, the current car debt is simply refinanced into the new car loan and it is easy to get upside down on your car loan where you owe more on the car than it is worth.

Here are a few reasons why buying a newer car might be in your best interest:

  • You don’t want to fret about future breakdowns.
  • Old cars can be unpredictable.
  • The constant trips to the repair shop are disrupting daily activities like getting to work or taking the kids to school.
  • Each time you repair one thing, something else breaks.

All these are reasons to move on.

If you are not yet faced with making the tough decision to fix up or trade in your vehicle, there are steps you can take to prevent or avoid costly repairs. Get your car maintained at its proper intervals to avoid problems and breakdowns.  Use the maintenance guide to learn the recommended service intervals for your vehicle. We recommend finding a good, reliable local mechanic as a less expensive alternative to a service departments at the dealership.

If you’re experiencing issues with your car and don’t know whether things are likely to get worse, look for advice on message boards and forums for the make and model of your car. Other people have probably been down this road before you. You can get a preview from them of the problems associated with your vehicle as it ages.

Everyone seems to have a theory on when to repair a car and when to get a newer one. But you know your needs and your car’s history better than anyone else, so use these tips as a guide, not gospel.

Buying a newer car might seem like the easy way out of a high repair bill, but depending on your circumstances, it may plunge you into debt.

On the other hand, a car that’s teetering on the edge of oblivion can keep you awake at night. And it’s hard to put a price tag on the peace of mind that a newer vehicle can bring.

It’s better to part with that car on your own terms rather than waiting for it to break down at exactly the wrong time. If you make the decision while the car still has some value, you can sell it or trade it in, turning the cash into a down payment on your next car.

To avoid an emotional reaction, be sure to analyze your budget, and seek counsel so you will make a wise decision and be a good steward.

The Compass Catholic Podcast offers more on this topic.

5 Tips for First Time Home Buyers

Owning a home is the fulfillment of the American Dream. If you are planning to buy your first home, there’s lots to think about.

Consider your income. How much house can you afford? Buying a house is much easier if you have set financial boundaries prior to falling in love with something that is out of your price range.

Many banks require that your mortgage, insurance, and taxes be less than 28% of your income. If you earn $50,000 per year, your total monthly cost for mortgage, insurance, and taxes should not exceed $1166 (28% of your monthly income).

The bank also evaluates debts, like car payments, student loans, and credit card debt. Most mortgage lenders will limit the total monthly payments on existing debt plus your mortgage to about 40%.

If you are reaching the 40% debt threshold, you may want to rethink tackling a mortgage with all your other financial obligations, because the cost of owning a house is a lot more than just the mortgage payment.

The down payment on a home can be a big chunk of change. Most lenders prefer a down payment of 20% to qualify for a conventional loan, but you can put down less. A down payment of less than 20% means you must have private mortgage insurance, which is 1% of your original loan value. If your mortgage is $150,000, the cost of PMI and the subsequent increase in your mortgage payment is $125/month.

Take time to shop around for a mortgage. You’re going to have your mortgage for the next 15-30 years, so it’s worth digging into which mortgage lender offers you the best deal.

Adjustable rate mortgages have a low-interest rate to start which are adjusted over a defined time period based on the index tied to your rate. Payments can go up or down. Fixed rate mortgages have an interest rate that stays the same for the life of the loan. We recommend a fixed rate mortgage to eliminate unpleasant financial surprises.

Before you start home shopping, get prequalified for a mortgage. Based on the cost of the house, the prequalification and your down payment, you can calculate the price of the houses you should consider.

Make a list of the features you NEED vs WANT in a home, considering the number of bedrooms and bathrooms, kitchen style, a fenced yard, granite countertops, open concept, a garage, etc., and then rank them in terms of priorities. Decide whether the house or the neighborhood matters more to you, or whether you’re willing to make a longer commute in order to own a home with a larger lot. Make these kinds of decisions before you begin the search for your new home to limit the confusion that comes with too many choices.

In a perfect world, you’d find the ideal home, the perfect style, size, price, and location. But we don’t live in a perfect world, so realistically, you will probably have to compromise.

We’ve mentioned the down payment and mortgage, and there are lots of other costs associated with buying a house that first-time buyers often forget.

Most mortgage companies will require a home inspection, even on a new house. Inspections will reveal any hidden issues that may affect the purchase price or livability of the home. As the buyer, you are responsible for hiring and paying a qualified home inspector. Be cautious about using an inspector recommended to you by your realtor as they may have a vested interest in making sure the sale goes through. The average national cost for a home inspection is between $300 – $500.

An appraisal is also required to calculate the true value of the home, so the lender is assured the home is worth the money they are lending to you. The appraisal fee will depend on the size and complexity of the property, the average price is between $200 – $600.

An escrow account is generally required with low down payments or specialty loans like an FHA loan, so the lender has a guarantee that the mandatory costs, such as taxes and insurance will be paid. You can expect to put a large amount of money into an escrow upon closing to cover the costs for the year. After closing, the escrow account is funded each time you make a mortgage payment.

Your closing costs include the initial funding of an escrow account. The amount of money depends on the cost of property taxes and insurance premiums in your area. Those costs will vary even further depending on the county you reside in and your property’s specific attributes. For example, if you live in a designated flood zone, you’d be required to carry flood insurance, which increases the amount needed in escrow.

Closing costs average 3-5% of the purchase price. These costs could include loan origination fees; attorney fees; cost to record necessary documents in your county; cost for your lender to run your credit report, title insurance, etc.

In 2010, reforms were instituted to require lenders to provide you with a good faith estimate of the total closing costs. The final closing costs are not allowed to exceed 10% of the original estimate, so you can use the estimate to reliably budget for your closing costs.

If you buy a house for $150,000 and plan to make a 20% down payment and have 4% in closing costs, you’ll need to have about $36,000 in hand when you close on the property.

Once you’re handed the keys and all the paperwork is signed, prepare for even more expenses. Unless you own a truck, and all of your friends and family are willing to help, you will have to pay to rent a moving vehicle or hire professional movers to help you transport all of your belongings to your new home.  Costs vary widely depending on the distance you’re moving, the number of belongings you own, and the extent of the assistance you receive.

If your home isn’t move-in ready, what projects do you still have to accomplish? Whether it’s as simple as painting, or a more involved renovation project, prepare for those expenses before closing on a home.

If your home is part of a homeowner’s association, make sure you know what the fees are, when they are due and what they cover.

When you own your home, you’re responsible for all utilities. If you are moving into a new area and don’t have a history with the various utility companies, you will probably have to put down a deposit in order to get service. Types of utility bills include electricity; water; sewer; gas and trash.

Last, but not least, you have to budget for the continued upkeep and maintenance on your home. A good yearly average is $1/square foot or 1% of the purchase price. This will vary based on the condition of the home, and the age of mechanical systems, roof, and appliances.

While the costs associated with buying and owning a home can seem overwhelming, as long as you budget appropriately, home ownership will be manageable and enjoyable.

The fact that you’re researching and educating yourself about home buying is a great first step to becoming a homeowner.

The Compass Catholic Podcast offers more on this topic.