Are You Prepared for the Next Recession?

We aren’t predicting a recession tomorrow. But after such a long “Bull” run there’s bound to be a downturn sooner or later, and now is the best time to prepare your financial life so that you don’t get turned upside down or inside out when it happens.

Even a mild recession could cause a lot of pain for people with credit card debt. The next recession may not be as extreme as the one that occurred in 2007-2008, but it doesn’t have to be in order for credit card delinquencies to become a significant problem. 

Even now, amid a record 10-year economic expansion, most people are doing well, but some are living close to the financial edge and delinquencies are ticking up. 

What does your current and future financial picture look like? Just 35% of Americans have enough savings to cover three months’ expenses, and 28% have no emergency savings at all. Additionally, 39 million U.S. adults have been carrying credit card debt for at least two years, and another 8 million can’t recall how long they’ve been in debt. About one fourth of people who have debt expect to die before they can pay it off.

All of this despite an extraordinarily low unemployment rate of 3.7%. Makes you wonder what will happen if the unemployment rate goes back up to a more traditional 5-6% rate.

If you listen to the financial gurus on the TV and internet their top tip for paying off a credit card balance is to get a 0% balance transfer card, which lets you transfer your existing high-rate credit card debt to a new card with no interest for up to 21 months. They say that depending on how much you owe, a balance transfer could save you hundreds, maybe even thousands of dollars. 

The second top tip is to get a personal loan and use that to pay off the credit cards. Rates aren’t zero, but they are as low as the mid-single digits if you have good credit. The financial gurus suggest personal loans are a useful way to consolidate debt and lower your interest rate. 

The major issue with both of these two “Top Tips” is spending habits. 

If you haven’t changed your spending habits and you pay off your credit cards, you’ll have an open credit line. And that open credit line is tempting to use, potentially running up more significant debt. If you do that, you still have to pay the “old” debt that you transferred to the 0% card or the personal loan. So instead of taking a positive step forward, you have just taken a huge leap in the wrong direction.

It’s time for an attitude adjustment! Think about why you are spending money and how you are spending it. Are you trying to buy happiness? If you are buying things to make you feel better, what is it about your life that you don’t like? If you can focus and change the parts of your life that you’re not happy with, will that eliminate the spending sprees?

Another approach would be to think about the way you spend. It is much harder to spend using cash rather than credit. Carrying cash in your wallet means there is a limit to how much you can spend. Using credit means not really spending the money till the payment is due. Studies have shown that people spend about one third more when using credit rather than cash. Maybe it’s time to leave the credit cards home when you go to the mall.

Here is another approach. Review each of the purchases you made on your last credit card bill. Evaluate each, one rating it from 1-5. Did the purchase make you happy? With 1 being the happiest. We’re not talking about happiest at the point of purchase. We’re talking about happiest today during your review. You need to seriously think about any purchase that scored 3-5. What can you do to make all purchases score a 1 or 2 on the happy meter, even weeks after the initial purchase?

Do you live from a perspective of scarcity or abundance? Most people live from a scarcity mentality, thinking there is never enough. The focus is that we might not have enough. We might suffer from the lack of something. 

Take a moment to think about what things would look like if you lived from an abundance mentality. First, thought is that you already have enough and you don’t need more. The quest to buy happiness disappears.

In Paul’s first letter to Timothy he said “For we brought nothing into the world, just as we shall not be able to take anything out of it. If we have food and clothing, we shall be content with that” 

Nothing has changed in the past 2000 years. We still enter the world with nothing. We still can’t take anything with us when we die.

You can be prepared for the next recession if you focus on getting out of debt and stop spending in an effort to buy happiness. 

The Compass Catholic podcast shares more about preparing for the potential of a recession.

The Spiritual Impact of Debt

Online shopping

In all the parishes we have visited all over the world, there have only been two or three times when the priest gave a homily on responsible spending and the benefits of avoiding debt. But when he did preach on that subject, he had the full, rapt attention of the congregation.

Online shopping

After all, money is something we deal with every day. We are either working to earn money, spending money, planning how to spend money, or using something on which we have spent money. Money is a big part of our daily life, and too often a large part of how we handle money includes debt.

Many churches don’t talk about personal finances unless there is a need for increased giving. Yet the spiritual impact of debt is clear:

  • Financial challenges can ruin marriages, leading to divorce.
  • A family wants to send the kids to Catholic school, but can’t afford the tuition because there are other places where their money is committed.
  • Vocations get postponed because many religious orders or diocesan vocations offices will not accept candidates who have student loan debt.
  • People feel like they can’t be generous givers because their debt is overwhelming. 

In the seemingly affluent United States, out-of-control debt is sort of a quiet monster. We are discovering something that Sirach talked about around the time of 200 B.C. Sirach lived in Jerusalem with all of its trade and travelers. He realized that “a man may buy much for little, but pay for it seven times over” (Sirach 20:11).

And paying seven times over is what happens to us when we buy stuff using credit cards that never get completely paid off. Debt that just keeps growing is first of all a money problem, but it can become a spiritual problem too, as debt drags us into slavery.

Overwhelming debt can make people feel isolated, embarrassed, and alone. When creditors call day after day, stress will eat away at peace of mind. Debt can make people feel depressed and powerless. 

One of the most amazing things about America’s growing difficulty with debt is what kind of people fall into the pit. Without paying attention to where the money is going, it could easily happen to anyone. There is no common thread among those who get into financial trouble. People with six-figure incomes can get into debt trouble as easily as someone whose income is much less.

People run up their credit cards month by month. In the short term, there really isn’t much pain. Minimum payments are easy to make. Then the balance balloons out of control and the interest rates and late fees hammer them, and suddenly the monthly payments don’t even touch the principal.

Spiritual questions about overspending include why people do it, and if they ever reach a point where they feel like they have enough. If we keep spending and spending and if we can’t afford it, it’s a huge spiritual issue. It means we don’t trust God to provide what we need and we are looking elsewhere for fulfillment.

Pope John Paul II, in a 1998 homily, described consumerism as a false antidote to spiritual emptiness. “Christ alone can free [us] from what enslaves [us] to evil and selfishness: from the frantic search for material possessions, from the thirst for power and control over others and over things, from the illusion of easy success, from the frenzy of consumerism and hedonism which ultimately destroy the human being,” the late pope said.

Consumerism can be an addiction. Your consumerism can consume you just as much as other pursuits can, and that’s not helpful to your pocketbook much less your soul.

The way we spend our money is an expression of our faith. We spend our money, time and thoughts on the things which are most important to us. Stop and think for a minute—what are your priorities? Over the last month, where did you spend your time, money and thoughts? Those are your priorities.

How you spend your money is an indication of how you integrate your faith into every aspect of your life. Getting out of debt means intentionally deciding not to define yourself based on what you own.

That’s not to say that spending is inherently wrong, or that treating yourself to some nice things is bad. But how much you buy depends on how much you can afford, and that is a reflection of your values.

It’s amazing how content we can be living a very simple life if we would only make the effort to do it. 

There is a parable about a man who had an abundant harvest and didn’t have enough space in his barn to store all his grain. He decides to tear down the barn and build a larger one. That same evening the man dies, showing the futility of putting our faith into material possessions.

People who have dragged their way out of debt say not owing money gives them a sense of joy, freedom and gratitude to God. They live out their understanding that everything they have is a  GIFT from God.  With that understanding comes thankfulness and peace, along with a sense that God will provide for them in good times and bad.

Everything that we have, including our money and possessions ultimately comes from God, not our own efforts. As Paul reiterated in Acts 17:25,  “it is [God] who gives to everyone life and breath and everything.” When you realize this, it suddenly became a lot easier to escape from the grasp of consumerism and quit trying to fill the void by accumulating more stuff. 

“To be full of things is to be empty of God.  To be empty of things is to be full of God.” (Meister Eckhart) 

The Compass Catholic podcast shares more about the spiritual impact of debt.

Is a Financial Disaster Heading Your Way?

If it’s time to get your finances under control, you may want to consider the services of a credit counseling organization. Most reputable credit counselors are non-profit and offer services at local offices, online, or on the phone. 

Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn’t do that, consider it a red flag and go elsewhere for help.

Once you’ve got a list of counseling agencies check them out with your state Attorney General and local consumer protection agency. They can tell you if consumers have filed complaints about any one of them. BUT if there are no complaints about them, don’t consider it a guarantee that they’re legitimate.

After you’ve done your background investigation, you will want to interview several credit counseling agencies. Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan (you pay them and they pay your creditors) as your only option before they spend a significant amount of time analyzing your financial situation.

Find out about their fees—either an initial or monthly fee and get a specific price quote in writing. Do a thorough review of any agreement or contract and never sign anything without reading it first and having a complete understanding of the terms and conditions. 

Check out their qualifications to be sure they are licensed in your state and see if they are accredited or certified by an outside organization and be sure to check out the certifying organization. Try to use an organization whose counselors are trained by a non-affiliated party.

Ask about confidentiality. What assurance do you have that your personal information (including address, phone number, and financial information) will be kept confidential and secure?

Find out how the employees are paid. If employees are compensated by selling you certain services, or if you agree to pay a fee, or if you make a contribution to the organization, consider it a red flag and go elsewhere for help.

Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can’t be done.  Accurate negative information may stay on your credit report for up to seven years. And if they are making you pay for removing inaccurate information, you can do that yourself free of charge.

If you do decide to work with a credit counseling service, continue to pay your bills until your creditors have approved the plan. If you stop making payments before your creditors have accepted you into a plan, you’ll face late fees, penalties, and negative entries on your credit report. Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your debt management plan.

Make sure the organization’s payment schedule allows your debts to be paid before they are due each month, since paying on time will help you avoid late fees and penalties. Review the monthly statements from your creditors to make sure they received and correctly applied your payments. 

If your debt management plan depends on your creditors agreeing to lower interest rates or eliminating finance charges, or waiving late fees, make sure these concessions are reflected on your statements.

The best advice we can give you is to stay on top of your finances on a regular basis and don’t let your spending habits and debt overwhelm you.

If you have any inkling that your finances are headed for disaster, address the problems as soon as you see them coming. The longer you wait to get your finances under control the more of a mess you’ll have to clean up. These problems don’t happen overnight—they creep up gradually. If you are in a situation where your finances feel slightly out of control, the best thing you can do is get them under control before they get unmanageable.

If you are experiencing overwhelming financial challenges, you’re not alone. Consumer debt is at an all-time high. Whether your debt is the result of an illness, unemployment, or simply overspending, it can seem impossible to manage.

Although it may seem counter intuitive, one of the most important things you can do in tackling a financial problem is to pray. If you are married both of you should pray together on a regular basis for the strength and wisdom to be good stewards of the blessings God has given to you.

It IS possible to dig your way out of a financial disaster. We know—we did it!

The Compass Catholic podcast has more ways to be proactive about avoiding a financial disaster.

Don’t Get Scammed!

The Consumer Financial Protection Bureau has only been compiling complaints for about 8 years. Debt collectors are the top consumer complaint category. Identity theft (credit card fraud and tax fraud) was the second biggest category. 

The third most common consumer complaint is an imposter scam, which involves someone pretending to be a government official, tech support representative, or a loved one in trouble to trick consumers into giving them personal information.  

There are any number of scams out there—here are some ways to avoid them. 

Secure passwords are a vital way to protect yourself. The most often used passwords are Password or 00000 or 12345. Protect your personal information by creating secure passwords.

Think of a sentence, such as “I was born on September 13, 2000 in Abilene, Texas.” Then take the first letter of each word or number: iwbosttiat. Once you have that, create a password by making some of the letters caps and replacing some letters with symbols or numbers that are similar to the letters being replaced. Using that logic, your password would be: Iw6o$13ti@T.

The new password is not a real word, it can’t be found in the dictionary, it is a mixture of letters, numbers, and symbols, it is meaningful to you and it is not something people can easily discover (like your phone number or birthdate.)

A second way to protect yourself is to be careful with emails. Even if you recognize the name of the sender on the email, if it’s suspicious, check out the email address in case that person’s email has been spoofed. If you are trying to see if a website mentioned in the email is legitimate, type the email address in your browser, do not click on the links

You can also protect yourself by being cautious about answering phone calls. Don’t believe your caller ID. Technology makes it easy for scammers to fake caller ID information, so the name and number you see aren’t always real. Don’t answer any calls from numbers you don’t recognize. If it is important, and if the call is personal, the caller will leave a voice mail. 

Hang up on robocalls. If you answer the phone and hear a recorded sales pitch, hang up. These calls are illegal, and often the products are bogus. Don’t press 1 to speak to a person or to be taken off the list. That could lead to more calls, since they were able to get a live person to interact with them.

You can also use the website whitepages.com to do a reverse phone look-up. Type in the phone number which called you and see if the phone number is a high potential for scam. On your cell phone, block the calls you know are from scammers.

If you are suspicious about a specific call, take time to check it out. If someone says they are from a credit card company or a government agency and they are asking you for personal info like a credit card number or your social security number, call them back on a number you have verified.  Don’t use the phone number the potential scammer gave you.

If someone calls and says there is a potential for fraud on your credit card and they want you to give them your credit card number to verify, don’t do it. Use the phone number of the back of your credit card and call the company back to verify if the potential fraud is real.

Don’t pay upfront for a promise. Someone might ask you to pay in advance for things like debt relief, credit and loan offers, mortgage assistance, or a job.  They might even say you’ve won a prize, but first you have to pay taxes or fees. If you pay, they will probably take the money and disappear. 

In all situations, be cautious about how you pay. Credit cards have significant fraud protection built in, but some payment methods don’t. Wiring money through services like Western Union or MoneyGram is risky because it’s nearly impossible to get your money back in case of fraud. That’s also true for reloadable cards (like MoneyPak or Reloadit) and gift cards (like iTunes or Google Play). 

Don’t deposit a check and wire money back. By law, banks must make funds from deposited checks available within days, but uncovering a fake check can take weeks. If a check you deposit turns out to be a fake, you’re responsible for repaying the bank, even if you already spent the money you deposited.

Before you give up your money or personal information, slow down and think. Scammers want you to make decisions in a hurry. They might even threaten you, or say the police are on their way to arrest you. Slow down, check out the story, do an online search, consult an expert, or talk to a friend.

Be skeptical about free trial offers. Some companies use free trials to sign you up for products then bill you every month until you cancel. Before you agree to a free trial, research the company and read the cancellation policy. And always review your monthly statements for charges you don’t recognize.

Freeze your credit through Equifax, Experian or Transunion to avoid identity theft. Unless you are applying for a mortgage, car loan, a credit card or some other type of loan, there is no reason to allow inquiries against your credit. When you restrict access to your credit information, it becomes more difficult for identity thieves to open new accounts in your name. That’s because most creditors need to see your credit report before they approve a new account. If they can’t see your report, they may not extend the credit.

Sign up for free scam alerts from the Federal Trade Commission at ftc.gov/scams to get the latest tips and advice about scams sent right to your inbox. If you spot a scam, report it at ftc.gov/complaint

Proverbs 24:6 says, “For by strategy war is waged, and victory depends on many counselors.” Wage war on the people or organizations out there who are trying to take advantage of you. 

We hope these ideas will help you keep your information safe and protect you from scammers. The Compass Catholic podcast has more ways to protect yourself.

Plan to be Content This Christmas

School just started a few weeks ago, and Christmas is probably not at the top of your priority list currently, but the best time to start planning for Christmas is now. 

Bring unprepared can lead to stress and debt. Plus so many times we feel pressured to make Christmas perfect and we aren’t content till there is a mountain of toys for the kids and we have spent a ton of money buying gifts for every aunt, uncle, friend, neighbor and 5th cousin 10 times removed. Too often our buying and spending frenzy is driven by an effort to be content.

Did you know that contentment is mentioned in the Bible seven times and six times it has to do with money and possessions? Scientific evidence suggests that being content may have major benefits for your health. Contentment helps fight stress, boosts your immune system, protects your heart and reduces pain. What’s more, it may even increase your life expectancy.

Contentment is in pretty short supply in our culture because the advertising industry creates discontent, especially when there is a holiday where the advertisers can influence us to spend money and buy what they are selling. 

If we believe the commercials, we have to buy things people don’t need in order to satisfy our gift giving obligation and in an effort to make them happy. And you and I know that Christmas can be one of the most frustrating times of the year when it comes to obligatory gift giving.

It doesn’t matter if  we can afford to spend a lot of money, the problem is being obligated to do it, and not being content unless we are keeping up with everyone else. We live in a consumer society that operates on the assumptions that more is always better and happiness is based on acquiring more stuff.

That concept is especially true when it comes to the overload of spending many people do at Christmas. Paul wrote in Philippians 4:11-13 “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, or if you are overwhelmed with Christmas obligations you would just as soon avoid, meditate on Phil 4:11-13. If your feeling of happiness, peace and joy comes with a price tag, you’ll never be content no matter how much you spend at Christmas. The poorest people can be content, while all the money in the world can’t buy contentment. 

Take a long hard look at Christmas last year. What brought you the greatest joy and contentment and what added to your holiday stress? The key is to plan Christmas so you can do more of what went well and less of what was a disaster.

Maybe the kids really enjoyed going to midnight Mass, or maybe they were so tired and cranky that midnight Mass was a failure. Maybe traveling halfway around the country to visit grandparents was the best thing ever or maybe it was a disaster because the kids really missed being at home for Christmas. Maybe your Christmas spending was well planned and under control or maybe it was out of control and you ended up facing a ton of bills in January.

Now is the time to plan on doing more of what went well and figuring out how to avoid the disasters. 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. But do it now so nobody is surprised in December when you want to change what you have always done.

Even if you are financially well off, what about your friends, family and neighbors. Are they able to keep up with the overspending most families do at Christmas? Or are they pressured into spending money they don’t have in order to keep up with everyone around them?

If finances are tight, as a family decide to cut down on the number of gifts you’re giving until your finances are in better shape. This could be a tough call and you may have a lean Christmas in order to get ahead, but there will be no long-term harm if you spend less. 

What is really important at Christmas is the gift of God made man, not all of the toys and clothes and electronics we buy for each other. 2 Corinthians 9:15 (NABRE)  “Thanks be to God for his indescribable gift!”

The only gift anyone really needs at Christmas is the Baby Jesus.

So as you are thinking about and planning for Christmas, and as a way to focus on what is really important at Christmas time, try to make this Christmas a time to practice the virtue of contentment, and remember the verse from St. Paul …  “For I have LEARNED to be content” … anyone can learn to be content and escape from the discontent the advertisers try to thrust upon us at Christmas.  

Join us on the Manage Your Money God’s Way podcast for additional thoughts about how to be content this Christmas. 

Should Children Get an Allowance?

We firmly believe that the earlier you teach children how to handle money and make them responsible for their own financial decisions, the better off they will be when they are ready to strike out on their own.

The tools for teaching kids about money include:

  • Giving them an allowance
  • Expecting them to do chores around the house simply because they are part of the family
  • Giving them opportunities to earn extra money
  • Monitoring and coaching them as they make both good and bad decisions.
  • The primary purpose for an allowance is to enable a child to experience the real world of money management. You can teach, lecture, and allow your kids to learn by observation, but the best way for them to learn is to have some cold hard cash in their hands to use the way they choose.

Research on school-based financial literacy efforts overwhelmingly state that classroom instruction is far too theoretical. Kids need to use real money in real situations in order to learn. And this means allowing them to fail and succeed with you in the background as a cheerleader and coach.

Some people are adamant that money should be given to a child only when they do something to earn it. But the “pay for performance” dynamic makes the child think they have a choice about whether or not to do household chores. If they don’t need money, they may shirk their chores that week.

We think the best solution is a compromise. Give your kids an allowance because that’s the best way to teach them about money. ALSO require them to do certain chores on a regular basis just because they’re part of your family. Even a child as young as three can do simple chores such as making their bed or setting the table. As they get older, additional chores can be added such as taking out the trash, clearing the table, or feeding and walking the dog.

Along with the allowance and chores they are expected to do, give them opportunities to earn more money by doing optional tasks such as mowing the lawn, washing the car, or whatever seems appropriate in your family.

An important key is to keep the allowance low enough that they’re motivated to take on additional chores, but not so low that they don’t have anything to spend.

As a parent, your role is to be a coach and a cheerleader as they learn, make mistakes and have successes. Coach them by asking questions without lecturing or telling them what to do. Ask open-ended questions such as:

  • So why do you think that $40 shirt is a good deal?
  • Would you rather have one pair of expensive jeans or 3 pairs of less expensive jeans?
  • How do you plan to eat lunch at school since you spent your lunch money on video games?

If they decide to spend foolishly, LET THEM! The best way for them to learn is to let them make mistakes and suffer the consequences.  It’s better for them to make a mistake buying a $30 blouse than a $300,000 house! If you act like the First National Bank of Mom and Dad and give them money every time they make a mistake, you are setting a precedent you’ll be expected to maintain, even when they are adults, with a spouse and children of their own.

An allowance presents a great opportunity to teach kids how to give, save and spend so be proactive about coaching them and helping them learn what to do with the money they receive. If they gain experience when they are young and learn how to give and save a percentage of every dollar they receive, it’s likely those habits will stick as they get older and earn more.

Use separate piggy banks or jars marked “Give” “Save” and “Spend” to help them understand the three uses of money. Some people advocate teaching kids a 10-10-80 approach: give 10%, save 10%, and spend 80%. Since kids have few fixed expenses, consider teaching them to SAVE a higher percentage, such as 40%.

When to begin an allowance, the amount and how often they get it is a great discussion for parents to have when the kids are very young, or even when you are pregnant.

Kids can understand certain aspects of money at a surprisingly young age. Researchers have found that children as young as two can begin to see that money is a means of exchange. It’ s an idea they can start to grasp the more they go to the store with you and watch as you hand money to the cashier and then receive groceries or clothing or whatever else in exchange.

When you think about starting an allowance, err on the early side—perhaps as young as three or four, but certainly they should have some exposure to spending their own money when they enter kindergarten.

Common ways to determine an appropriate amount for an allowance can be based on the child’s age or grade. You may want to give a 5 year old $0.50 for each year, making their allowance $2.50 per week. Or you can base the allowance on their grade plus one.  So a first grader would get $1 + $1 = $2 a week.

As for how often to give an allowance, in the beginning, a weekly allowance will provide frequent opportunities to establish the habits of giving and saving. As they get older, gradually transition “payday” to once a month. A monthly allowance helps kids learn to budget their spending so the money lasts until next month. The important thing is to increase the amount along with their responsibility each year.

A few weeks ago we did a podcast titled “Birthdays on a Budget.” One of our suggestions was to use the milestone of each birthday as a natural time to talk about an increase in the allowance and any changes to your child’s financial responsibility. As they get older they need to take on more and more responsibility as you transfer financial responsibilities from your shoulders to theirs.

Like the NIKE commercial says “Just Do It!” Get started now and make adjustments as you see fit and as your child learns and grows. The earlier your kids begin gaining some experience managing money, the better off they will be as adults.

By the time they are seniors in high school, they should be taking on all their personal financial responsibilities—clothes, entertainment, car, school lunch, etc. The only way for them to do that is for you to start training them when they are young. “Train up a child in the way he should go and even when he is old, he will not depart from it.” (Proverbs 22:6)

Listen to the Manage Your Money God’s Way podcast for additional thoughts about how to help your child become a financially responsible adult.

Financial Clutter

Recently, we met with the staff of a Catholic Credit Union. We talked about ways Compass Catholic can help their members be wise financial managers and how they can honor God with the way they spend, save and give money.

The president referred to something he called “Financial Clutter” as those things that get people into trouble financially and sidetrack them from their most important financial goals.

Making good financial decisions isn’t just about providing for the distant future; it’s about cutting down on the very real worries you feel each day, whether that means saving more or spending less, paying off credit cards and the student loans or getting rid of the mortgage.

Here are some ideas to consider to help you reduce the amount of financial clutter in your life…

Giving is a way to honor God and thank him for everything he has given to us. It’s easy to justify why we can’t be generous, and most people think once they get their finances in order, then they’ll be able to give. Our experience is that giving is the first priority. Once you start giving back to God some of what he’s given to you, everything else falls into place in your financial life. Acts 20:35 “Keep in mind the words of the Lord Jesus, who himself said ‘It is more blessed to give then to receive.'”

If you spend more than you earn, it always causes worry, stress and mental clutter. This is not to say you have to pay for everything with cash; mortgages and student loans are a practical reality for the vast majority of Americans and it’s almost impossible to rent a car or a hotel room without a credit card. Still, it’s crucial to make a realistic budget and stick to it, so you live within your means. Proverbs 21:20 “Precious treasure remains in the house of the wise but the fool consumes it.”

Most financial experts say you shouldn’t spend more than one-third of your take-home pay on housing and related expenses. This is especially true if you don’t make much money, because other bills will quickly gobble up the rest of your budget. Think of it this way: If you take home $2,000 a month but spend half that on housing, you have $1,000 left to survive. That works out to $33 a day for food, gas, clothing, insurance and everything in between for the whole family. If you stretch yourself too thin on your housing expenses, you’ll struggle to pay for everything else.

Intelligent people can disagree over precisely how much you need in a rainy day fund. But not saving anything for unexpected events, and living paycheck to paycheck is irresponsible. It naively assumes you won’t ever need the money for an emergency should something unfortunate happen.

You know that you, along with every American, should be saving for retirement in some way. If your employer offers a 401k match, it’s free money from your employer as a reward for something you should be doing anyway, so take advantage of it. Not contributing to a retirement plan with an employer match is like throwing away a gift of cash. It stays in the back of your mind and causes clutter!

There are risks with any investments–particularly if you chase aggressive, short-term gains. Higher rates of return come with higher risk, and promises of instant profits through day-trading or house-flipping often prove themselves too good to be true. Keeping greed in check is crucial–but so is planning properly to prevent falling behind. If you build up a good emergency fund and start planning for retirement early, you won’t have to take big risks out of desperation as you get closer to retirement age.

The other side of saving for retirement is being tempted to think the money in your 401k or IRA can be used early (before age 59½). Cashing out one of these retirement funds early comes with steep penalties: Federal taxes, State taxes, and early withdrawal penalties. In addition to the tangible loss of that money, there’s the fact that you still need to save for retirement.

Shifting the shortfall from one part of your budget to another is not a viable long-term solution. Worse, any money taken out of your 401k or IRA could have been growing over time–so you don’t just lose the money that’s withdrawn, you lose the lost investment returns on that money as well as wasting money by having to pay the penalty and taxes for early withdrawal.

Life insurance companies aren’t run like charities, and they set premiums based on the risk of payouts. It’s only natural, then, that an older American has to pay a higher premium for life insurance. The vast majority of folks can take out a substantial and very affordable life insurance policy in their 30s and cover their spouse and family into their 50s or 60s. The same holds true for disability insurance to protect your earnings on the job.

Along the same lines, a good will is a crucial part of providing for your family should tragedy strike. In most cases, a visit with a qualified professional for a few hours will ensure your family stays in control of any assets and avoids estate taxes–not to mention preventing any squabbling among survivors. Our Bible study Set Your House In Order, will help prepare you for the discussion with a qualified legal professional.

The bottom line is getting distracted by financial clutter can cause all sorts of problems.

Just like cleaning out the clutter in your garage, cleaning up the financial clutter needs to be done one step at a time. Goes back to old saying – If you continue doing what you have been doing, you’ll continue to get the same results you’ve been getting.

If you aren’t sure what to do to get control of your financial clutter, go to CompassCatholic.org and under the resources tab, download a copy of the Compass Money Map. It will help you set priorities and meet goals to get rid of the financial clutter, and make sure it does not come back.

Tune into our podcast for more on getting rid of financial clutter.

Plan to Love Your Retirement

When most people think about retirement, they only think about not working, they don’t plan what they will do every day

Maybe you want to play golf, go fishing, cruise around the local lakes in your boat, or travel to some beautiful and exotic places in the world. But your financial situation may limit your ability to fulfill your retirement dreams. Some people may have enough money to do what they’d like, while many others are going to struggle to make ends meet.

If you don’t have a budget and know exactly what you are spending now, you are only guessing at the amount of money you’ll need to live on in retirement, and what your retirement budget will allow you to do.

Once you know your current spending, match your spending against the income stream available to you in retirement. When will you be eligible to take Social Security? Do you have a 401K or 403B and how much income will it provide? Is there a pension plan or an IRA or other long term savings available to fund your retirement? How much of your income will come from personal savings?

To put yourself in the best financial position for retirement, pay off all credit card and consumer debt so you are not dragging your debt into retirement. In addition to consumer debt, work hard to get your mortgage retired before you retire.

Everyone understands the stock market rises and falls in cycles over the years. Yet when it comes time to plan for retirement, this basic fact can be very hard to deal with if it impacts your personal savings. If the market drops right after you retire, you could find yourself with a far smaller retirement nest egg than you anticipated. To mitigate the impact of a down market, reallocate your retirement savings to more conservative investments as you get closer to retirement.

When you think about retirement, how do your plans tie into the plans your spouse has? Couples don’t always have the same ideas about anything, let alone retirement, so it’s important to have open-ended discussions about what each of you expects. Take time to discuss various aspects of retirement and develop a plan that works for both of you.

Talk about everything, including your expectations for retirement, what your new schedule will look like, how you’re going to divvy up household tasks and how your identity is going to change. You can develop compromise by when each of you makes a list of expectations such as:

  • Downsizing, or moving to a new location to be near family
  • Places you would like to visit
  • Cultural or sporting events you want to attend
  • Exercise or sports activities you’d like to do
  • Volunteer work you will enjoy

Once you each develop a long list of possibilities for retirement, go through it together noting what is the same on both lists and where the differences occur. Have a give-and-take discussion where each of you compromises to some extent. You both need to have your own activities and you also need to spend time doing things together.

Retiring from a job often leaves a void in a person’s life. If you’re like many would-be retirees, you’ll likely be retiring from a job, and not necessarily to something better.

Even if you are in a job you’ve come to dislike, work is a reason to get out of bed every day to feel useful and productive. Most people feel needed at work as they contribute to the purpose of the business. When you stop working, what will compel you to get out of bed each morning?

Using your retirement time wisely means figuring out your purpose during this season of life. Humans continue to thrive when they have a purpose and are contributing to something.

Retirement is a time when you can serve other people by making a worthwhile contribution to a mission close to your heart. Giving your time and talents to a worthy cause is one of the most fulfilling things you can do in life. There are an unlimited number of causes that need volunteers to help achieve their goals. Explore something you never had time to get involved in when you were working and find ways to use your time, talent and treasure supporting a greater good.

Retirement can be one-third of your adult life.  Having a purpose and being engaged in an activity you enjoy is a sign of wellbeing. As you wind down your paid employment, begin thinking about a cause that can become your passion. What talents and strengths do you have that will enable you to contribute in a meaningful way to a purpose that is close to your heart?

Retirement offers you the chance to do what you always wanted to do, and no longer focus on simply earning a living. Plan your retirement so you love having a purpose and passion for each and every day.

“Do nothing without deliberation; then once you have acted, have no regrets.” Sirach 32:19

Listen to the Podcast 

What is a Crisis Budget and When Do You Implement it?

Unless you are one of the wealthiest people in the world, sooner or later you will probably have some type of financial setback. At some time in your life you are likely to face a family financial crisis such as a job loss, business reversal, illness, death of a family member, or military deployment of the breadwinner. Even a worldwide financial crisis can have an impact on our personal finances.

Some events can shake our world and turn everything upside down. When that crisis does come will you look at it with despair and angst or will you look hard to find the silver lining that God always provides?

Think about some crises in the Bible. Joseph’s brothers sold him into slavery. In a few hours, Job lost everything—his children, all of his financial resources, even his health. Moses was caught between the Red Sea and the most powerful army in the world. Paul was beaten, stoned and left for dead.

It would have been easy for each of these people to feel abandoned by God. Yet in each case, God used their crisis for good. When we face a crisis, it is important for us to remember that God loves us deeply and in any situation, he is with us each and every step of the way. This verse from James 1:2-4 sums it up: “Consider it all joy, my brothers, when you encounter various trials, for you know that the testing of your faith produces perseverance. And let perseverance be perfect, so that you may be perfect and complete, lacking in nothing.”

God is able to use all circumstances, even difficult ones, for our ultimate good. We can use difficulties as opportunities to grow closer to God and learn things we just could not learn any other way.

There are several things we can do to survive a crisis. The first is to have our finances in order before the crisis occurs. If you have your finances in good order, the financial impact of the crisis can be a little less stressful.

It also helps to have support through the crisis by seeking advice from Godly people who have been in the same or similar circumstances. They can be a great source of blessing and encouragement to you. You can learn from their experiences, they can tell you about resources they have used and help you avoid mistakes they made.

Focus on one day at a time. Matthew 6:34 tells us: “Do not worry about tomorrow; tomorrow will take care of itself.”  In a crisis, it’s easy to get several steps past where you are, and worry about what’s next.  The important thing is to focus on the present and not worry about the future.

In a stressful situation when we are praying for help, we expect God to resolve things in our way, in our time, exactly the way we want it to go. This just sets us up for disappointment and frustration as God does not work according to our demands. It is important for us to trust him and believe in his divine providence without giving him deadlines or directions.

One of the best things you can do to prepare for a crisis is to prepare a crisis budget. Figure out the most likely crisis and find ways to cut your budget to meet the circumstances of that crisis.  For example, if you or your spouse were to lose your job, what would you do?  If you are on commission and don’t make your quota, how would you adjust your finances? If the stock market completely tanks, will it impact you?

After you determine the most likely scenario, figure out the impact to your current income and spending. Look at your current budget. What can you eliminate? If your family income were cut by 30% how would you adjust your spending? Can you get rid of cable TV, gym memberships, music lessons, sports camps, convenience meals? What other spending can you reduce?

One reason people don’t create a crisis budget is because they really don’t understand how much they are currently spending so they cannot anticipate any adjustment. But figuring out how to adjust your spending before the crisis occurs makes it easier to make objective decisions, not decisions based on emotion. 

Most times people will face the financial challenges in a crisis by using credit cards to maintain their standard of living. This is very dangerous because you not only have a reduced income or increased expenses, but now you are adding debt payments to your expenses, PLUS interest, so you are making the situation worse.  We have seen many people in this situation and it drags them down faster and faster.

The important thing is to know how much you spend on a monthly basis – that is the only way you can possibly be prepared to adjust in a crisis.  Then implement the crisis budget as soon as you anticipate the problem happening. For example, in most cases if there are layoffs at work, you can see them coming maybe weeks or even months in advance. Or if there is a worldwide financial meltdown, how does it impact you personally and how can you adjust your spending to be financially stable?

As soon as you anticipate the crisis, implement the crisis budget.

The worst thing that is going to happen is you’ll save some money if the crisis never occurs.  The best thing that will happen is that you will survive the crisis with minimum damage to your financial future.

A good meditation verse during a crisis is from Jeremiah 29:11: “For I know well the plans I have in mind for you—plans for your welfare and not for woe, so as to give you a future of hope.  When you call me, and come and pray to me, I will listen to you.” 

In the crisis you are facing, know that God is always with you even when it’s hard for you to recognize it, and his plans for you are better than any plans you may have for yourself.

Listen to our Podcast to learn more about a crisis budget.

I Just Graduated From College – Now What?

Graduation Cap

Graduation Cap

Congratulations on getting your college diploma! Take a deep breath and relax for a second. Now focus on getting a job. If there aren’t any jobs in your field of study, find a job outside your field. It will allow you to obtain experience, work history, and money.

After you graduate, you’ll probably have a lot of expenses you may not have had in college. Developing a budget is the best way to put everything into perspective so you don’t lose track of your spending and your money is allocated to the things that are most important to you.

As you develop a budget be sure it includes saving for an emergency fund. Although it may take a while to get there, try to build the emergency fund to at least $1,000. Having an emergency fund will help prevent you from going into debt if you have an unexpected expense, such as a medical bill.

As you are creating your budget and establishing an emergency fund, look at the current debt you have. Besides student loans, the typical types of debt owed by new college grads include car loans and credit cards. Get hyper-focused on paying off all the debt that you have outside of your student loans. Pay these off a quickly as possible, paying any extra money on the smallest one while making minimum payments on the larger debts, including student loans. The key to being financially stable is not accumulating any more debt!

Once your other debts are paid off it’s time to tackle your student loans. According to Forbes, the best way to pay off your student loans quickly is to refinance them to a lower interest rate. Many lenders now offer some form of employment protection and other hardship benefits if you later lose your job or can’t afford your payments.

If you can’t lower your interest rate significantly. Refinancing is not a great idea, because you will give up certain student loan benefits such as forbearance and deferral.

Forbearance allows you to pause your student loan payments, but you must be up to date with the payments and interest continues to pile up if you request forbearance. Deferment is similar to forbearance except interest does not accrue during the period of time that your payments are deferred. Not all student loans will allow this and it may mean losing the potential of repayment incentives that could reduce the interest rate. There is a lot of fine print if you are applying for forbearance or deferment—make sure you read all the terms and conditions.

Be sure to check with your new employer to see if they have a plan to help you pay off your student debt. If your company offers assistance with student loan payoff, take advantage of it!

To help you with a financial roadmap, check out the Compass Money Map on Compasscatholic.org/Resources. The map lists 7 destinations and each destination has several steps. Complete the steps in each destination in order and you will build an organized financial plan.

The map shows that student loan debt is considered Consumer Debt in Destination 3 and it should be paid off prior to saving or investing. Different financial gurus will give you different answers about when you should start investing. All of their answers hinge on interest rates—both the interest you are paying on all your loans and the interest you are earning on your potential investments.

Many will say that if the interest rate on the loan is below 4% and you expect to earn 6%-8% on your investments you should start investing. But if the interest rate on your student loan is high—above 6% you should focus on paying off your student loans before investing.

One thing to consider about saving and investing is company matching investment programs. Many employers will offer to match 1%-5% to the amount you invest in the company 401k. This is free money and you should definitely take advantage of it.

A note of caution—some company matching programs restrict their contribution to shares of company stock. This isn’t bad, but pay attention to the diversification of the money you are investing. If possible, your company stock should be less than 5% of the total you have invested.

Also, keep in mind the difference between saving and investing. Saving means putting money in a savings account—drawing very low interest and almost no growth, but having the money readily available to use at any point in time. Investing is more long term. It’s money you will put away and ignore because you won’t need it for many years.

Last, but certainly not least, seek godly counsel when making financial decisions. Your parents and grandparents have a lifetime of experience and whether or not they fully understand your lifestyle, they can offer advice. They know you best and love you the most.

In the Bible, Sirach 32:15 says, “Do nothing without counsel, and then you need have no regrets.” So take advantage of the years of wisdom and life experience your parents and grandparents would love to offer.

Listen to the Manage Your Money God’s Way podcast for additional thoughts about how to tackle finances when you graduate from college.