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.

Money Saving Ideas

Some people think in order to save money it has to be some BIG amount. Other people think it’s better to save a little bit here and there. We think it’s BOTH. It’s important to save in a big way like a bonus or a raise and it’s also important to save on the little things—where money just leaks through your fingers.

Here are some ways to keep your money instead of wasting it:

Initiate a fiscal fast. Try not to spend any money for a few days or even a week. Or eliminate certain purchases altogether, such as paper towels and disinfectant wipes. 

Avoid bank fees. Look for a bank that offers free accounts. Don’t overdraft your account. If you overdraft once a month, the average fee of $35 adds up to $420 in a year. Stick to your bank’s ATM instead of wasting two or three dollars per transaction at an out of network ATM.

Make a budget and stick to it. Track where you are spending and what you are spending on. Everyone we know who has done this has found areas where they were wasting money. Avoid places where you know you’ll be tempted to buy things you don’t need.

Save on food by packing a lunch. Meals from the drive-thru are bad for your bank account and probably your health.

According to a Harvard Law and National Resources report, Americans throw away 40 percent of the food they buy because of misleading expiration dates that have nothing to do with food safety. Just because the date comes up does not mean the food is immediately unsafe to eat. Try arranging your pantry according to the expiration date to avoid waste.

Instead of buying prepackaged food, do it yourself. You can easily make your own tomato sauce, jam, dessert toppings and spice mixtures. Avoid the fancy coffee by googling a recipe to make your own.

Comparison shop by creating a spreadsheet of items you buy regularly—weekly or at least monthly. Then check out several local stores and write down the prices.  Monitor the sales brochures at each store and you’ll know what is considered a ‘good’ price versus a really great sale price. After a few months you will also know the rotation of when various items go on sale.

Forage for dinner once a week. Look in the freezer and pantry to use items that will soon expire. You can also have breakfast for dinner. Eggs are an incredibly cheap source of protein, and there’s no reason to restrict them to breakfast.

Drink more water and less soda or juice. Water is a healthier and cheaper alternative to any other drink. Avoid the bottled water—most of it is from a municipal source, which is probably every bit as safe as the water from your tap. And all those plastic bottles are so harmful to our beautiful planet.

Control your entertainment budget by spending cash. Put the amount you have allocated for entertainment in an envelope and spend the cash for entertainment activities. When the envelope is empty, there’s no more entertainment spending.

Proactively search for ways to reduce the costs for kids’ activities.  Split the cost of private swim lessons with a friend. Carpool to soccer games with other families to save on gas. Look for ways to work for organizations in exchange for reduced or free enrollment.

Involve like-minded friends in your money saving efforts. Babysit for your friends and have them return the favor in the future. Learn how to barter. Maybe you sew or can edit resumes in return for some other service for which you’d typically have to shell out money.

Don’t overspend on kid’s clothing. On average, a child only requires three to four nice pairs of pants and five to six shirts. Buy used clothes whenever possible, especially when kids are young and grow out of clothes so quickly. Gratefully accept hand-me-downs or shop at consignment shops or Goodwill.

Buy clothing that is versatile throughout the year. T-shirts can be worn on their own or over long-sleeved shirts. Skirts can be worn on their own or over warm leggings.

Create a clothes swap with your mom’s group at church. Everyone donates professional maternity clothes or baby items when they’re done having kids, and anyone can take from the inventory.  It saves a lot of money, and provides a great outreach to new moms in your parish.

Beware of energy vampires. Home electronics in “standby” mode use energy to power features like clock displays even when they’re turned off. Plug electronics into a power strip. Turn off the strip when not in use to save. Many chargers drain power continuously, even when the device is not plugged in, so unplug the chargers when they are not in use.

Keep your thermostat low in winter and high in summer. Adjust it even more when you are away from home for an extended period.

Use vinegar creatively. The cleaning strength vinegar has a multitude of uses. Use a shallow bowl filled with vinegar to absorb cooking smells in the kitchen. If you need to clean your drains, pour about ½ cup baking soda into the drain, the follow with a cut of HOT vinegar. Let is sit for 15 minutes, then flush with hot water. Use vinegar in the yard as a week killer.  Mix 1 gallon of vinegar with one cup of salt and spray on weeds to kill them safely. Check out VinegarTips.com for 1,001 uses for vinegar.

I hope that some of these tips will be of use to you and if you think of other money savings tips, send them to us Info@compasscatholic.org

Saving money saving is a good way to live by the verse we find in Proverbs 21:20: “Precious treasure remains in the house of the wise, but the fool consumes it.” Use these money saving ideas to KEEP your precious, hard earned money!

The Manage Your Money God’s Way podcast has more money saving ideas.

How Much Do I Have to Give?

When most people think about the church and giving the first thing that pops into their minds is “How much do I have to give?” Maybe that thought has also crossed your mind.

The answer is that you don’t have to give anything. In their pastoral letter on stewardship (“Stewardship – A Disciple’s Response”) the United States Conference of Catholic Bishops said we don’t HAVE to give anything. As a steward of God’s blessings, we are free to give as much as we want. The whole question of giving shouldn’t revolve around the “minimum” gift but on the “maximum” gift.

Before the Old Testament law, there were two instances of giving a known amount. In Genesis 14:20, Abraham gave 10 percent—a tithe—after the rescue of his nephew, Lot. In Genesis 28:22, Jacob promised to give the Lord a tenth of all his possessions if God brought him safely through his journey. With the law came the requirement of the tithe (10%)

The tithe is systematic and the amount is easy to compute. The danger of a tithe is that it can be treated as simply another bill to be paid. And we may assume that once we have tithed, we have fulfilled all our obligations to give.

The tithe should be the beginning of giving, not the limit. Both the Old and New Testaments teach that we are to give in proportion to the material blessing we have received.

Tobit 4:7-9 says “Give alms from your possessions. If you have great wealth, give alms out of your abundance; if you have but little, distribute even some of that. But do not hesitate to give alms.”

We are also called to give out of a heart filled with love. In Matthew 23:23, the Pharisees were reprimanded for being so precise in their tithe that they gave even the smallest mint leaf, but they did not give with a heart of love.  “How terrible for you, teachers of the Law and Pharisees! You hypocrites! You give to God one-tenth even of the seasoning herbs, such as mint, dill, and cumin, but you neglect to obey the really important teachings of the Law, such as justice and mercy and honesty.”

It is not the amount that matters it’s the attitude, and only God knows our attitude. When we give during the offertory at Mass, we are giving to the Lord himself, which is always an act of worship, and a way to express love and gratitude to our Creator.

In 2 Corinthians 9:7, we read “Each must do as already determined, without sadness or compulsion, for God loves a cheerful giver.” The original Greek word for cheerful is hilarios, which is translated into the English word hilarious. With love in our hearts, we are to be joyful givers. Do the people in the pews around you at Mass seem joyful?

One of the ways to change your attitude about giving is to create a plan. If you are like most people you don’t have a plan for giving, which can make you feel overwhelmed and frustrated by never-ending requests.

The first thing you want to understand is your passions—the poor, the unborn, the homeless, the hungry. There are an unlimited number of causes that can benefit from your support. Start by defining those causes that move your heart.

The second thing to consider is your innate gifts. Generosity isn’t only about money, it is also about the time and talents you can offer.

Do you get an emotional high through interactions with others? Volunteer to work in the parish office, or facilitate a Bible study. Do you love kids? Volunteer to teach religious education or take care of the little ones in the parish nursery.

When you match your passion, your innate gifts, your time and treasure with a ministry you are passionate about, you have a giving plan that makes generosity easy and fulfilling. When you focus on a well-defined plan, your generosity has clarity and meaning. It is easy to be generous when your heart is involved and much easier to say “no” without guilt when asked to help with cuses that are not in your plan.

In John 3:16 we read the familiar phrase “For God loved the world so much that he gave his only Son.” Note the sequence. Because God loved, he gave. Because God is love, he is also a giver. Generosity without an attitude of love provides no benefit to the giver or the receiver. Stop and examine yourself. What is your attitude toward giving?

People often ask us about our giving plan. In our case, giving to our parish is a priority as a tangible expression of our commitment to it. We also give to other organizations which have had a direct impact us or those charities for which we feel a passion, which are usually focused on spreading our Catholic faith.

We rarely give to secular organizations. Even though many people support secular charities, Catholics are usually the only ones supporting charities that are focused on spreading our Catholic faith.

We also support charities that help the poor. Matthew 25:34-45 teaches one of the most exciting and yet sobering truths in the Bible. Read this passage carefully.  “The King will say . . . ‘For I was hungry and you gave Me food; I was thirsty, and you gave Me drink.’ . . . Then the righteous will answer him, ‘Lord, when did we see you hungry, and feed you, or thirsty, and give you drink?’ . . . The king will and say to them . . . ‘Amen, I say to you, whatever you did to these least brothers of Mine, , you did it for Me.’ ”

Jesus, the creator of all things, personally identifies himself with the poor. When we share with the needy, we are actually sharing with Jesus himself. When we do not give to the poor, we leave Christ himself hungry and thirsty.

Saint Teresa of Calcutta (Mother Teresa) is one of the best examples in our time of serving the poor in a loving, compassionate way. She once said, “When a poor person dies of hunger, it has not happened because God didn’t take care of him or her. It has happened because neither you nor I wanted to give that person what he or she needed.”

As you develop a giving plan, consider your passions, your talents and your attitude along with the amount, and give from your heart.

The Manage Your Money God’s Way podcast has more on giving.

What Your Graduate Needs to Know About Money

One of the things we hear most often from people who take the Navigating Your Finances God’s Way Bible Study is; “I wish I had learned this earlier.” 

If your child is a high school or college senior, or between high school and the next step in life–either college, trade school, or a job, and if you haven’t done a good job teaching them about money, you may want to talk to them about the following to prevent some serious money mistakes in their future.

The first lesson is our role is to be a good steward of the blessings God has given to us. Once kids get this, the rest of the lessons fall into place. Unfortunately, most adults don’t understand (or live by) this premise.

The second lesson is if you don’t have the money you can’t buy it, which seems to go against everything in our society. Our consumer culture encourages people to go into debt to get what they want, which they do not necessarily need.

The third lesson is the difference between wants and needs. Needs are anything that is necessary to sustain life–food, clothing, and shelter. Wants are anything over and above basic needs. But think about how many times you hear someone (teen or adult) saying “I need to get the new phone.”  But, is an upgraded phone a basic necessity required to sustain life?

Lesson number four is the cost of debt. People waste money paying interest on credit cards, not understanding what those “easy monthly payments” really mean over many years. Basic behavior modification means teaching them the danger of using credit cards to fund a lifestyle they can’t afford.

The fifth lesson is that their financial success is not about how much money they earn, it’s about how well they manage what they earn. Discipline is the key to financial success and bad money habits are hard to break. As their income rises over time, teach them to maintain the same lifestyle. An increase in income can lead to a lifestyle increase, which means more expenses, and before they know it, they are in a revolving door that is hard to escape.

Number six is to help them define their budget based on less than their income. Budgeting has a negative connotation, but a good budget is simply a way to be sure their money is spent on what is most important to them. Spending less than they earn means money is available to save.

Setting short and long term goals is another major factor in financial success. Weekly, monthly and yearly financial goals, lead to financial success. Undefined goals will never be achieved.

A major financial goal is saving at least 10% of their income before spending on anything else. That 10% leads to the magic of compound interest. Money invested earns a return, the next year the original investment, as well as the earnings, are earning an additional return. Time is as important as the amount of money when it comes to compounding. Compound interest works FOR savers and compound interest works AGAINST debtors.

The fancy coffee on the way to work is only $5, so nobody thinks about it.  What they miss is that $5 every day is $25 a week. Over the course of a year, that adds up to a whopping $1,300. Comparing $1,300 to their yearly income is a lot different than looking at a measly $5 daily purchase.

Going off to college means the offer of thousands, if not hundreds of thousands of dollars in student loans. Typically, students understand about 2% of what they should understand about student loans. Encourage them to take out the least amount of debt in order to complete their degree on time, and help them understand how their field of study will affect their ability to repay the loans.

Avoiding debt goes beyond student loans. Somebody will always be willing to loan them money for a car, a couch, a computer, a ring, a wedding, a vacation, a cat or anything else which might tickle their fancy. Saving for a purchase almost always makes more sense than borrowing, especially on lower-price items.

And the last lesson is for them to pay attention to their credit score. If they have good financial habits, the credit score and report will take care of itself. But there is always the possibility of a mistake or stolen identity. Encourage them to get a free credit report from each of the reporting agencies once a year.

The above ideas are more about behavior and attitude than about the amount of money they make.

Financial sense is as much psychology as math. There is a verse from Proverbs 21:20 which sums up the thought behind managing money wisely: “Precious treasure remains in the house of the wise, but the fool consumes it.”

The Manage Your Money God’s Way podcast has more on how to encourage your graduate (or senior) to become wise about how they give, spend, save and manage money.

A Cost Cutting Mindset

Are you trying to make ends meet, save for an emergency fund, plan for retirement, pay off debt or cut expenses? All of these goals may mean changes in your behavior and when you are trying to change behavior one of the most important things you can do it to pray. For most people praying is the last thing they would think about doing. But praying gives you a sense of meaning and purpose you just can’t get any other way.

Matthew, Chapter 7:7-11, is titled The Answer to Prayers. “Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. For everyone who asks, receives; and the one who seeks, finds; and to the one who knocks, the door will be opened.”

Start your cost-cutting mindset with prayer and continue to ask for help as you move forward.

Waiting 90 days to decide on a large purchase is an excellent way to avoid instant gratification. Use a wishlist and write down the item you want to buy. Get 3 prices and wait 90 days. After 90 days if you still want that item and the money is in your budget, buy it.

Usually, one of two things happens. You decide you really don’t want or need that item or there is something else want more. When that happens, cross off the first item, put the second item on the list, get three prices, and wait 90 days. After 90 days if you still want it and the money is in your budget, buy it. Waiting gives you a better perspective on whether it’s truly worth the money.

The 10-second rule is another way to avoid impulse purchases on small everyday items. Whenever you pick up an item to add to your cart, stop for 10 seconds and ask yourself why you’re buying it. Think about whether you actually need it or not. If you can’t find a good answer, put the item back. This practice will keep you from making small impulse buys.

Spend time not money entertaining your children. Most children, especially young ones, can be entertained inexpensively. Play ball in the backyard. Head to the park. Take a walk. Read a story. Play a game. What your children want most of all is your time. You’ll find money in your pocket and joy in your heart when you give them time, not money.

Words can make us change the way we think. “I need” is one of those terms. Do you need it, or do you want it? Discerning the difference between needs and wants is a huge step in controlling money. Spending is not bad, just be clear on the difference between needs and wants.

“I saved” is another of those terms. When we buy something on sale and avoid paying full price, we usually say we saved $xx.00. But unless that money actually went into your savings account, you really did not save it, you avoided spending it. So, when you talk, be sure to note the difference between not spending money and actually saving money

It is so easy to use the words “my” and “mine” when referring to the stuff in our possession. When you say “my car” there is a sense of your personal self-worth tied to that car. So instead say “the car,” not “my car.” Changing the words, you use acknowledges psychologically that the car is an item and it is not tied to you personally.

It’s almost impossible to rent a car, get a hotel room or make online purchases without a credit card. The key to keeping credit card spending under control is to make the cards hard to access. Hide your credit cards in a safe place in your home, don’t keep them in your wallet. Or freeze them in a block of ice.

It’s easy to spend online when you have your card information stored in an account–just click and buy. The best way to break this habit is to simply delete your card from the online account so it takes time and effort to enter the credit card information.

Simply having a plan goes a long way toward taking action and paying off debts early is one of the surest ways to put money in your pocket over the long run. Make a giant progress bar that starts with the amount of debt you have and ends with zero. Keep this reminder in a place where you’ll see it often. Each time you pay down a little bit, fill in a little more of that progress bar. It can help keep your eye on the goal and is a good way to involve the family in the effort to pay down debt. 

Take a different route to work, which is powerful if you “automatically” stop to buy something on your commute. Select a different route that doesn’t go by the temptation, even if the new route is a bit longer. The money you save on any unnecessary indulgences will add up over time.

Exercise more. Go for a walk or a jog each evening, practice stretching, or do light muscle exercise at home, which can lead to huge health benefits. Your body and wallet will thank you.

Don’t beat yourself up when you make a mistake. Even if you make ten good choices, it’s easy to beat yourself up and feel like a failure over one bad choice. Learn to see past mistakes for what they are–lessons that were meant to teach you something. Sometimes the best life lessons are learned through life experience, good or bad, so embrace your past and don’t run from it.  Promising to do better and setting goals can help keep mistakes where they belong–in the past.

Ask for help and encouragement from your inner circle. When you’re feeling discouraged, sit down and talk to the people you love and care about the most and ask them for help. Tell them that you’re trying to trim your spending and you’d love it if they would offer suggestions and support.

They might have some personal insights for you, and at the very least, the discussion will help them understand your situation better. Remember that there are a lot of people out there fighting the same fight.

Find a Bible verse to support your goal.  There are so many Bible verses that apply to day-to-day life and using one to inspire and motivate you not only helps you reach your goal; it also helps you live your faith on a daily basis. Go to the American Bible Society website search and type in a key word to find your inspiration verse.

And remember to wrap all your good intentions in prayer. Pray for wisdom, for strength for guidance and for perseverance.

The Manage Your Money God’s Way podcast has more on how to change your mindset.

Debt Payoff Plans

Paying off debt is a lot like going a diet. There are many ways to do it and some seem simple and easy like skipping meals; fad food diets; replacing meals with shakes or bars. The list could go on and on.

The best way to lose weight and keep it off permanently is to change your lifestyle by eating a balanced diet and exercising, but that takes discipline. Which is why so many people tend to ignore the hard stuff and look for the fast easy fix.

The same concept applies to paying off debt. There are many fast easy ways to get out of debt, but not all of them work and many of them are unhealthy for your financial future.

So with that said, let’s talk about some debt payoff strategies that sound like a quick fix, but they may not be in your best interest.

Debt Consolidation is a loan to pay off all your debts. Sounds good on the surface, but the only thing you are doing is trading one debt for another. If you are not disciplined and managing your money smartly, you’re simply moving debt from one place to another. The worst part is that you feel good because now instead of making eight payments to different credit card companies, you only make one payment which often leads to running up additional debt on the credit cards.

The other danger is that you have given a debt consolidator control over your debt payments and your financial future. If you ever use a debt consolidator, you need to retain the responsibility to monitor what they are doing by keeping up with the payments they’re making on your behalf.

Home Equity Loans are another option that seems like an easy fix. The equity in your home appears to be available money. If your house is worth $200,000 and you owe $150,000 on your mortgage, you may think you have $50,000 available for debt payoff. But if you run into financial trouble in the future and can’t make the equity loan payments, you may be at risk of losing your home.

Related to the home equity line of credit, selling your house may be a good idea. If you have too much house and the upkeep and maintenance are costing a bundle, you may be better off with a smaller home. Do the math. What is the cost of buying and selling? What percentage of your income is spent on your current house and what percentage do you estimate will be spent on the new house? Once you do the math, it may make more sense to stay put, buckle down and get serious about paying off the debt or selling and downsizing may be your best option.

Taking out a 401(k) loan is another perceived easy fix as it sounds like you are borrowing your own money. But look deeper. An early withdrawal from your retirement account (any withdrawal before age 59 ½ is considered early) means paying a 10% penalty plus income taxes on the withdrawal. If take a $30,000, the penalty will be $3,000. Taxes at your current income tax rate—say 28%—means the government will keep another $8,400.

This leaves you with just $18,600…. NOT $30,000 for debt payments. You actually wasted $11,400 in taxes and penalties. If you are 30 years away from retirement the future value of that $11,400 in your 401(k) at 7% is $86,799.  Taking money out of your 401K is borrowing from your future and wasting money in penalties and taxes. 

If you have a healthy emergency fund, it may be tempting to use that money to pay off debt. But don’t do it! As soon as that emergency fund is empty, emergencies pop up. The car needs a new transmission. There’s an insurance claim with a big deductible you have to pay. There’s a layoff at work. Avoid draining your emergency fund even if you’re doing something positive like paying off debt.

We all get frustrated with our jobs and you may decide to start your own business to control your own destiny. When that thought occurs, be careful. Typically, two-thirds of new businesses fail within 10 years. You may need a huge investment to get started. And where will the money come from to cover daily living expenses until your business becomes profitable? If you take out a loan to get started and do not make enough money to support yourself, you’ll be digging that debt hole deeper. (We’ve done this and it was a disaster!)

Scattering a little bit of extra money on all the loans may seem like you are making every effort to pay off debt, but it won’t get you very far very fast, and the lack of progress can be depressing. Instead of scattering a little bit of money in all directions, concentrate on paying off the smallest debt first.

Use any and all extra cash on the smallest debt and make the minimum payment on the others. As you knock out the smallest one, apply what you were paying on the smallest to the next smallest.

This method is known as the debt snowball, and according to the Harvard Business Review, it’s the most effective way to pay off debt. Their study found that people’s perception of debt pay off progress was not based on a dollar value, but rather on the portion of the balance they succeed in paying off. So paying off a $500 loan completely was more motivating that paying $750 on a variety of loans. This aligns with other research on the power of small wins to keep people motivated.

Playing the lottery in hopes of winning may be fun to think about, but it is never a viable solution. The odds of winning either the Powerball or Mega Millions are roughly the same: 175 million to one. Despite those odds, one-third of Americans believe that winning the lottery is the only way they will ever retire. Money you use to play to the lottery could just as easily be flushed down the drain to achieve the same results. Lotteries thrive by building a sense of false hope.

Instead of looking for the fast, easy fix, use a budget and work hard to pay off debt with a plan. It is the best way to succeed.

We have seen many people pay off enormous amounts of debt when they add prayer along with doing their part in making the necessary lifestyle changes. God hears our prayers, but we have free will to act or not.

If all you’re doing is praying and not taking responsibility in action, that debt is going to hang around forever! Instead of praying and then doing absolutely nothing to improve your financial situation, do both! It definitely works—we have lived it!

Tune into our podcast for more info about various plans to pay off debt.

10 Easy Steps to Improve Your Monthly Budget

It’s easy to think that one day we will have enough money. We’ll be satisfied, happy and content. But that one day will never arrive if we never make it happen. And today is the day to start.

What can you do TODAY to set yourself up for financial success? We have 10 tips to help you on that journey. The first few are very practical tips and the last several are mindset issues.

(1) Track Your Spending

It all begins with knowing where your money is going. Unless you’re tracking how much you’re spending and what you’re spending it on, you have no idea if your money is being allocated to the things that are most important to you.

Anyone who has done this has been surprised. And they weren’t surprised to find that they were overspending by $10 dollars a month, what they found was they were overspending by $50-$60 dollars a week on some things!

One person thought they spent $50 a month on lunch. By tracking their spending, they discovered that lunch was actually costing $200 a month. When they looked at the facts, they made a decision that other things were a higher financial priority than a restaurant lunch.

(2) Review your payments

The second way to improve your finances is to look at your monthly payments and figure out if the costs of standard items have escalate each year (like cell phones, cable, yard services, etc.) The impact of small increases over a long period of time can add up if you aren’t paying attention.

(3) Look at your PMI

You may be wasting money paying private mortgage insurance (PMI.) PMI insurance is required if you have less than 20% equity in your home. If your house is worth $100K and your mortgage is $95K you only have 5% equity and you have to pay PMI. If your house is worth $100K and your mortgage is $75K you have 25% equity.

If your original equity was less than 20%, and you have owned the house for several years, you may want to check out what your home is worth now, and how much equity you currently have. If your equity is more than 20% you may be able to negotiate with your mortgage lender to eliminate PMI.  Or it may be time to refinance your mortgage completely, especially if refinancing means you’ll have 20%+ equity, no PMI, a lower interest rate and be able to pay off your mortgage faster.

(4) Earn More

Another good way to improve your monthly cash flow is to make more money, which is easier said than done.  If you are due for a raise, ask for it. Document the reasons you deserve a raise and be sure they are well defined. Make an appointment with your boss to present those reasons in a polite, professional manner. If getting a raise is impossible, maybe you can get a part time job or turn a hobby into a money maker.

(5) Analyze Car Insurance Costs

Look at the latest invoice from your current insurance company then get a few quotes from other auto insurers for the same coverage. Once you have some facts and figures, give your agent a call and discuss the difference between your current rates and the quotes. Most of the time, your current insurer will match the competitor’s price, but if not, change insurers.

(6) Understand the Difference Between Wants and Needs

Understanding the difference between wants and needs is an easy money saver. Every advertisement we see is telling us that we NEED what they are selling. All we really need is food, clothing and shelter.

(7) Question Every Purchase

The way to discern between wants and needs is to question every single purchase. This helps you make fact based buying decisions and eliminates spontaneous purchases. It doesn’t mean you can’t spend money.  It just means that when you do spend money you are making a conscious, responsible decision.

(8) Set Your Priorities

By knowing the difference between needs and wants, you can be sure you have the money to meet your needs and also figure out which of your wants have the highest priority.

You must focus on what is most important to you in order to have any hope of improving your finances. Would you rather eat lunch at a restaurant, or is your dream to retire early?

(9) Stop Shopping for Entertainment

Shopping as a form of entertainment is definitely a money waster. We were working with a couple who said “Every time we go to the mall, we spend $100.” The easy answer to that is “Quit going to the mall!” If you are shopping as a form of entertainment, you are certainly going to find things to buy, whether or not you need them.

(10) Don’t Compare Yourself to Others

Does envy tempt you to over spend? Comparing yourself to others can be a form of jealously, which is one of the works of the flesh that we are warned about in Galatians 5:19-21. When a friend buys a new car, goes on a luxury vacation, has the latest fashion or beautiful jewelry we can feel envious. It’s tempting to go out and buy the same thing. And that may make us happy for a few hours or a few days. But if we waste money and can’t reach important goals, sooner or later we’ll regret it. Instead of feeling envious, be happy for your friend and focus your thoughts and actions on your own goals and dreams.

People think a budget is all about being deprived. Our experience is that a budget is all about being focused. The success of budgeting comes from cutting away things you barely notice and diverting that money to something that has a higher priority in your life.

If you are trying to improve your monthly budget, start today. You may have some detouring, back tracking and restarting but if you never begin the journey you will never make any progress.

As the Nike ad states, “Just do it!”

Listen to our podcast for more on this topic.

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.