Heal Financial Infidelity

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

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

Signs of financial dishonesty may be:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Benefits of Using a Financial Planner – Part 2

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

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

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

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

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

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

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

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

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

J. P. Morgan Guide to Retirement

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

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

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

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

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

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

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

Listen to the podcast here. 

The Benefits of Using Financial Planner: Part 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Keep your Old Car or Replace it?

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

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

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

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

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

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

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

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

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

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

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

All these are reasons to move on.

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

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

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

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

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

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

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

The Compass Catholic Podcast offers more on this topic.

5 Tips for First Time Home Buyers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Compass Catholic Podcast offers more on this topic.

Use a Sinking Fund to Stay Afloat

Being proactive is a quality of the most highly successful people, especially when it comes to handling money. 

One of the ways to get ahead of the financial curve is to use sinking funds. A sinking fund is money that you choose to collect with a specific purpose in mind. Sinking funds are the best way to save money for a specific item that you know is going to happen quarterly, bi-annually, yearly or even a few years down the road.

Sinking funds are similar to the escrow account that is part of your mortgage. Each of your mortgage payments goes in 3 directions. One third pays down the principle amount of your loan. One third pays the interest on your loan. And the third part goes to escrow, which is money set aside to pay for your property taxes and insurance, which are usually due once a year.

The term “sinking funds” is a misnomer. They should be called “floating funds” as they keep you from sinking into debt. When it comes to personal finances, sinking funds offer a great way to plan for your future and make sure you reach the goals you’ve set. By setting the money aside before you need it, you will avoid using your emergency fund or running up credit card debt.

The sinking funds should be in liquid accounts; a high-interest money market account would be ideal. The type of account you use also depends on how far into the future you will be using it. If you are saving to buy a house in 5 years, you may want to use longer-term CD’s or an online savings account that offer a higher interest rate than your local bank does.

Sinking funds are different from your saving and investment accounts. Those are working to build wealth, and as your savings grow, it will eventually begin to work for you. This is not money that you want to dip into for short term spending.

A sinking fund is money you plan to spend with a specific goal in mind. For example, if you know you are going to have to replace your roof in 4 years, you can start saving now so you have the money saved when you need it in 4 years.

As you get better at budgeting and are more aware of where every penny is going, you can recognize areas where a sinking fund would be appropriate. Without a budget (or spending plan) it’s very hard to figure out where to use a sinking fund or how to get the money to set aside.

When you set up your sinking funds,  decide on how much you need in each category, then divide that amount by the number of months you have until you make the purchase. Save the money until you reach your goal.

Christmas always seems to be really far away, until it isn’t. January and February when all the Christmas bills start rolling in can be one of the most stressful times of the year financially for many people. Starting a sinking fund for Christmas presents is a great way to avoid the post-holiday credit card blues, and save yourself a ton of money in interest. Using cash for Christmas also helps you control spending.

Let’s say the average amount you spend for Christmas is $500. In January, create a sinking fund for Christmas and save @ $42/month. In December, you’ll have $500 to pay for Christmas expenses without going into credit card debt.  As a bonus, you get to earn a bit of interest on this money as well.

The nice thing about sinking funds is once you hit your goal, you can stop saving for that particular item. For example, if you need $1,000 in your technology fund to replace your laptop and you hit that $1,000 mark, you can stop saving for the laptop.

If you own a home, there’s always something that needs to be done. You may want to add more insulation, paint the inside or outside, add a deck, or remodel a bathroom. If you are like us, there’s always a wish list of things we want to do to the house. A sinking fund helps us get ready to do those things with no negative impact to our budget.

We highly recommend setting up a sinking fund for a yearly family vacation, including travel, meals, and attractions.

Another great example of a sinking fund is back to school shopping. The kids need new pants, shirts, socks underwear and shoes. If you live up North they may also need coats, hats, boots, and gloves. Then there are all the “must buy” lists that the teachers send home. Most of those lists have a long inventory of things for each child to bring to school

And there are additional school-related expenses for extra-curricular activities like band or field trips. A back to school sinking fund is a great way to keep all that school spending from breaking the bank.

The comprehensive list of every sinking fund you’ll ever need depends on your personal circumstances. One person may want to save for the vacation of a lifetime and someone else may just want enough cash to pay for Christmas.

If you haven’t been managing your money it will be a slow start because you can’t start putting money aside for Christmas and back to school and vacation and home renovations all at the same time. You’ll have to start slowly and build each sinking fund from the ground up.

Sinking funds are an excellent way to be a good steward of God’s money as they will move you from a reactive to a proactive position with your finances. You’ll be able to see the light at the end of the tunnel as you avoid future debt. Once you start using this method, success becomes easier and easier.

The Compass Catholic Podcast offers more on this topic.

Don’t Take Out a Loan for Vacation

If you are recovering from 3-4 long, long months of cold, snow, ice and wind you may be starting to dream about summer vacation in a nice warm climate.

Vacations are great and time away from work, but don’t get so carried away with vacation dreams that you take out a loan to pay for your vacation.

Maybe taking out a loan and paying for vacation in installments sounds like a good idea. But let’s get realistic, a loan is a loan is a loan, and loans create debt.

Some vacation loans advertise that they will not charge interest, but believe me the company making the loan is not giving you money for free and whatever fee they charge is included in the amount you are paying.

Think about this. You decide to take a great vacation in the summer of 2019 and in order to pay for it, you take out a personal loan for $5,000. Your interest rate is 10.5% APR and that means you will be paying a $160 monthly payment for three years. In 2022 do you really want to still be paying for a vacation you took in 2019?

Probably not.

Using a loan to pay for unnecessary expenses, like vacations is one step down a slippery slope of financial decisions that can have a negative impact on your financial future.

To avoid vacation debt, get the family involved in planning for a vacation that everyone will enjoy and one which is within your budget. So many people keep their kids shielded from financial realities which does not teach them anything about wise money management.

Vacation planning is a great way to teach the kids about setting goals and working to achieve them. Even if your summer plans are a staycation, there is some level of spending involved.  Engage the kids by setting up a chart on the fridge showing how much the family needs to save in order to reach your vacation goal. Create one of those thermometers that non-profit organizations use for fundraising goals. This teaches the kids a lot about delayed gratification, making and reaching goals and financial stewardship, which are all good things for them to learn—the earlier the better.

Along with getting the family involved, take a hard look at the family spending. As you dig deeply into spending, you may discover unnecessary purchases of as much as $100 – $200 a month that could be easily saved for a vacation.

A restaurant meal at lunch every day is about $10 a day; $50/week; $200/month and $1,200 over a year’s time. By analyzing the money you are spending on lunch, you may be able to redirect money to areas that are more important to you, such as vacation.

In addition to saving in advance for the vacation, make a budget for the spending you’ll do on vacation. This will help maximize your money.

Be flexible with your vacation destination. Websites like The Flight Deal and Air Fare Watchdog post daily flight deals from major U.S. cities to both domestic and international locations. Many of the airlines will also post flight sales and deals on their own websites.  If you’re not tied to visiting a particular place, you can score a great deal on a flight. Many of these deals will come with restrictions—you may only be able to fly on certain days of the week or between certain dates. However, for flexible vacationers, this can be a great way to save a ton of money on airfare.

It also helps to explore options for accommodations. Staying in one place may be convenient, but changing the place you stay may result in big savings. Hotels in some big cities, such as Washington DC revolve around business trips on weekdays, leaving weekends open for tourists. At the same time, the weekends are more expensive in tourist-heavy destinations; so hotels may give you a better rate if you check in on a weekday rather than a weekend.

You’ll also need to budget for any tours, entrance fees or other money spent on visiting sights, museums and landmarks. Consider stuffing your itinerary with famous and free attractions. Many museums, like New York’s Guggenheim and American Museum of Natural History, offer free hours every week or are donation-based. Skip paying for a guided tour by downloading maps to your phone and researching attractions as you plan.

Souvenirs are an extra line item in your budget. We highly encourage you to help the kids save an amount they can spend on souvenirs. This is teaching them how to manage money and eliminates the whining that comes when they want you to but every trinket they see in every location you visit.

Restaurant meals suck in vast amounts of your time and money. For road trips, prepare coolers full of food and drinks to avoid fast food on the road. Food from home comes in handy at theme parks, where a small bite can cost as much as a full meal—be sure to check if the park allows you to bring a picnic.

For bigger trips, visit local markets for snacks instead of eating out every time you get a little hungry. Eat cheaply most of the time so you can splurge where it’s really important.

Get around like a local by using public transportation if you can, especially in big cities. Research your options to see if there’s a transit stop between where you are staying and where you are going. And while you’re at it, figure out the transit system’s peak times so you can avoid the stress of rush hour.

Keep the whole family involved in the planning so they will be much less likely to complain about cutting back. If they are involved and if they see a visual reminder of saving for vacation it will bring the family together in unity.

We all need time away from our day to day work. Even God rested on the 7th day when he completed the work of creating the world.

Saving up for a big trip isn’t easy, but these strategies should help you save a little bit faster and have your trip already paid for before you leave home. 

Planning ahead will help you have a debt-free vacation and return home debt free so you can keep that vacation feeling alive!

The Compass Catholic Podcast offers more on this topic.

Five Ways to Give Yourself a Raise

If you are like most people, it often seems that the money going out each month exceeds the amount of money coming in. Sometimes even the basic necessities appear to be out of reach. Saving for an emergency fund is impossible. And heaven forbid that someone gets sick or hurt and needs medical care.

Today we want to look at several ideas to increase the amount of money available to you.

The starting point is the taxes on your income. Examine your tax return. How much money are you going to get back from the IRS? If you are getting more than a few hundred dollars back, review your W-4 worksheet. You can get one from your HR department or google W4 Worksheet and download a copy. You may be able to claim a few more exemptions to maximize the amount of money in your take home pay with every pay check.

Focus on getting your tax refund or tax due to be as close to $0.00 as possible. Use the examples on the W-4 worksheet and compare them to the exemptions you claimed last year, then modify this year’s exemptions based on what happened last year.

The ultimate goal is to get as much as possible in your pay check without having to pay taxes at tax time next year. Under no circumstances should you be getting $1200 or $2400 or more back. If you are getting $2400 back this year, that means you could have received $200 more each month in your pay check. There is no sense in giving the government a loan and running up credit card debt because you are paying too much in taxes each month.

After examining your income, take a look at your car insurance. For many people, car insurance is a one and done. Once they obtain car insurance they tend to stick with the company, mostly because it’s easy. Let’s face it, shopping for car insurance is a pain, so once you have it you don’t want to go through that process again.

We recently read an article on the Penny Hoarder and they were talking about a service called Gabi, which will do the car insurance shopping for you. All you have to do is link your insurance account and provide your driver’s license number, and Gabi will scan your existing insurance plan, analyze your coverage, compare the major insurer’s rate for the same coverage and help you switch on the spot if you find a better rate.

They are making an apples-to-apples comparison so your coverage won’t decrease with a cheaper rate. They keep your information on file and continue to monitor costs and coverage to save you money in the future. The company claims that they find an average savings of $720 per year, which is about $60 per month savings!

We do not have any personal experience with this company, as we did our comparison shopping prior to finding it, but it sounds like a good idea to investigate further.

Another way to save money is to stay up to date with your Credit Score and Credit Report.

Is the information on your credit report accurate? An estimated 20-40% of credit reports have inaccurate information and if that inaccurate information is bad, your credit score could possibly be lower than it should be. The lower your credit score, the higher interest rates you will receive when you try to purchase anything by getting a loan. Cars, houses, renting an apartment, even your ability to get a new job can be impacted by a bad credit report and a low credit score.

Go to AnnualCreditReport.com to get a free copy of your credit report. If you find inaccurate information, follow the instructions to dispute it and get your information corrected.

Each of the three major nationwide consumer credit reporting companies— Equifax, Experian and TransUnion—are required by Federal law to give you a free credit report every 12 months if you ask for it. We recommend getting a report from one reporting company every four months so you can stay on top of your credit report information.

If you want more information on credit reports and credit scores check out our blog: Credit Scores & Real Life

Life Insurance is another potential place to cut spending. Suggested coverage is 10x your annual salary. The purpose for life insurance is to pay-off your outstanding debt and provide your loved ones with a source of income in the event of your death. Life insurance should not be used as an investment. There is a sound strategy in buying term insurance and creating a savings plan outside of the insurance through a program of mutual funds or other investment vehicles. The primary benefit to term insurance is that you can purchase much more coverage (sometimes as much as ten times more) than insurance with an investment opportunity attached. This is very important for families with children.

Term insurance typically comes in two forms and is the least expensive form of life insurance. In one form of Term insurance the premium increases each year while the benefit amount remains the same. This form normally has the lowest initial cost. The Second form of Term insurance is sometimes called Level Term and is probably the most common form being offered.  In this form, the premium and benefit remain the same for a specific number of years—10 years, 20 years, 30 years—and then the price will increase or the policy will lapse. If at a later date you decide that you need insurance again, you will have to qualify based on your health and your then current age.

Operating everything out of one bank account can make your finances muddy and contribute undue stress to your money management. To simplify, open a second account for a dedicated purpose.  Use an online account where there are no fees and the interest that the bank will pay you is usually much greater than your “brick and mortar“ bank. This is a way to ensure money is set aside for those items which only come up once a year (like Christmas or summer vacation) or each quarter (like car insurance or home owner association dues.)

The Compass Catholic Podcast offers more on this topic.

Should You Buy or Lease a Car?

When you need a vehicle, your two major choices are to buy or lease, but figuring out which is best is like trying to make your way through a thick forest in the dark of night. So, let’s dig into the good, the bad and the ugly for both leasing and buying.

When you lease an automobile, you do so for a specific period of time. Because leasing allows you to pay based on the vehicle’s depreciation for the time period you have it, you can generally expect to pay 60% of the vehicle’s purchase price within the time frame of your lease. This means your monthly lease payments are considerably less than if you decide to buy the same car new and get a three-year loan.

Since the typical lease is for 3 years, you are driving the car during its most trouble-free years. Many leased cars have warranties that make paying for maintenance zero-dollar or very low cost, which makes any problems easy to fix.

Leasing means you’ll get to experience the excitement that comes with driving a new car every two or three years so you are always driving the latest technology.

Cars are not an appreciating investment. By leasing, you don’t have to worry about fluctuations in the car’s trade-in value. At the end of the lease, just drop off the car at the dealer with no worry about trade in value or trying to sell the car yourself.

However, there are fees related to leasing in addition to the monthly lease cost, such as a down payment, lease initiation fee, security deposit, disposition fee, and documentation fees such as tax, tag, title registration and license. In most cases, you must purchase gap insurance to cover the total loss of the car through accident or theft. Gap insurance pays for the difference between the value of a car at the time it’s totaled or stolen and the balance of its lease. Standard auto insurance pays only what a car is worth at the time of a theft or accident.

If your lifestyle situation changes, it is harder to get out of a lease contract than it might be to sell a used vehicle. If you need to get out of a lease before it expires, you may be stuck with thousands of dollars in early termination fees and penalties—all due at once. Those charges could equal the amount of the lease for its entire term.

One of the biggest fees that leasers get hit with is going over their allotted mileage. You can only drive a set number of miles throughout your lease term. If you go over that limit, you’ll have to pay an excess mileage penalty, which can range from 10 cents to as much as 50 cents for every additional mile. If you are over the mileage limit by 10,000 miles, at $0.50/mile, you may have to pay as much as $5,000! There is no upside for driving fewer miles—you don’t get a credit for unused miles.

When leasing you need to return the car in showroom condition, minus usual wear and tear. If your car is a cafeteria on wheels with all the spills that entails, be prepared to pay extra at the end of the lease.

At the end of your lease, you have nothing—no transportation, no trade-in, nothing to sell. If you do decide to take on the responsibility of a lease, make sure you read ALL the fine print!

Buying a vehicle with a conventional car loan is pretty straightforward. You borrow money from a lending institution and make monthly payments for some number of years.  A chunk of each payment is interest, and the rest is principal. As you repay the principal, you build equity until—by the end of the loan—the car is all yours.

When you buy a car and finance it, your monthly payments go towards owning an asset. Once you have completed the terms of your financing agreement, the car or truck is yours to keep as long as you like.

If you are committed to driving your vehicle for an extended amount of time and have adequate car insurance coverage, you are unlikely to lose out financially, as long as you make a sufficient down-payment and perform proper maintenance.

Buying a car means you can drive as many miles as you’d like. If you buy, you can sell the vehicle and get its current value, or you can trade it in and subtract that value from the new loan amount you need to borrow. The longer you keep a vehicle after a loan is paid off, the more value you get out of it. Over the long term, the cheapest way to drive is to buy a car and drive it until the wheels fall off.

Buying means you’ll have higher monthly payments than leasing. If you don’t have a lot of cash on hand or if your credit is bad, buying a new vehicle can be quite a challenge. Lenders generally require a sizable down payment, and there are additional costs such as tax, tag and title, which adds even more to the bill.

If you choose to buy, we recommend a certified used car so you will have some warranty on the vehicle. But that warranty won’t last forever and finding a trustworthy mechanic can be challenging, and future car repairs could cost thousands. You’ll be responsible for trading or selling your used car if you want a different one.

It’s very difficult to make a fair head-to-head comparison between a six-year loan and the standard three-year lease. While lease payments are typically cheaper than loan payments per month, they still add up over time. If you lease one car after another, your payments are never ending. When you buy and pay off your auto loan, you eliminate a fixed monthly cost and won’t have to worry about a car payment, especially if you keep the car for a long time and save the amount of your car payment to fund the purchase of a replacement vehicle.

The price of a car is accepted as a typical cost of American life by most people. Paying for a new or used vehicle is one of the most significant expenses individuals and families incur, other than housing costs.

Weighing the pros and cons will help you come to the decision that is right for you and your family. Use calculators to crunch the numbers, talk to qualified vehicle and financial pros, neighbors, friends and family members. Check out sites like https://www.kbb.com/ or https://www.autotrader.com/car-values/ and be sure to shop around so you choose a reliable car that holds its value and gets good fuel economy.

Remember, a car is simply transportation, not a personal statement about you. It is simply a way to get from Point A to Point B. Be sure the financial obligation of leasing or buying fits into your monthly budget so you are being a good steward of God’s blessings.

It all comes down to needs vs wants. Are you buying reliable transportation or trying to impress people with the kind of car your drive?  Which of those options makes you a better steward of God’s blessings?

Don’t Retire – Rewire

The title of today’s blog is borrowed from a book of the same title written by Jeri Sedlar of the Conference Board.

When most people think about retirement, they only think about not working, they don’t really think about what they will do or how they will keep themselves busy.

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 sooner or later, you will return home, then what are you going to do all day every day?

Talk with family and friends who have retired to hear what they did to prepare and what they struggled with the most after retiring. We always encourage people to seek godly counsel and this is one life event where you want to take time to seek advice from people who have been there.

One of the biggest impacts on your retirement plans is your budget because 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 maintain their quality of life.

The challenge is that if you are not using a budget prior to retirement, you have no idea of how much you’ll spend during retirement. 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.

Once you have a retirement budget, 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? What about a pension plan or an IRA or other long term savings available to you?

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 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, it is important to reallocate your retirement savings and move to more conservative investments as you get closer and closer to retirement.

Ditch the debt to put yourself in the best possible position for retirement. Concentrate on paying off all credit card and consumer debt as quickly as possible so that you are not dragging your debt into retirement. In addition to consumer debt, work hard to get your home paid off before you retire.

When you are thinking 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 in retirement. You need to take time to discuss 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. Compromise is created 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 travel
  • Cultural or sporting events you want to attend
  • Exercise or sports activities you’d like to share
  • Volunteer work you will enjoy

Once you each develop this long list of possibilities for retirement go through it together noting what is the same on both lists and where the differences are. 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.

Leaving 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 something such as job or boss you hate, and not 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 where they work. So, when you stop working, what will compel you to get out of bed each morning?

Using your time in retirement 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 greater good. 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 worthy causes that need volunteers to help achieve their mission. Explore something that you never had time to get involved in when you were working.

Retirement can be one-third of your adult life.  Having a purpose and being engaged is a sign of wellbeing. As you wind down your work, begin thinking about a cause that can become a 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 have a purpose for each and every day.

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