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.

Birthdays on a Budget

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.