Catholic Money Management

The Benefits of Using Financial Planner: Part 1

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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.

5 Tips for First Time Home Buyers

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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.

Should You Buy or Lease a Car?

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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?

Health Care Sharing Plans – Part 2

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To help you decide if a health care sharing plan is right for you and your family, we are going to look at things to think about and questions to ask.

Several plans have restrictions on the doctors available to you. If you live in a large metropolitan area, this may not be a problem, but if you are in a small town or rural area, you may not have much choice in doctors. Be sure you understand which doctors are included or excluded from any plan you consider buying.

Some of the sharing plans will negotiate lower costs with the doctors and other plans require you to do the negotiating. Are you comfortable negotiating lower costs with your doctor? Most medical providers are so happy to not deal with insurance companies and their claims process that large discounts are often available for cash-pay customers who are willing to ask.

There are several health care sharing plans which include a savings card for dental, vision, and prescriptions. And others don’t have that option. If those services are important to you, ask before buying.

One of the plans requires you to send your monthly payment directly to another member instead of to a clearing house. This may appeal to you as it gives you the chance to tell someone you are praying for them or maybe you like connecting with people in different areas. Other people prefer to send payments to a clearing house to avoid the personal connection. Which is right for you?

The terms around pre-existing conditions and how pre-existing conditions are defined vary with each program. In general, there is some time limit applied, and sharing around subsequent events related to a pre-existing condition are either not shared, or shared at a lower level. If you have any pre-existing conditions, be sure to understand exactly what is and is not covered. None of the programs we investigated decline membership due to pre-existing conditions. 

Even though some of the programs will actually help pay for adoption costs, the adopted children are subject to the same eligibility requirements as other new members, which means adopted children who have pre-existing conditions will be subject to the pre-existing conditions clause. This limitation on adopted children seems to be in conflict with the family friendly mindset of these plans.

People who use tobacco, drugs, or alcohol may be excluded. Any medical expenses related to these can result in otherwise eligible expenses being rejected for sharing. Tobacco use is prohibited across the board in all health care sharing programs. In addition, recreational marijuana use (even in legalized states) would not be consistent with program guidelines. 

People who participate in hazardous activities need to be cautious. Each program is different about what exactly constitutes “hazardous.” It might be riding motorcycles or hobbies that require you to wear a helmet such as three-wheel ATVs, off-road vehicles, rock/cliff climbing, spelunking, skydiving, deep sea diving or bungee jumping. 

Each health care sharing program has at least some caveats with respect to being a secondary payment source for those also eligible for federal or state assistance. If you receive federal or state assistance be sure to understand the limits of the sharing plan. 

The sharing programs have their own prescription drug policies, but generally prescriptions are only shared related to a specific medical need, and only for a short duration.  Such prescriptions would generally fall under the same per-incident limits or personal responsibility. 

There are some restrictions as to how long medication is covered. This means that someone who developed a condition like Type I Diabetes after becoming a Member would only have insulin considered a shareable expense for a very short duration. Maintenance prescriptions are not eligible for sharing at all.  Members are encouraged to participate in prescription discount programs such as NeedyMeds, GoodRx, OneRX, and LowestMed.

While all of the health care sharing programs have strong histories of success, there is no guarantee of payment because these are voluntary programs and not an actual contract for health insurance benefits. 

In fact, each group makes it abundantly clear they are not insurance and membership is not a contract. 

Typical disclaimers read …

  • Whether anyone chooses to assist you with your medical bills will be completely voluntary because participants are not compelled by law to contribute toward your medical bills. 
  • Therefore, participation in the ministry or a subscription to any of its documents should not be considered to be insurance. 
  • Regardless of whether you receive any payment for medical expenses or whether this ministry continues to operate, you are always personally responsible for the payment of your own medical bills.

Ultimately, members are placing a great amount of faith in these programs, which do not receive the state regulatory oversight and protection afforded to traditional insurance. 

With that being said, they have shared billions of dollars of eligible medical expenses over their history. 

The success of health care sharing depends on upholding and dutifully administering the member guidelines – on the whole, they seem to have done this so far.

There are plenty of positives about health care sharing and at the same time, there are lots of things to be cautious about to avoid surprises if you don’t have a complete understanding of the program guidelines. 

Money Matters in Marriage

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When couples say their vows at the altar, they don’t promise to be completely open and honest about all their financial information from this day forward.

Maybe they should.

If the husband and wife aren’t honest with each other about their entire financial situation, it can lead to big problems in a marriage.

If money isn’t an open topic that is easily discussed, money challenges can become a way of life. A secret bank or credit card account; spending $500 or more on a purchase without telling their spouse; missing cash in the bank accounts and hiding expensive purchases all break down the trust required for a strong marriage.

Differences about money can put a divide between husband and wife. When spouses don’t share financial information with each other it can often lead to divorce.

Our culture pushes us toward thinking that money is the most important aspect of our life and will ultimately make us happy and fulfilled. This leads us to think finances are an individual matter and it is OK for a married couple to keep their finances separate.

Advertisers manipulate us with their consistent messages about what we have to buy in order to happy and successful. Their focus isn’t about the product meeting our needs. Rather the focus is on sex, wealth, power and prestige. The ads encourage us to buy what we deserve, rather than what we need or can afford.

Our culture also encourages debt, which cripples the family finances. Over half of U.S. adult population has at least two credit cards and 14% have more than 10 credit cards. The average consumer has 13 debt obligations on record at the credit bureau (credit cards, mortgage, student loans, car loans, lines of credit, etc.)

When you add the pressure from society to the typical amount of debt families have, the situation gets even worse. Even though they seem to be doing well, you never know the hidden financial problems in many marriages. The average household credit card debt equals a little over $16,000. But it’s not unusual for families to have $20,000 – $40,000 in credit card debt. We’ve met several couple who had close to $100,000 in credit card debt.

With younger families, there is also student debt—anywhere from an average of about $40,000 to as much as $200,000. Then there are car loans, adding another $15,000 to $70,000 to the debt total. Most families have a mortgage to round out their debt portfolio—in the neighborhood of $150,000 to $200,000.

When it’s all added together, it’s easy to see how a couple could have $300,000 – or way more in debt.

It’s also easy to see why they don’t want to talk about it

Lack of communication in marriages can be troublesome, especially if the topic is about money (or lack of money). Money is a taboo subject in many families as talking about money makes people uncomfortable. Many couples don’t want to talk about money because they are afraid of the conflict that might develop. It is easier to keep spending and ignore the looming problem.

A lot of times these couples simply don’t know HOW to talk about money or what to do to dig out of their financial mess. But not talking about money in an open positive manner will definitely create conflict!

Bishop Robert McElroy of San Diego recently said: “The Church must always be enmeshed in the real lives and sufferings and challenges and joys of the people of God and the whole of humanity.”

The Church can go a long way in helping couples build a stronger marriage by giving them easy ways to talk about money. But when does the Church actually teach/talk about money? For most Catholics, the only time they hear about money in church is when there is a need for fundraisings, such as enhanced offertory, capital campaigns or missions.

Even the marriage preparation programs cover finances at a high level with almost no tactical detail. They do mention the importance of using a budget or avoiding debt. But do they talk about sharing credit reports and credit scores or how much each spouse can spend without a conversation, or lifestyle limits (how much is enough)?

Sharing dreams and goals and plans in any area of a marriage makes the couple much stronger and builds bonds between husband and wife. People who say they have a “great” marriage discuss their money dreams with their spouse. But beyond dreams, couples who talk about money on a regular basis are happier in their relationships than those who discuss finances less frequently.

Many priests don’t talk about personal money matters because they don’t think about it, don’t think it’s their role or they lack skills to do it. They don’t see the correlation between faith and finances. But aren’t we supposed to live our faith in every area of our life?

Unfortunately, most married couples learn about finances through Trial & Terror, which mean years of conflict and pain and arguing about money.

As a church, we need to teach people that their faith and their finances go hand in hand towards having a stronger marriage.

Money Matters in Marriage!

We have resources to help couples talk about money wrapped in the word of God:

Navigating Your Finances God’s Way is a 9-week small group Bible study; Set Your House in Order is a 5-week small group study and God Marriage & Money is a resource to help couples who are engaged to be married have the money talk before money becomes a problem.  Contact us for more information.

Listen to our podcast. 

Things Frugal People Never Do

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In the many years we have been in this financial ministry, we have discovered some consist things that people who are careful with money never do. 

Try some of these – they will definitely improve your bottom line!

People who are money smart avoid borrowing money. Think about the paradigm of our society—it’s normal to go into debt to buy whatever you want. Of course, most people cannot afford to buy a house with cash, but how many people go into debt for a new car, a flat screen TV, clothes, the latest version of a smartphone and restaurant meals?

Frugal people always pay cash for anything and everything they can. They have learned the secret of saving for what they want and they avoid wasting money paying interest. They pay cash for their cars. They pay cash for the new TV. They don’t use debt to pay for new clothes. Frugal people know that paying interest means throwing money away!

How do they pay cash for so many items? It’s called an escrow account. Chances are if you own a house you already have an escrow account for property taxes and home insurance through your mortgage company. Your monthly mortgage payment consists of PITI (Principle, Interest, Taxes, and Insurance.) Each month when you make your mortgage payment, some money is put into a savings (escrow) account to cover your yearly insurance and tax bills.

In the same way, you can set up your own escrow account to pay for large purchases. If you need to replace your car in a few years, save a little each month—in advance—to pay cash for a good used car. If you plan to take a vacation this summer, save a little each month in advance so you don’t come home from vacation to face a mountain of debt. If you want to avoid the avalanche of Christmas bills in January, start saving now for Christmas 2019.

If you think it’s impossible to save in advance, then ask yourself why you can afford to pay for the item plus interest after you have charged them on your credit card. Paying interest significantly increases the cost of what you’re buying.

An escrow account is different than an Emergency Fund. An Escrow Account is money that you are saving up for future planned expenses. An Emergency fund is for unplanned expenses.

Besides avoiding interest payments and carefully planning future purchases, frugal people avoid window shopping. Why? Because if you are shopping for entertainment you will probably spend money on something that really isn’t necessary! Someone told me that every time they go to the mall just to walk around, they spend money. My response? Don’t go to the mall! If you shop for entertainment, you will eventually find something that you really don’t need but can’t live without.

Frugal people don’t collect stuff. Typically, they will recycle 90% of their stuff to a worthy cause and it works because they don’t buy a lot of stuff to begin with. St. Vincent de Paul Society, Catholic Charities, and Parish flea market sales are all good places to donate things you no longer need or use. How many times do you look at all the stuff in your closet, drawers, and garage and see things you don’t need and haven’t used in years?

Frugal people don’t take their monthly bills at face value. They are always on the lookout for ways to cut expenses like cable bills. Cable can run as high as $80 – $150 for 100+ channels. How many of those can you reasonably watch? There are many alternatives that will give you most, if not all, of the normal programs you watch for $10 – $15/month.

A PEW research study shows that 95% of Americans now own a cell phone and 77% of Americans own a smartphone. Frugal people are ditching the landline. And saving even more money, frugal people don’t upgrade their smartphones as soon as a new model comes out. If your current phone works and does everything you need it to do, why spend the money to upgrade? And if most of the calls you make and receive are on your cell phone, why have a landline?

Frugal people don’t ignore their budget. Using a budget means you have a plan for every penny! Unless you know exactly where your money is going, how do you know if you are using it wisely on what is most important?

Frugal people don’t go to restaurants as a regular habit. You can cook for two people for way less than you will spend in a restaurant for just one meal. And frugal people never throw away leftovers. When you put leftovers in the fridge, have a plan. Will they be used for lunch or will you have a potluck dinner from the fridge later in the week?

Frugal people don’t pay fees. Whether it’s overdraft charges, late fees, bank account fees or yearly fees for the privilege of using a specific credit card, frugalistas avoid fees.

The most important thing frugal people don’t do is to try and live someone else’s life. They don’t compare what they have to what other people have. They don’t buy things just because everyone else has one and they understand the psychology of advertising so they don’t fall for all the ways advertisers manipulate us. It may seem like some of your neighbors, friends and relatives have so much more than you do, but you never know how much debt is behind all that stuff.

Social media is causing a lot of people to go into debt because they see perfect lives on social sites. In reality, people only post their best parts of their day. They would never post their credit card bill, how much debt they actually have, or how much money they are wasting in interest payments.

Being frugal is like being content—focusing on what you have instead of being in a constant state of wanting more and more.

In Philippians 4:10-14, Paul says that he learned to be content in all circumstances.  Learning how to be frugal will take you a long way down the road to also learning to be content.

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Is the Lottery Calling Your Name?

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Should a Catholic buy lottery tickets? Is it a sin? But what if I win? Think of all the good things that I could do and all the people I could help.

Let’s look at the lottery from a secular point of view and then we’ll look at it from a Catholic perspective.

This summer we have seen several different lotteries reach all-time highs. Mega Millions was worth over a billion dollars million and people were standing in line to buy tickets. When they finally got to the front of the line, they were tempted by all those other lotteries paying big money.

Logically, your odds of winning are abysmally low. You have a 1 in 259 million chance of winning Mega Ball. For Powerball the odds are 1 in 292 million. Your chances are much better for getting struck by lightning (1 in 13,500); dying in a car accident (1 in 645); being a victim of identity theft by the age of 40 (1 in 6); getting bitten by a dog while out for a jog (1 in 133); or even getting a hole-in-one on your birthday (1 in 25,000).

The average American buys $200 of lottery tickets per year. If you live in Massachusetts you will average $735 per year!

What about the scratch-off tickets? They’re easier to win, right? A survey was done by a company that bought $1,000 of scratch-off tickets. Their winning average was 22% and they won $974; their winnings did not even cover the $1,000 they spent buying tickets.

If you are one of the lucky people who win the lottery, you may be in the 70% of winners who end up broke in just 7 years, and many go broke much faster than that. There is a very small percentage of lottery winners who actually do quite well with their winnings, but your odds of doing well are almost as bad as your odds of winning.

The Federal Trade Commission (FTC) has truth-in-advertising laws that prevent advertisers from making false claims about the benefits of their products. That’s why you see so much long legal language on ads for auto leasing, and why there is a long list of potential side effects on ads for drugs. State Lotteries are exempt from the FTC truth in advertising laws so don’t believe everything the lottery commercials tell you!

Let’s look at the lotteries from a spiritual perspective. What does the Bible say about playing the lottery?

1 Timothy 6:9-10 tells us, “Those who want to be rich are falling into temptation and into a trap and into many foolish and harmful desires, which plunge them into ruin and destruction. For the love of money is the root of all evils, and some people in their desire for it have strayed from the faith and have pierced themselves with many pains.”

Based on this verse, playing the lottery, focusing on accumulating or winning money and getting rich can lead to spiritual suicide. The Catechism has a section for our examination of conscience prior to the Sacrament of Reconciliation. One of the questions we are to ask ourselves is: “Have I squandered money on gambling?”

In the Gospel of Matthew, chapter 25 we read The Parable of the Talents. In this parable, Matthew goes to great lengths to describe a faithful steward who was responsible for managing the owner’s funds. A steward must be trustworthy. A steward doesn’t waste or foolishly spend the property they are administering. Wasting money would include playing the lottery in hopes of becoming rich.

Everything we have comes from God—it all belongs to him. Our job is to be a good steward of all the blessings God has given to us, which means managing our possessions wisely in a way that honors God.

Who do you really love, money or God? If you are looking for a get-rich-quick scheme, you are focused on money. Gamblers, which includes lottery players, typically covet money and the things that money can buy.

God forbids covetousness: “You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, or his male or female servant, his ox or donkey, or anything that belongs to your neighbor” (Exodus 20:17; see also 1 Timothy 6:10).

One of the world’s lies is that money is the answer to life’s problems. People are lured into playing the lottery with promises that their lives will improve if they can only hit the jackpot. If they can just get lucky with the numbers, their problems will disappear. Such thoughts are empty promises. (see Ecclesiastes 5:10–15). “The covetous are never satisfied with money, nor lovers of wealth with their gain.”

If you think playing the lottery is just a form of entertainment, be cautious! There are many better ways to spend your money and more intelligent forms of entertainment.

Once we start playing just for fun it could eventually become more than just fun. It could become an addiction, especially if you play the same numbers each week. You become caught in a “what if” trap. “What if the week I don’t play is the week my special numbers win?”  Buying a lottery ticket here and there is not a sin, but greed is. If you play the lottery on a regular basis, you should prayerfully examine your motives. But we would encourage you not to do it at all!

Wealth and possessions by themselves are meaningless unless they can be used to serve the Lord’s purposes. “The Lord grieves over the rich because they find their consolation in the abundance of goods.” Luke 6:24

King Solomon was in a position to know whether money would bring true fulfillment. He was one of the richest people in the world, yet his conclusion about riches was, “Useless, useless . . . it is all useless!” (Ecclesiastes 12:8) Nothing, not even winning the Mega Millions lottery can replace the value of our relationship with the Lord.

Are you sacrificing a close relationship with Christ in the pursuit of wealth?

Join us on the Compass Catholic podcast for more about why playing the lottery is not in your best interest.

Cheap vs Frugal—Is There a Difference?

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What some people call being frugal, other people call being cheap.  But there is a difference between the two.

The dictionary definition of cheap is: not costing a lot of money; of low quality; not worth a lot of money; not willing to share or spend money.

The definition of frugal is: careful about spending money; using money or supplies in a very careful way.

A cheap person will invest a lot of time and energy in order to save a dollar or two, but the time and effort they expend may not be worth the amount of money they save. A cheap person will spend an afternoon repairing a $2 piece of equipment.

Their whole focus is dollars and cents, without regard to other areas of their life. They’re also willing to take advantage of social situations to avoid spending money. To me, cheap has a negative connotation, as it refers to a person who often doesn’t consider the value of their time, their energy, or the friendship and goodwill of others. They value money above all else, and they may make spending choices that can alienate others socially. A cheap friend will demand to go to the least expensive restaurant, regardless of what anyone else in the group thinks. They are the person who will pay for their part of the meal precisely down to the penny, but not include any money for the tip.

A frugal person wants to spend less money but the money-saving decisions are made with a balanced lifestyle in mind. A frugal person knows enough to balance saving money against other areas of life such as time, energy, friendship, faith, love, and health. The frugal person tends to account for the impact on things such as relationships when deciding if a money-saving tactic is worthwhile.

A frugal person might haggle for a lower insurance bill, but never take advantage of friends in a social situation. A frugal person might reuse a takeout container but won’t invest the time to wash a flimsy sandwich bag.  A frugal person will make small sacrifices of their own resources—time and energy—to save money, but they generally won’t impinge on others to do so, nor will they sacrifice large quantities of their own resources to save a few pennies.

Here is an example of the difference between being cheap and frugal. There are two different types of trash bags in the store. The price on the first one is $30.00 for 300 bags or $0.10/bag.  The price on the second one is $25.00 for 200 bags or $0.12/bag.

The ten cent bag sounds like a better deal, doesn’t it?

But taking into account the entire picture, the $0.10 bag the cheap person bought is so flimsy, two bags are needed to hold the trash, making the cost per use $0.20. The bag the frugal person bought cost $0.12 cents each, and had the more expensive purchase price, but was $0.08 cheaper per use.

In order to be frugal, not cheap, it is important to compare both the price you pay when you buy something against the cost per use for that same item. A cheap person merely looks at the price but the frugal person views the larger picture and considers the overall cost.

Being frugal means balancing money savings against other factors. You can save money where it makes sense, but you will also pay more for a product where paying more is a better deal for your whole lifestyle.

Here’s another example. A person jogs for exercise. The frugal person will buy the running shoes that best protect their feet and are appropriate for their use. Their decision is made with their overall health in mind, not simply the cost of the shoes. However, they will take advantage sales or coupons to buy that running shoe as inexpensively as possible. The cheap person simply buys the least expensive shoes whether or not the shoes will offer proper support and protection.

Cheap people use price as the bottom line. Frugal people use value as the bottom line.  

Cheap people are driven by saving money regardless of the cost. Frugal people are driven by maximizing total value, including the value of their time, effort and the use of the product.

Being cheap is about spending less; being frugal is about prioritizing your spending so that you can have more of the things you really care about. 

Cheap people are often afraid to spend money. They are willing to sacrifice quality, value and time in order to cash in on short-term savings.

Frugal people are resourceful with their spending; maximizing their dollars, so that they can fund big-picture wants and dreams.  

I consider myself to be frugal. I plan lunch and dinner so we use every bit of leftovers. I use up every bit of the products we buy by standing ketchup and other bottled products on their head to completely empty the bottle. I use a teeny tiny spatula to get all the product out of a make-up tube. I cut off the end of a toothpaste tube to get a few more nurdles of toothpaste out of it.

But I do not see myself as cheap. I do everything possible to maximize the money we do spend. But I also splurge on the areas where I am passionate (and where the money is in the budget!).

While we DO encourage people to be frugal, we do not encourage you to be so cheap that your life is miserable. Being a good steward means a balancing act by spending money on what is important to you and saving money in those areas that are not so important. Being frugal is about balancing income, giving, saving and spending with a stewardship mindset.

Be frugal, not cheap. Proverbs 28:22 tells us “Misers hurry toward wealth, not knowing that want is coming toward them.”

Life is short—enjoy it but be responsible!

Join us on the Compass Catholic podcast for more about why being frugal (not cheap) is important!

Social Security – Will it be There for You?

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Well, the answer to the title question is … Maybe!  Depends on how you are thinking about Social Security. If you consider the original intent for social security the answer is YES. It will probably be there to supplement your retirement savings.  If you consider the way many, if not most retirees use Social Security, the answer is NO! Social security is only supposed to supplement your income. It is not designed to provide your entire retirement income, so you need to save for retirement.

It’s up to each one of us to stop relying on the government to take care of us in retirement.

There are approximately 3,650,000 boomers who will retire each year for the next 10 years, which will put a huge crunch on Social Security and Medicare.

Starting in 2018, Social Security will begin to draw down trust fund reserves to help pay for benefits. Although Social Security has a long-term financial shortfall that must be closed, the program’s combined trust funds will not be depleted until around 2034, which gives policymakers time to develop a carefully crafted solvency plan.

To eliminate Social Security and Medicare would be political suicide for Congress, but Congress may be forced to cut benefits, raise taxes, increase the eligibility age, or some combination of the three to cover the cost of the program.

For the 52% of Americans who rely on Social Security for more than half their retirement income and the 25% of retirees who get more than 90% of their income from the program, that would be a disaster.

The average retirement savings in America is $60,000 and the average Baby Boomer has saved $103,000 for retirement. The projected lifespan in the US is about 85 years. If you retire at 65 and live till 85, your retirement savings has to last for 20 years. Eliminate or decrease Social Security benefits and that $60,000 won’t last very long.

If you are younger than 60, you need to be saving as much as possible for retirement. If you retire at age 65 you will need to have saved about 8 times your annual salary to cover your living costs in retirement. The chart below shows how much you should have saved for retirement at age 65 based on your salary:

  • $50,000 x 8 = $400,000
  • $75,000 x 8 = $600,000
  • $100,000 x 8 = $800,000
  • $125,000 x 8 = $1,000,000

Are you saving enough???

Proverbs 21:20 tells us “Precious treasure remains in the house of the wise, but the fool consumes it.” Are you consuming your treasure?

We have had 10 years of a bull market and we don’t know when it will stop, but we can guarantee that it will stop at some point and we’ll be in a bear market. Everybody needs to realize this and be prepared.

What are your plans to make sure that you are prepared for a market downturn? If you are already retired, how much money do you have access to in liquid assets, which won’t devalue during a bear market? You want to be in a position where you don’t have to sell depreciated assets when the market decreases. If you are within 5 years of retirement, you should be thinking the same way.

If you have 10 or more years before retirement, what will you do to take advantage of reduced stock prices? Will you be buying or selling?

As we approach the inevitable bear market, you want to pay off as much of your credit card and consumer debt as possible and increase your emergency fund to a minimum of 6 months.

You probably can’t do everything at once and that’s why it’s so important to have a balanced budget, manage your spending and keep debt to an absolute minimum at all times.

We don’t know when the bear market will begin, so it’s important not to delay. Take advantage of the time you have prior to the bear market to get your finances in order. If you’re in good financial shape when the bear market hits, you might be able to take advantage of it and continue to dollar-cost-average your investments and buy more stock at reduced prices.

Since 1934 there have only been four bear markets when the average of the S&P 500 dropped more than 20%. The most recent was in 2008 when it declined 37%. Despite bear markets, more good than bad has prevailed. In a look at five year rolling time periods it’s 76% up, 24% down. Looking at ten year rolling time periods, it’s 88% up, 12% down.

In order to be prepared for those inevitable downturns, you should plan on having 12-18 months of liquid investments if you need would need to live off your savings. Note we didn’t say everything should be liquid, only the money you may need to live on for one to two years. The rest should stay invested per your normal plans because the first six months of recovery can often create the largest gains and if you are not invested you will miss out.

We need to have a Joseph mentality. Joseph saved during seven years of great plenty (Genesis 41:29) in order to survive during the seven years of great famine (Genesis 41:30.) Like Joseph, we need to prepare for the future by saving.

We also need to be diversified in our investments. Money can be lost on any investment. Stocks, bonds, real estate, gold—you name it—can perform well or poorly. Each investment has its own advantages and disadvantages. Since the perfect investment doesn’t exist, it is important to diversify. “Make seven or eight portions; you know not what misfortune may come upon the earth.” Ecclesiastes 11:2

The wisdom of diversification applies to both where we investment AND to how we plan to use Social Security.

Join us on the Compass Catholic podcast for more about your retirement future and Social Security.

What is Your Treasure?

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Our pastor came to Florida as a newly ordained priest many (many, many) years ago. Each year his vacation is a trip home to Ireland to reconnect with his family and his roots. After returning to his parish in Florida, he gave a homily about his trip which is summarized below.:

On one of these trips, he was thinking about the long flight, especially the 51⁄2 hour layover in Boston. This brought to his mind all those Irish people who made that same journey decades ago as refugees from the potato famine. He talked about the overcrowded wooden sailing ships that took between one and four months to cross the ocean. The immigrants were forced from their homes, and their children were facing starvation. They had to get away, leaving almost everything behind. Most of them carried just one small cloth sack onto the ship.

He talked about what those people treasured by what was chosen to go into that sack. These were very poor people, so there wouldn’t be any jewels or silver. Maybe a child would bring a worn-out toy. Maybe there would be a photograph, or an old rosary, or a teacup with a missing handle, or a small stone, or a scrap of lace. Behind each item, in the small sack, there would be a story to explain its value.

Each of the “treasures” represented a memory of times past. The toy might remind the now-homeless child of the warm feeling of being tucked into bed at night.  The photo might be all that was left of a beloved grandparent. Maybe the rosary was from a long-ago First Communion. Maybe the teacup was a gift from a best friend, left behind in Ireland. Maybe the stone was from the path to their cottage, or the scrap of lace was part of a wedding veil.

Those material things represented the underlying treasures: a parent’s care, family, faith, friendship, home, and love.

This leads each one of us to ask ourselves a question. If we had only one small sack into which we could put our most valuable treasures, what would we put in?

This question may be hard to answer because our lives are cluttered with so many possessions. But here is a suggestion. In her bestselling book The Life-Changing Magic of Tidying, Marie Kondo suggests an interesting process. She wants us to pick up each item we own, slowly, one by one, and ask ourselves if the thing “sparks joy.”

Think about that for a moment. She doesn’t ask if the thing cost a lot of money, or if it impresses other people, or if it was a gift from someone who might be annoyed if it disappeared from our bookcase. She just wants us to ask if it “sparks joy” within us.

Possessions themselves are never our real treasures. When we hold an item, and experience a real ‘spark of joy’, there is always a story behind it.  These stories are what lead us to our true underlying treasures.

Our priest told us what he would put into his small cloth sack. The first thing was a get well card he received after open heart surgery. This one card was representative of all the cards, notes and prayers he received from our parish as he recovered from his surgery. He said that the power of prayer and the network of love and care found in our parish were priceless gifts to him. This one card would also represent the treasure of good health, which he would never take for granted again.

The second thing he would put in his cloth sack was a photo of his Mom. After he was ordained in Ireland, he was excited about his journey to Florida. His mom was supportive, and positive about helping him get ready for his long trip. One day as his departure drew near, he found his mom crying. And when he questioned her she said it was because she would never see him again. She still remembered all those people who sailed away forever on those wooden ships, never to come home again. The underlying treasures in this story were his mom’s faith and family. Even when she thought she was losing her son forever, her faith was so strong that she was willing to make this sacrifice.

Now it’s your turn. What do you treasure? If you had only one small cloth sack to put your treasures in, what would they be? Once you decide, then think about the story behind your choice. If you take the time to search underneath that story, I promise you will find what you truly treasure.

The underlying treasure of course, is life itself, the life we’re given straight from the hand of God. All of life is such a gift and when we take the time to stop and really look at it, our gratitude can overwhelm us. All of life is grace—every minute of it.

Join us on the Compass Catholic podcast for more about life’s true treasures.