Saving

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.

Five Ways to Give Yourself a Raise

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Compass Catholic Podcast offers more on this topic.

Don’t Fool Yourself About Your Finances

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Let’s face it, looking at your finances and being totally honest about what you are doing right, what you are doing wrong and what you are not doing at all is not on the top of the to-do list for most people.

But if you are not taking a realistic look at your finances, you’ll never understand the mistakes you may be making. If you don’t understand them you may continue to harm your long-term financial security.

To help you in this thought process, we have compiled a list of ways people fool themselves about their finances. See if any of these apply to you:

The first way people fool themselves is to consider debt to be a normal part of modern life. People use credit cards to buy the things they want and make the minimum payment on the credit cards, maintaining a balance and never paying them off in full. If you are digging yourself deeper and deeper into debt each month by using credit cards to finance a lifestyle you can’t afford, sooner or later you will find yourself in a hole so big that you can’t climb out of it.

This is not to say you have to pay for everything with cash; mortgages and student loans are a practical reality for the vast majority of Americans. And using credit cards is a convenience of modern life. What we are saying is that if you spend more than you earn on a regular basis, and use credit cards to fill the gap, it always catches up with you.

If you can’t subtract your monthly expenses (including what you buy on credit) from your income and come up with a positive number, then you are fooling yourself with the numbers. In order to spend less than you make, it’s crucial to make a realistic budget and stick to it, so you can live within your means.

Using the word “need” when you really just want something is another way people fool themselves. There is a difference between needs and wants. Needs are the basics in life—food, clothing, and shelter. Wants are above and beyond needs—like buying the new cell phone when yours is perfectly usable, going out to eat at restaurants, a newer, bigger house, or more clothes when your closet is already full.

To see if you are fooling yourself, think about how honest you are in acknowledging the difference between needs and wants. Philippians 4:19 tells us that God will supply all our needs. He never promised to give us everything we want.

We can fool ourselves if we think that the next thing we buy will make us happy. Happiness is a state of mind and while you may get some temporary satisfaction out of a new possession, it will never bring happiness for long. Because if you set yourself up to be happy based on buying things you will be in a never-ending cycle of “what’s next?”

You will never be content if you are always in pursuit of the next purchase in an effort to buy happiness. In 1 Timothy 6:8 we learn that if we have food and clothing we shall be content. Yet our society always encourages us to be in pursuit of the next acquisition.

If you think you don’t make enough money to save anything, you are fooling yourself. You may not be able to save a lot of money, and financial advisors can disagree over precisely how much you need to save for an emergency fund or retirement. But if you are not saving anything, and you are living paycheck to paycheck sooner or later you will run up debt. You are ignoring the fact that sometime in the future you are going to have a financial emergency: a health issue, accident, pay cut, or layoff can put your finances into a tailspin.

Every American should be saving for retirement in some way. Don’t fool yourself by thinking there is time to save for retirement later. If your employer offers some kind of 401k match, failure to save is an even bigger mistake. You are turning down free money from your employer as a reward for something you should be doing anyway, so take advantage of it. The best way to build a retirement savings account is to start early and save on a regular basis. Proverbs 21:5 encourages us to save via steady plodding—small amounts on a regular basis.

If you just have to make an investment because the opportunity is too good to be true, you are fooling yourself. There are always risks with any investment. Promises of instant profits through day-trading or house-flipping are often too good to be true. Keep your greed in check, save for emergencies and your retirement on a regular basis so you don’t have to take big risks by wasting your money on something too good to be true.

If you do have retirement savings, you are fooling yourself if you think the money in your 401k or IRA is up for grabs to spend on your wish list. Cashing out one of these retirement funds early can result in steep penalties, eating into your hard-earned savings.

In addition to the tangible loss of your saved money and the penalties you pay, you still need to save for retirement. Shifting the shortfall from one part of your budget to another is not a real long-term solution. Any money taken out of your 401k or IRA could have been growing over time—so you don’t just lose the money that’s withdrawn, you also lose the interest you could have earned on the money you withdrew.

It is really easy to convince yourself that you don’t make enough money to be generous, or that you need the money more than the church does, or that you don’t agree with the way the pastor is spending the weekly donations. These are some of the ways you can fool yourself and justify not giving. But the act of giving comes from what you have, not what you think you need in order to be generous.

Giving is not done because God needs the money, it is done as a way for us to honor him and acknowledge God as the source of everything we have. Acts 20:35 tells us that it is more blessed to give than to receive.

Money is just a tool yet we give it so much more importance than it deserves. We think money will give us happiness, contentment and peace; and the more money we have the better off we will be. But if you aren’t happy with what you have, you will never be happy when you get what you want.

Mark 8:36 asks us to consider “What profit is there for one to gain the whole world and forfeit his soul?”

Join the Compass Catholic podcast to find out if you are fooling yourself about your finances.

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!

How to Have a Successful Garage Sale

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How many of us have garages so full of stuff that the cars remain in the driveway? How many basements are full of boxes containing who knows what? Or even worse, how many of you are paying money to a storage facility because there is no room in your home for all your stuff?

In the Bible from Luke 12:15-21, we read: “Then he said to the crowd, ‘Take care to guard against all greed, for though one may be rich, one’s life does not consist of possessions.’” Many of us are caught up in accumulating stuff yet those possessions don’t have any lasting meaning and they clutter up our life.

One of the best ways to eliminate excess clutter is to have a garage sale and use the proceeds to build up the emergency fund or pay down debt. And if you have an emergency fund and no debt, donate the proceeds to charity.

Garage sales should not be done on a moment’s notice. Like everything else, they’ll run better with planning and organization.

The most popular days are Friday and Saturday mornings, but you can add Thursday if your schedule allows. You’ll get a larger crowd if you start early because people won’t have to interrupt their day to attend your sale. Late Spring, early summer or fall are the best times to have a sale. Check the local calendar and avoid special weekends in your area—such as a local festival or college football games.

Once you have a date, check with your local city government to see if a permit is required. Talk to your neighbors to let them know you are planning on having a sale and invite them to participate.

Decide how to advertise your sale—newspaper, fliers, and social media. Take advantage of local advertising such as the homeowner’s association newsletter, or a community events page in your local newspaper. Be sure your ads include your address as well as the dates and times for your sale. The most popular garage sale items include furniture, kids’ toys, and collectibles, so highlight those in your ads.

Gather your sale items well ahead of time by going through each room, the garage and the basement. Pick up anything you don’t want or haven’t used in months and put it in a staging area.

Don’t underestimate the value of what you find either; people will buy anything from old CDs to unwanted bottles of perfume. After all, the worst case scenario is that something doesn’t sell.

Before pricing your items, visit other garage sales in your area to check the going price for certain items. Price your items individually rather than grouping them into a box with one price sign. As the garage sale progresses, people will get the boxes mixed up and you’ll have a hard time keeping up with prices. Make sure the price is clearly marked on each item. Don’t set prices that are too high, thinking that people like to haggle on the price, as you may lose some customers.

Plan ahead for markdowns. Whether it’s for an individual item or an end-of-day sale, be prepared to reduce prices at some point, especially on items that are not selling.

Set up (as much as possible) the day before the sale. It will make the first hour less hectic. Remove all non-sale items from the area. Have an extension cord handy for testing electronic equipment.

Make your sale easy to find. Create signs with directions to the sale. Large bold black letters on a white background with very few words are best for visibility. What looks large when you have it on the table can be hard to read from a car. Make sure your sign says “Garage Sale” and include your address or an arrow pointing towards your house.

Make your stuff easy to find and easy to see. Keep like stuff together—all the clothes, garden equipment, toys, or tools should be displayed together. Tables are a great way to make items visible. Set up the tables so there is not so much stuff that the table is a mess as soon as the first customer looks through it.

Use the sturdiest tables for the breakable items, and keep those breakable items off to the side and up against the house or a fence to keep people from knocking that table over.

If at all possible, have clothing on hangers. It is easier to look through items on hangers. You can use a garment rack or a clothes line. Most shoppers don’t enjoy digging through piles or boxes. Create a dressing room using a shower curtain or sheet in the corner of the garage.

Make sure you have plenty of cash on hand to make change, otherwise you may lose a sale. Decide how you’ll manage the money. A carpenter’s apron gives you lots of room for money, notes and your cell phone. Or you may want to set up a check out table where you take the money and hand out change. Either way, keep your money safe.

Grab a comfortable chair and put it in a visible location. Greet people as they walk up, but don’t hover over them as they shop. In an ideal world, a garage sale would work like a mall. People would come in, peruse what’s available, grab what they wanted, pay, and leave. However, garage sales are as much a social event as a shopping event. People are going to ask questions, and they’re going to pick through everything. Let them shop at leisure and don’t act pushy.

Have a supply of old newspapers and grocery sacks to wrap and bag customers’ purchases.

Set up a 10-cent table for children to look through. They may have brought their allowance and want to spend it. Plus, it keeps them busy while mom or dad are shopping. If your children are willing to sell some of their toys, games or clothes, have each one of them label their items with different colored stickers.

Have a free table for broken items or things with missing parts. Remember one man’s junk is another man’s treasure. Post signs in strategic locations that say “Everything is sold as is” and “all sales are final.”

No matter how successful your garage sale is, you’ll probably have leftover stuff. Before the sale, investigate charities where you can donate leftovers that are usable and in good condition. Don’t drag leftovers back into the house. Before you go to the charity, be sure to list everything you are donating and ask for a receipt. File the receipt and use it for a charitable tax deduction on your income taxes.

Garage sales are a lot of work, especially if you’re not used to holding them. You’ll probably spend several hours organizing and pricing items, writing ads, and getting your supplies, plus more hours on the day of the sale.

But after it’s over, you’ll hopefully have extra cash instead of piles of unused stuff. And you can free yourself from putting too much importance in all the stuff you have accumulated. Remember, Jesus said “Your life does not consist of your possessions” so be aggressive in clearing the clutter!

Join us on the Compass Catholic podcast for more ideas about having a successful garage sale.

Lifestyle Inflation—How to Avoid it

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Lifestyle inflation is accepted as a normal part of life in America. It means each time your salary increases, so does your spending in an effort to achieve some perceived level of lifestyle where you will finally be happy. In fact, you are considered abnormal if you aren’t constantly striving for more bigger and better stuff.

The problem is that no material thing will result in never ending happiness, and we can get distracted from an authentic Catholic life when we try to keep up with the cultural norms.

The best way to avoid lifestyle inflation is to detach your spending from your income. Set a standard of living you are comfortable with, and stick to it, even when your income increases. Just because you are making more money does not mean you have to be spending more money

One way to put that extra money into perspective is to calculate the real increase to your spendable income.

After giving, taxes, and other related payroll deductions are subtracted from your gross salary, a raise can have a smaller impact on your spendable income than you think. If you get a raise of $500 a month it looks like an additional $6,000 a year. But after you subtract about $200 a month for payroll deductions and another $50 for increased giving, the real addition to your monthly income is $250. Over 12 months that $6,000 increase is only $3,000 in real spendable dollars. While that’s a gracious plenty, it’s not enough to dramatically change your lifestyle.

Calculating the bottom line on your spendable income gives you a dose of reality. Once you calculate your raise versus your net gain, you may find that the increased income has better uses that an inflated lifestyle.

A much better approach is to step back and contemplate your life goals. What is it that you want out of life? What are your goals for the next 5, 10, and 15 years? Is buying more stuff going to fulfill those goals? Or in 10 years will you regret the money spent on all the useless stuff you bought?

When you define and work on your goals, life is much more satisfying. You may change your mind about where you want to be in 15 years but any worthwhile goal will still move you in a direction that will be positive even if the end state changes.

It is easy get off track when you live your life in order to impress other people. When I see someone driving a fancy car, I have a fleeting thought that goes somethings like this: “Nice car—glad I don’t have to pay for it!” Because what other people drive really does not affect me at all. Don’t fall into the mindset of trying to impress other people with what you have, because they simply don’t care! And let’s be realistic, you really don’t know what other people think. If you are spending your hard earned money to impress other people you are making an assumption that you are impressing them, but you may not be.

Live your life and make your financial choices according to what you care about, not what you think the people around you care about. If you truly stop worrying what other people think, the whole impact of lifestyle inflation disappears. Don’t waste your time and energy trying to impress people who are not involved in your day to day life.

Many of the things we enjoy most are completely free. For example, do you have more time and focus on your friends if you have a potluck dinner at home or do you have more time to focus on them in a noisy crowded, expensive restaurant?

The potluck at home is much more relaxed. You don’t have to worry about parking or waiting for your table to open up or being rushed out the door so the restaurant can turn the table over. You and your friends can linger over dinner as long as you want to. Plus, if you have friends who are also avoiding the lifestyle inflation bandwagon, you can all save money by having dinner at home instead of going out to a restaurant.

Why are you having dinner with friends? Is your purpose to spend money or to enjoy time with your friends? Once you get to the bottom of WHY you are doing something, it makes it much easier to concentrate on what is really important and eliminate the potential for lifestyle inflation.

We have found that the best way for us to stay on track and keep ourselves motivated is to spend most of our time with people who think like we do, who share our faith and who want what’s best for us.

Make a conscious effort to fill your life with people who share a set of values with you. You don’t want everybody to think alike in all situations but being in conflict with the people who are closest to you isn’t a good way to live your life. Concentrate on spending time with those people who will support you, understand you and encourage you.

When we get on the lifestyle inflation merry-go-round we spend so much time and effort looking forward to what we want that we often forget to be content with what we already have. If you aren’t grateful for what you have, you’ll never be grateful for what you get. If you are thinking about upgrading the kind of car you drive, stop for a minute and say a prayer of gratitude that you already have a car to drive. If you are thinking about buying a bigger house, stop for a minute and say a prayer of gratitude that you have someplace warm and safe and dry to live.

In 1 Timothy chapter 6 we hear that if we have food and clothing we should be content and we also hear that we brought nothing into the world and we shall take nothing out of it.

We encourage you to avoid lifestyle inflation and be content with the blessings the Lord had bestowed upon you.

Listen to the Compass Catholic podcast for more about lifestyle inflation.

Money Saving Ideas

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One of the things people often do not appreciate about saving is how fast the savings grow when you save small amount for a long time on a regular basis. Don’t wait till some arbitrary time in the future when you feel like you have enough money to save. It’s important to start now, even if it’s just a small amount, because small regular amounts really add up.

If you want to save $1,000 this year, you need to save $2.74 each day. In 40 years, at 10% interest, you’ll have over $486,000.  If you delay saving $2.74 a day for just one year, you’ll have $45,000 less in 40 years.

Groceries may be one of the areas most ripe for savings. Wandering around a grocery store (especially if you are hungry) often leads to overspending. Plan your meal(s) before you shop and stick with your list. That should mean you won’t have to run back to the grocery store multiple times during the week.

Watch for Bogos and plan your menus around what is least expensive that week. Most grocery stores run specials on a regular rotation. If you know when chicken or pork is on sale, you can plan your meals around those sales.

Unless you know there is an issue with your local water supply, drink tap water, and don’t buy bottled water.  You’ll save money and help the environment. If you look closely at the bottled water label, you’ll find that most of it comes from a public supply, so in reality, you are simply buying tap water from a different location.

Analyze your transportation options to save some cash. If your destination is nearby, walk or jump on your bike to get there instead of wasting expensive gas. Or consider carpooling or taking public transportation.

Google “Comparison shop” and there are lots of websites which you can use to compare prices from different sources on the same product. When you type in what you’re looking for, you’ll get a list of prices and stores that carry your item so you can easily find the best deal. You have to be careful and be familiar with the product to compare size and packaging because it can be confusing!

Put aside all the items you don’t use and give them to charity. Make sure to document everything you gave away and always get a receipt form the charity to attach to your donation list. Google “How much is my stuff worth” and determine the value of the items you gave away for a deduction on your tax return next year.

Analyze the benefits of refinancing your home loan. You may be shelling out extra dollars for your monthly home loan payment. Call your trusted mortgage broker to find out if you can reduce your mortgage rate and payment by refinancing. Be careful that the cost of refinancing doesn’t eat up any potential savings.

Another way to save on your housing costs is to keep track of how much equity you have. When you reach 20% equity you may be able to discontinue the PMI (private mortgage insurance).

When you use a credit card, be sure the money is in your budget for the item you purchased. Then pay the bill in full at the end of each billing cycle. Do some research and find out if you can earn points with your credit card. Then, use those points to buy things you’d have to buy anyway, like gifts for teachers, new electronics or school shopping.

Do it yourself is always a good way to save. Homemade gifts are the most thoughtful gifts you can give. Use sentimental items like pictures and souvenirs to put together a memorable present for a friend or family member.

With all the home improvement shows out there, the “I don’t know how” excuse no longer works. Google it, look it up on DIY or HGTV, or ask the folks at the hardware or home improvement store, and get to work. Tackle ONLY the jobs you know you can handle. Otherwise, you may increase your costs if you botch it up and have to hire a professional to fix your mistakes

Change your buying habits to buy out of season. Buy Christmas decorations and cards in January. Buy air conditioners in December. Buy winter clothes in January. August is the best time to buy beachwear. Off season buys save money.

You know what they say, one man’s trash is another man’s treasure. Take advantage of gently used items. Get a bunch of friends together, have everyone bring clothes, toys or household goods that they’re not interested in, and go to town! Whether it’s clothing, books or electronics, buying used and refurbished items can save you a pretty penny off the sticker price. Used items are especially good for children who grow so fast they often can’t make it through a whole season wearing the same size. At the same time, you may be able to earn some money by selling your gently used items to a consignment store.

Stay home with friends and family. Going out to eat and for entertainment with friends almost always costs more than staying in. Resist the urge to splurge and instead, invite friends over for a potluck, board games or a movie.

Another takeoff on sharing is vacations. If you have family or friends in an area where you want to vacation, you may be able to stay with them for a few nights—as long as you don’t wear out your welcome. Or share a vacation rental. If your extended family likes to take a week’s vacation at the beach each year, think about splitting the cost of a home large enough for everyone.

Even going to the least expensive fast food restaurant means spending $5 for lunch every day. You could easily spend $1,300 a year just on lunches, so pack your lunch instead. You’ll save money, the food will likely be more nutritious and you’ll put your leftovers to good use.

A great way to involve kids in the saving process is to pick a fun family item that you all want—maybe a new TV, an Xbox or a trip to the amusement park—and have the family work together to save what’s needed to make it happen. Create one of those thermometers to track the total amount saved each week against your goal and have it be a family affair. You can save spare change. Or have the kids contribute a percentage of what they earn. Have the kids cut coupons for your weekly shopping trip, and add the money saved to the family fun fund. It’s a good lesson in saving for what you want and working together as a team.

If you are careful with your spending, and creative in your ideas and prayerful with your intentions to manage your money wisely. You can grow your savings, get out of debt and prepare for the future.

No matter how much you have saved, keep in mind the following verse from 1 Timothy 6:17: “Tell the rich in the present age not to be proud and not to rely on so uncertain a thing as wealth but rather on God, who richly provides us with all things for our enjoyment.”

Saving and Investing

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Wondering whether you should save or invest? The answer is yes!

Both are necessary for a well-balanced financial future. Saving is putting money aside, bit by bit, for a specific purpose. Saving is a way to reach short-term goals, usually the things you plan to do within the next five to ten years.

We encourage everyone to start saving by building an emergency fund, first by saving $1,000, then by increasing that fund to cover 3 months’ worth of living expenses, then 6 months’, then a year.

This emergency fund provides some level of financial security when the unexpected occurs. Sooner or later everyone gets hit with unpleasant financial surprises.  One of the appliances conks out, or the car needs a repair, or you have to cover the deductible for a medical expense. The worst financial emergency may be losing your job. The emergency fund allows you to pay for the emergency without going into debt. For longer-term issues, such as a job loss, you’ll have money set aside for necessary costs such rent/mortgage, food, insurance, transportation, and utilities.

The most effective way to save is to make it automatic. When you receive money, the first portion should go to the Lord. The second portion should go to your savings. If you make saving a habit and do it as soon as you receive the money, you’ll save more.

The Bible does not define a specific amount to save. We recommend saving at least 10% of your income. This may seem like a huge hurdle and it may not be possible right away, but begin the habit now, then set a schedule to increase your saving to reach 10-15% over a period of time.

Like the ant, we should be wise and plan for the future. “Four things are among the smallest on the earth, and yet are exceedingly wise: Ants—a species not strong, yet they store up their food in the summer.” Proverbs 30:24-25. Saving for our future is similar to the ant storing up food for the winter.

Money for short-term goals that will occur in one to ten years should be saved in cash equivalent products, such as a savings account in a bank/credit union or a money market account. When you need access to your short-term savings, you want it to be available immediately.

Investing is a long-term plan for money that will be needed in 10+ years. Investing can help you reach long-term goals, such as paying for a child’s education or planning for retirement. Investing means taking some of your money and trying to make it grow by buying things you think will increase in value, such as stocks, shares in a mutual fund or real estate.

There is always some level of risk involved with investing and there is no guaranteed rate of return on any investment. It is possible to lose some or all of the funds you have invested. Every investment has a cost: financial, time, effort, and sometimes emotional stress.  For example, a rental house will take time and effort to maintain, and if you can’t find a renter there is a financial drain. Before deciding on any investment, be sure you have explored the personal costs.

Depending on the investment vehicle you choose, it may take longer to access the money you have invested. For example, if you have invested in real estate you’ll have to sell the property in order to withdraw the cash you have invested.

The only time you shouldn’t save, or invest, is if there are more important things you need to do with your money. For example, if you are paying off debt, you should start saving for an emergency fund, but paying off the credit card debt in order to escape paying interest on the debt is more important than investing. Or, if you are the only breadwinner in the family, you need to have your financial house in order before diving into investing.

Unfortunately, most people are not consistent savers

  • 39% of Americans have no savings.
  • Almost ½ of Americans don’t have $500 in an emergency fund!
  • 36% of Americans are not saving for retirement.

Saving is the starting point for investing. Saving money should always come before investing money. Think of savings as the foundation upon which your financial house is built. If times get tough and you require cash, you don’t want to cash in your investments if there is a downturn in the economy. The stock market in the short-run can be extremely volatile, losing more than 50 percent of its value in a single year, but over the long term, it will return more than a simple savings account.

If your employer offers a 401K savings/retirement plan and there are any matching funds available, take advantage of it. Putting money into a 401(k) plan at work if your company matches your contributions is a great way to build your long-term investments. That’s because not only will you get a substantial tax break for putting money into your retirement account, but the matching funds basically represent free cash that is being handed to you on a silver tray.

While the amount you need to invest is highly personal, and specific dollar amounts can be arbitrary, CNBC recently published this simple formula to help you figure out if you’re setting aside enough money. In your 20s, aim to save 25 percent of your overall gross pay, including retirement account contributions, matching funds from your company, cash savings or money you have invested elsewhere.

By age 30: Have the equivalent of your annual salary saved. So, if you earn $50,000 a year, aim to have $50,000 in savings when you hit 30. Every five years, increase the number of years of salary you have saved. By age 35, twice; by age 40, three times, etc. until by age 65 you have eight times your annual salary saved.

This timeline is similar to the one recommended by retirement-plan provider Fidelity Investments, which recommends having the equivalent of your salary saved by age 30 and 10 times your final salary in savings if you want to retire by age 67.

However, be sure to avoid risky investments. Thousands of people lose money each year on highly speculative investments and scams. When investing, it is a good idea to consider if you would benefit from professional advice from a regulated independent financial adviser.

You can lower the level of risk you take when you invest by spreading your money across different types of investments. This is called diversification. All investments can perform very well or very badly so make sure that you don’t put all your eggs in one basket. Mutual funds are typically thought of as having less risk than investing in just one or two stocks. Greater diversification means less risk. Ecclesiastes 11:2 says “Make seven or eight portions; you know not what misfortune may come upon the earth.”

We all have a lot of goals for our finances. You may want to buy a car within a year, or you may want to save for a newborn’s college education in 18 years or your retirement in 30 years. All of these goals have different time frames, which means only you can decide whether it’s best to reach your goal by saving or investing. That’s why it’s important to make a plan.

Everybody should be saving AND investing no matter what your income level. If you are only earning a bare minimum, you still need to save a little bit every time that you receive a paycheck. You have to be prepared for that time in the future when an emergency occurs.

If you are earning more than the bare minimum, there should be no question about having an emergency fund, money saved for the things that you want to do in your life and especially for retirement.

And, just because you are focused on savings and investing, remember to be generous. Everything that you have is a blessing from God. As you think about the balance between giving and saving/investing, your attitude should be not how much of your money you are going to give to God. Rather your thoughts should focus on how much of God’s money you need to keep!

To save or Not to Save – That is the Question

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piggy-bank-1595992_1280Today’s blog title is a take off on a scene from Shakespeare’s play Hamlet. In this scene, Prince Hamlet was contemplating the meaning of life.

Today’s blog contemplates the reason for saving.

The savings rate of the average American has hovered around 5% for the last several years. The personal saving rate is the net amount of money saved as a percentage of your disposable personal income (gross income minus deductions and, in our opinion, also minus giving.)

But according to Nerd Wallet, a savings rate of 5% is far too low. Most financial planners advise their clients to save between 10% to 15% of their disposable income for emergencies, retirement and other needs.

Saving takes a conscious effort, dedication and hard work. But having an emergency fund or fully funding your retirement is well worth the effort.

Proverbs 21:20 tells us, “Precious treasure remains in the house of the wise, but the fool consumes it.” Saving can be hard work, but spending every penny you make is simply foolish. Too many people think they will get to a point sometime in the future when saving will be possible. They live each day looking to an uncertain future without making a concerted effort to make saving a priority.

Every little bit you save will help build your nest egg, so start with whatever you can do, even if it is a very small amount. There can be a huge difference between saving small steady amounts on a regular basis versus waiting until you have one big lump sum to save.

One of the exercises we do in the Compass workshops is to make a deal with the attendees. We ask “Which would you prefer, a lump sum of $1,000 right now or a penny a day doubled every day for a month?” Most people look at $0.01 and compare it to $1,000 and take the thousand dollars. The interesting thing is that a penny a day doubled every day for 31 days will net over $10,000,000!

While the penny exercise may be unrealistic, it is a good way to illustrate how a small amount can grow exponentially.

Here’s another example of exponential growth. If a person saves $2.74 per day they will have $1,000 in a year. In 40 years, at 10% interest, the $2.74 per day will grow to over $500,000. If they wait just one year and only save for 39 years, the difference is over $50,000 less!

Compounding your savings makes a huge difference and is based on three variables: the amount you save, the interest rate you earn, and the length of time you save.

1. The amount you save depends on your income and spending. Learning God’s way of handling money will help you focus on being a conscious spender so you can find ways to save.

2. The interest rate you earn has a huge impact on how quickly your savings will grow. An interesting fact about savings is how long it takes your money to double. It’s called the rule of 72. Take the number 72 and divide it by the amount of interest you are earning, and the result is how long it will take your money to double. If you are earning 3%, your money will double every 24 years. If you are earning 6%, your money will double every 12 years.

3. Time is the third factor. Answer this: Who would accumulate more by age 65: Danielle who started saving $1,000 a year at age 21, saved for eight years, and then completely stopped; or Matt who saved $1,000 a year for 37 years starting at age 29? Both earned 10% interest.

Interestingly, at age 65, Danielle who saved a total of $8,000 has $427,736 while Matt who saved $37,000 has $363,043. Danielle saved $29,000 less and accumulated $64,693 more.

As you can see from this example, since Danielle started earlier, it made a huge difference in the total amount over a long period of time.

1 Timothy: 16-19 gives us good advice about our attitude toward gathering riches:

“Tell the rich in the present age not to be proud and not to rely on so uncertain a thing as wealth but rather on God, who richly provides us with all things for our enjoyment. Tell them to do good, to be rich in good works, to be generous, ready to share,
thus accumulating as treasure a good foundation for the future, so as to win the life that is true life.”

We need to guard against the human tendency to be proud of our wealth. When we accumulate assets we have a tendency to place our confidence in them. Someone once observed, “For every ninety-nine who can be poor and remain close to Christ, only one can become affluent and maintain a close relationship with Him.”

It is human nature to cling to the Lord when it’s obvious that we have no place else to turn. Once people reach financial freedom, however, they often take the Lord for granted because they no longer think they have as much need of him.

When you have financial resources, the tendency is to turn to your money to solve problems, instead of first praying and seeking the Lord. We tend to trust in what we can see with our eyes, rather than in the invisible living God. We need to remind ourselves that wealth is completely uncertain, and can be lost in a heartbeat. The Lord alone can be fully trusted.

Sirach states it well, “Use your wealth as the Most High has commanded; this will do you more good than keeping your money for yourself.” (Sirach 29:11, GNT) By saving and investing with a godly attitude, and balancing saving with generosity, we can live the fulfilling life God intends for us now.

Adults Kids, Parents and Money

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dollar-1362244_640Most parents look forward to a visit from their adult children…but what if that visit includes all their worldly possessions, two grandchildren, a ten-week-old puppy, two hamsters and no plans to move out?

There are any number of reasons adult children may move back home but by far the most common one is money. A listener to our radio show recently asked the following: “My husband and I are finally empty nesters. Now our oldest daughter is experiencing financial problems and wants to move back in with us bringing her spouse and two kids. As a couple, they are very poor money managers. The combination of mortgage, school loans, credit card debt, and an unexpected job loss has overwhelmed them. I feel sorry for them, but I know they are spending money on frivolous items, and I resent them asking to move in with us.”

If this situation comes up, the first step is for parents of adult children to have a conversation with each other about how much to help and how much to let adult children handle on their own. It is important to have a united front as this decision is more an art more than a science. And both mom and dad will experience the results of their decision. As with most things in life, the resolution to this problem is made easier with much prayer and discernment.

Maybe this state of affairs is an opportunity to influence your daughter and her husband to be fiscally responsible. On the other hand, having them move in with you may just make a bad situation worse. There is a fine line between helping and enabling, but that line blurs when your child suffers from something they caused vs. a situation that was out of their control.

You and your spouse should also consider the following:

  • How much can you afford to do?
  • Is your child and/or their spouse working or actively seeking employment?
  • Will the problem be resolved relatively quickly or is it a long term issue?

It also helps if you and your spouse talk about ways you can help without having them moving in with you. This again takes lots of open discussions and your daughter and her husband need to share their whole financial situation with you.

I believe that we should do whatever we can to help our children when something challenging happens to them that is beyond their control. However, if they caused their own problem, having them work through their problems on their own will make their marriage stronger.

Perhaps parents can lend a hand best by providing something, but not everything. If their situation is easily remedied, you may want to take the grandchildren shopping for school supplies or school clothes, give your daughter and her husband gift cards for items such as gas and groceries or pay them to do work around your home that you would normally pay someone to do (as long as they are qualified.) This gives them some temporary relief, but you are not totally rescuing them from the circumstances they caused.

If, after much prayer, the Lord makes it clear to you and your spouse that your daughter and her family should move in with you, establish ground rules for them staying in your home—and have both husband and wife sign it. If they are poor money managers, the ground rules may include having them work with a budget coach or credit counselor. The ground rules also contain detailed living arrangements such as who does what around the house, an estimated timeframe for them to move out, and financial arrangements. What tasks will they do around the house, what will you provide, will they pay rent, how long will they stay, what are they doing to improve the problems they incurred, etc. Once the ground rules are established, welcome them, just as the forgiving father welcomed home the prodigal son.

  • There are some guiding principles to keep in mind during this situation.
  • Don’t usurp the spouse if they are married – your advice is secondary to their spouse.
  • Don’t use your money to control their lives.
  • You and your spouse should be of one mind.
  • Encourage them to be dependent on God and each other.

If you decide to give them money instead of having them move in with you, be clear if the money is a gift or a loan. If it’s a loan, draw up paperwork with the amount, interest rate and expected payback plan. If you are helping them financially it is important to distinguish between a gift and something that has strings attached—many hard feelings on both sides can be avoided by being sure this is understood clearly by both parties from the initial stages.

Adults moving back home presents a strong case for teaching young children how to be responsible with money. Teaching children to handle money God’s way is part of a parent’s responsibility. Teaching them how to save regularly, spend wisely and give generously when they are children will prevent many heart and head aches when they are adults.

Proverbs 22:6 “Train up a child in the way he should go; even when he is old he will not depart from it.”

It’s not easy, but it could be a good experience if you are able to help them learn to be independent. If you are just increasing their dependence on you, it’s going to be trouble!