Is a Financial Disaster Heading Your Way?

If it’s time to get your finances under control, you may want to consider the services of a credit counseling organization. Most reputable credit counselors are non-profit and offer services at local offices, online, or on the phone. 

Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn’t do that, consider it a red flag and go elsewhere for help.

Once you’ve got a list of counseling agencies check them out with your state Attorney General and local consumer protection agency. They can tell you if consumers have filed complaints about any one of them. BUT if there are no complaints about them, don’t consider it a guarantee that they’re legitimate.

After you’ve done your background investigation, you will want to interview several credit counseling agencies. Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan (you pay them and they pay your creditors) as your only option before they spend a significant amount of time analyzing your financial situation.

Find out about their fees—either an initial or monthly fee and get a specific price quote in writing. Do a thorough review of any agreement or contract and never sign anything without reading it first and having a complete understanding of the terms and conditions. 

Check out their qualifications to be sure they are licensed in your state and see if they are accredited or certified by an outside organization and be sure to check out the certifying organization. Try to use an organization whose counselors are trained by a non-affiliated party.

Ask about confidentiality. What assurance do you have that your personal information (including address, phone number, and financial information) will be kept confidential and secure?

Find out how the employees are paid. If employees are compensated by selling you certain services, or if you agree to pay a fee, or if you make a contribution to the organization, consider it a red flag and go elsewhere for help.

Beware of any organization that tells you it can remove accurate negative information from your credit report. Legally, it can’t be done.  Accurate negative information may stay on your credit report for up to seven years. And if they are making you pay for removing inaccurate information, you can do that yourself free of charge.

If you do decide to work with a credit counseling service, continue to pay your bills until your creditors have approved the plan. If you stop making payments before your creditors have accepted you into a plan, you’ll face late fees, penalties, and negative entries on your credit report. Contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization for your debt management plan.

Make sure the organization’s payment schedule allows your debts to be paid before they are due each month, since paying on time will help you avoid late fees and penalties. Review the monthly statements from your creditors to make sure they received and correctly applied your payments. 

If your debt management plan depends on your creditors agreeing to lower interest rates or eliminating finance charges, or waiving late fees, make sure these concessions are reflected on your statements.

The best advice we can give you is to stay on top of your finances on a regular basis and don’t let your spending habits and debt overwhelm you.

If you have any inkling that your finances are headed for disaster, address the problems as soon as you see them coming. The longer you wait to get your finances under control the more of a mess you’ll have to clean up. These problems don’t happen overnight—they creep up gradually. If you are in a situation where your finances feel slightly out of control, the best thing you can do is get them under control before they get unmanageable.

If you are experiencing overwhelming financial challenges, you’re not alone. Consumer debt is at an all-time high. Whether your debt is the result of an illness, unemployment, or simply overspending, it can seem impossible to manage.

Although it may seem counter intuitive, one of the most important things you can do in tackling a financial problem is to pray. If you are married both of you should pray together on a regular basis for the strength and wisdom to be good stewards of the blessings God has given to you.

It IS possible to dig your way out of a financial disaster. We know—we did it!

The Compass Catholic podcast has more ways to be proactive about avoiding a financial disaster.

Don’t Get Scammed!

The Consumer Financial Protection Bureau has only been compiling complaints for about 8 years. Debt collectors are the top consumer complaint category. Identity theft (credit card fraud and tax fraud) was the second biggest category. 

The third most common consumer complaint is an imposter scam, which involves someone pretending to be a government official, tech support representative, or a loved one in trouble to trick consumers into giving them personal information.  

There are any number of scams out there—here are some ways to avoid them. 

Secure passwords are a vital way to protect yourself. The most often used passwords are Password or 00000 or 12345. Protect your personal information by creating secure passwords.

Think of a sentence, such as “I was born on September 13, 2000 in Abilene, Texas.” Then take the first letter of each word or number: iwbosttiat. Once you have that, create a password by making some of the letters caps and replacing some letters with symbols or numbers that are similar to the letters being replaced. Using that logic, your password would be: Iw6o$13ti@T.

The new password is not a real word, it can’t be found in the dictionary, it is a mixture of letters, numbers, and symbols, it is meaningful to you and it is not something people can easily discover (like your phone number or birthdate.)

A second way to protect yourself is to be careful with emails. Even if you recognize the name of the sender on the email, if it’s suspicious, check out the email address in case that person’s email has been spoofed. If you are trying to see if a website mentioned in the email is legitimate, type the email address in your browser, do not click on the links

You can also protect yourself by being cautious about answering phone calls. Don’t believe your caller ID. Technology makes it easy for scammers to fake caller ID information, so the name and number you see aren’t always real. Don’t answer any calls from numbers you don’t recognize. If it is important, and if the call is personal, the caller will leave a voice mail. 

Hang up on robocalls. If you answer the phone and hear a recorded sales pitch, hang up. These calls are illegal, and often the products are bogus. Don’t press 1 to speak to a person or to be taken off the list. That could lead to more calls, since they were able to get a live person to interact with them.

You can also use the website whitepages.com to do a reverse phone look-up. Type in the phone number which called you and see if the phone number is a high potential for scam. On your cell phone, block the calls you know are from scammers.

If you are suspicious about a specific call, take time to check it out. If someone says they are from a credit card company or a government agency and they are asking you for personal info like a credit card number or your social security number, call them back on a number you have verified.  Don’t use the phone number the potential scammer gave you.

If someone calls and says there is a potential for fraud on your credit card and they want you to give them your credit card number to verify, don’t do it. Use the phone number of the back of your credit card and call the company back to verify if the potential fraud is real.

Don’t pay upfront for a promise. Someone might ask you to pay in advance for things like debt relief, credit and loan offers, mortgage assistance, or a job.  They might even say you’ve won a prize, but first you have to pay taxes or fees. If you pay, they will probably take the money and disappear. 

In all situations, be cautious about how you pay. Credit cards have significant fraud protection built in, but some payment methods don’t. Wiring money through services like Western Union or MoneyGram is risky because it’s nearly impossible to get your money back in case of fraud. That’s also true for reloadable cards (like MoneyPak or Reloadit) and gift cards (like iTunes or Google Play). 

Don’t deposit a check and wire money back. By law, banks must make funds from deposited checks available within days, but uncovering a fake check can take weeks. If a check you deposit turns out to be a fake, you’re responsible for repaying the bank, even if you already spent the money you deposited.

Before you give up your money or personal information, slow down and think. Scammers want you to make decisions in a hurry. They might even threaten you, or say the police are on their way to arrest you. Slow down, check out the story, do an online search, consult an expert, or talk to a friend.

Be skeptical about free trial offers. Some companies use free trials to sign you up for products then bill you every month until you cancel. Before you agree to a free trial, research the company and read the cancellation policy. And always review your monthly statements for charges you don’t recognize.

Freeze your credit through Equifax, Experian or Transunion to avoid identity theft. Unless you are applying for a mortgage, car loan, a credit card or some other type of loan, there is no reason to allow inquiries against your credit. When you restrict access to your credit information, it becomes more difficult for identity thieves to open new accounts in your name. That’s because most creditors need to see your credit report before they approve a new account. If they can’t see your report, they may not extend the credit.

Sign up for free scam alerts from the Federal Trade Commission at ftc.gov/scams to get the latest tips and advice about scams sent right to your inbox. If you spot a scam, report it at ftc.gov/complaint

Proverbs 24:6 says, “For by strategy war is waged, and victory depends on many counselors.” Wage war on the people or organizations out there who are trying to take advantage of you. 

We hope these ideas will help you keep your information safe and protect you from scammers. The Compass Catholic podcast has more ways to protect yourself.

Plan to be Content This Christmas

School just started a few weeks ago, and Christmas is probably not at the top of your priority list currently, but the best time to start planning for Christmas is now. 

Bring unprepared can lead to stress and debt. Plus so many times we feel pressured to make Christmas perfect and we aren’t content till there is a mountain of toys for the kids and we have spent a ton of money buying gifts for every aunt, uncle, friend, neighbor and 5th cousin 10 times removed. Too often our buying and spending frenzy is driven by an effort to be content.

Did you know that contentment is mentioned in the Bible seven times and six times it has to do with money and possessions? Scientific evidence suggests that being content may have major benefits for your health. Contentment helps fight stress, boosts your immune system, protects your heart and reduces pain. What’s more, it may even increase your life expectancy.

Contentment is in pretty short supply in our culture because the advertising industry creates discontent, especially when there is a holiday where the advertisers can influence us to spend money and buy what they are selling. 

If we believe the commercials, we have to buy things people don’t need in order to satisfy our gift giving obligation and in an effort to make them happy. And you and I know that Christmas can be one of the most frustrating times of the year when it comes to obligatory gift giving.

It doesn’t matter if  we can afford to spend a lot of money, the problem is being obligated to do it, and not being content unless we are keeping up with everyone else. We live in a consumer society that operates on the assumptions that more is always better and happiness is based on acquiring more stuff.

That concept is especially true when it comes to the overload of spending many people do at Christmas. Paul wrote in Philippians 4:11-13 “I have learned to be content in whatever my circumstances. I know how to get along with humble means, and I also know how to live in prosperity; in every circumstance I have learned the secret of being filled and going hungry, both of having abundance and suffering need. I can do all things through Christ who strengthens me”  

Paul learned to be content, it’s not an instinct we’re born with; we must learn it. And the foundation of contentment is being grateful for what we do have. As Americans we live in one of the richest countries that ever existed. Even if you are barely making ends meet, you are still among the richest people on earth when compared to the standard of living in most other countries.

So if you struggle with being content, or if you are overwhelmed with Christmas obligations you would just as soon avoid, meditate on Phil 4:11-13. If your feeling of happiness, peace and joy comes with a price tag, you’ll never be content no matter how much you spend at Christmas. The poorest people can be content, while all the money in the world can’t buy contentment. 

Take a long hard look at Christmas last year. What brought you the greatest joy and contentment and what added to your holiday stress? The key is to plan Christmas so you can do more of what went well and less of what was a disaster.

Maybe the kids really enjoyed going to midnight Mass, or maybe they were so tired and cranky that midnight Mass was a failure. Maybe traveling halfway around the country to visit grandparents was the best thing ever or maybe it was a disaster because the kids really missed being at home for Christmas. Maybe your Christmas spending was well planned and under control or maybe it was out of control and you ended up facing a ton of bills in January.

Now is the time to plan on doing more of what went well and figuring out how to avoid the disasters. Now is the time to have the discussion with other family members and friends about cutting back on Christmas spending. They will probably be as relieved as you are to simplify things. But do it now so nobody is surprised in December when you want to change what you have always done.

Even if you are financially well off, what about your friends, family and neighbors. Are they able to keep up with the overspending most families do at Christmas? Or are they pressured into spending money they don’t have in order to keep up with everyone around them?

If finances are tight, as a family decide to cut down on the number of gifts you’re giving until your finances are in better shape. This could be a tough call and you may have a lean Christmas in order to get ahead, but there will be no long-term harm if you spend less. 

What is really important at Christmas is the gift of God made man, not all of the toys and clothes and electronics we buy for each other. 2 Corinthians 9:15 (NABRE)  “Thanks be to God for his indescribable gift!”

The only gift anyone really needs at Christmas is the Baby Jesus.

So as you are thinking about and planning for Christmas, and as a way to focus on what is really important at Christmas time, try to make this Christmas a time to practice the virtue of contentment, and remember the verse from St. Paul …  “For I have LEARNED to be content” … anyone can learn to be content and escape from the discontent the advertisers try to thrust upon us at Christmas.  

Join us on the Manage Your Money God’s Way podcast for additional thoughts about how to be content this Christmas. 

Debt Payoff Plans

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Health Care Sharing Plans – Part 1

Health care costs seem to be rising every year, which has increased the popularity of some alternatives to traditional health insurance. These are called health care sharing plans. They operate at a cost that is well below traditional health insurance but they may be restrictive with their benefits.

To help you decide if one of these plans is right for you and your family, you need to know that a health care sharing plan is typically a faith-based organization, which facilitates voluntary sharing among members for eligible medical expenses. 

Members send in monthly “shares” (which is similar to a premium) and that share covers the medical expenses of other members. In other words, I make a payment and that payment is distributed to you for health care costs you incurred, according to the program guidelines.

The premise is that people with similar beliefs and values are coming together to share each other’s burdens, which is similar to the risk-pooling nature of regular health insurance. It is the same message we find in Galatians 6:2, “Bear one another’s burdens, and so you will fulfill the law of Christ.”

A major appeal of health care sharing plans is that they are much less expensive than regular health insurance.  Families can become members in health care sharing plans for $300 to $500 per month, compared to about $1,500 per month, which is the average unsubsidized cost of traditional health insurance coverage for a family. 

The cost is usually calculated on one or two adults, and the plans we looked at have an additional cost for children. However, it is the same cost whether you have one child or ten. In addition, health care sharing plans usually have lower out-of-pocket expense limits than typical high-deductible health insurance. 

It’s easy to see the savings appeal for people who do not have job related health care or those who do not qualify for government assistance. 

One caveat to keep in mind is that healthcare sharing plans are not actually health insurance. One of the reasons they’re less expensive is that their coverage may be more limited. Their limitations of coverage are based not only on managing potential costs and claims, but also the faith-based nature of the programs in the first place.

While health care sharing plans do cover many ordinary medical expenses that health insurance covers, they typically do not cover many health-related costs deemed to be unbiblical. They may exclude payments for birth control, injuries related to alcohol or drugs, and injuries from certain hazardous activities (or even failure to wear helmets or seat belts in some situations.)

To become a member, health care sharing plans may require you to sign a statement of faith, and in some cases, they may verify regular church attendance and have your church membership validated by a church leader. The requirements vary by program, but are very similar.

Even though it may seem like a group of people pooling risk and sharing expenses is the definition of insurance, it isn’t. There are some key features of health insurance which health care sharing plans lack. Insurance is a legally binding contract between an insurer and the insured. But everything in the health care sharing plans is voluntary and not binding. Health care sharing plans do not guarantee compensation for specified loss, damage, illness, or death in return for payment of a premium.

Even though they are not health insurance they rely on a similar framework, but use different terminology. 

Here are some common health insurance terms, and their health sharing program equivalents:

  • Deductible = Personal Responsibility, Annual Household Portion (AHP), or Annual Unshared Amount (AUA)
  • Premium = monthly share
  • Claim = eligible event, incident, or illness
  • Explanation of Benefits (EoB) = Explanation of Sharing (EoS)

Health care sharing plans are designed to mimic insurance, and have successfully done so for decades to the tune of billions of dollars of facilitated sharing payments. 

In a time of rapidly increasing health insurance costs, people are turning to this alternative option more frequently. All of the major healthcare sharing groups have seen dramatic increases in membership over the last few years, with total membership now over one million people between the four major programs. 

You can find information on the web arguing how good or bad each of these programs are. In general, the website of each program is very clear about what is covered and is not—even if what they do and don’t cover isn’t always the same as traditional health insurance. And, of course, each program works differently from traditional insurance. 

And each of the healthcare sharing organizations has multiple options. And, to make it more complicated they all have their own unique approaches, pros, cons, and quirks. 

With an understanding of what these programs are, how they work, and some of the differences between healthcare sharing and regular health insurance, what should you do?

On one hand, there is considerable risk in joining these programs, as your health and even your life may be at stake. 

However, there are many people for whom these health care sharing options are working very well. Their needs are covered, and they are saving hundreds of dollars (or more) every month. 

But it’s a decision each individual needs to make based on their own situation, the price, moral appeal, and acceptance of the various coverage gaps and risks. And even being aware of the gaps, doesn’t mean it’s easy to know the risks. 

Being willing to accept those risks is a very personal decision that YOU have to make based on personal research. Nobody can make that decision for you.

The major health care sharing plans, are listed below. Most of them have an online calculator to determine your costs. There are “contact us” forms on their websites where you can request further information. And most of these sites have an online chat option. 

If you are considering a health care sharing program, we highly encourage you to do extensive homework. Look at the company, how long they have been in business, comments from members, all the different options and especially what they will and will not cover.

When making a decision such as this, which has such a potentially significant impact on your life and wellbeing, we also encourage you to pray for wisdom!

Join us next week for Healthcare Sharing Plans – Part 2. We will be having a discussion about things to beware of because they are not covered or coverage is limited.

Congratulations on Getting Engaged!

Christmas and Valentine’s Day are popular days for marriage proposals. If you recently got engaged, congratulations!

It’s time to start talking about a lot of things—the location of the wedding, the reception, the guests, the food, the flowers, and the all-important topic of money in your marriage.

It may not sound very romantic to talk about money when you still have stars in your eyes. But not talking about money before you get married is a sure recipe for disaster.

There are so many assumptions when couples go into marriage, and that is especially true about finances. Unless you have had significant discussions with your fiancé about your individual finances, you really don’t have any idea about how you’ll manage your joint finances.

Here are some examples of financial assumptions: He thinks $1,000 in debt is horrible. She thinks $10,000 in debt is normal. He wants to lease and get a new car every 2 years. She assumes they’ll buy a good used car and keep it forever. He thinks they will only use cash and buy what they can afford. She thinks that they can use credit cards and carry a balance from month to month. She thinks they need a formal budget. He would rather fly by the seat of his financial pants. She wants to keep their finances separate. He wants joint finances

It’s easy to understand how these things will come up sooner or later in a marriage, so it is best to have the money discussions when you are preparing for marriage.

The Compass Catholic book God Marriage & Money will help you with topics to discuss. There are 17 short chapters and each chapter contains a different topic related to money in marriage.

Sample discussion points include the following: 

  • Sharing credit reports and credit scores.
  • How much money can each of us spend without discussing it together?
  • How much debt do we have as a couple?
  • How much interest are we paying on debt each month?
  • How much do we have in savings?
  • What are our saving goals?
  • How much will we give?
  • Who will we go to when we need to seek Godly counsel? 

It is important to find ways for you both to be equally engaged in all money decisions or money can become a control mechanism and a divisive factor in your marriage. 

As a couple, define your decision making process around finances by creating “what if” scenarios. What if I lose my job? What happens when we have a baby on the way? What if we have to move to a different city?

We strongly believe that all the finances in a marriage should be joint. If you aren’t sharing your finances, what else are you holding back from your spouse? If there is a specific situation where the money cannot be co-mingled, decide together what is mine, yours and what is ours.

Most couples have their own hybrid system for what works best. Find the one that is best for both of you. Have a clearly defined money management system all the way from who handles the incoming mail to who handles the outgoing payments. Without a well thought-out operational plan, things fall through the cracks. One person “doing the accounting” is probably the best way to keep the books straight. But it is necessary for both of you to be involved and informed. 

When things get tough, address problems immediately (no secrets allowed).  Avoiding the issue only makes it more toxic and drives a wedge into your relationship. It may not sound romantic, but schedule regular money dates to make sure you are staying on track with your budget, savings, and financial goals.

Talk, talk and talk some more. The most important thing is to have open communication with no blame and shame. We all have hang-ups around money. Treat your partner with compassion. And it’s not just about communication. It’s about making a plan, and sticking to it together. 

Information gives you power over your finances. Not talking about your finances, not making a plan and not coordinating as a team makes you a victim of your finances. If you control your finances, they will never control you or your marriage. 

A lot of couples keep their parents involved in their finances, either by asking for loans or because mom and dad have been paying for some items and keep paying for them after the marriage.

Jesus said, “A man shall leave his father and mother and be joined to his wife, and the two shall become one flesh” (Matthew 19:5). When you marry, you are to leave your parents for your spouse in order to become financially and emotionally independent from your parents.

Part of the reason to leave is because it forces you to become more mature and more dependent on each other. That’s what marriage is all about – growing that bond between husband and wife

How you communicate about money and how you handle money as a couple has a huge impact on your marriage. Money can be one of the leading causes of divorce, so we encourage you to have the money talk when you are engaged and to find ways to work together on your joint finances.

Lessons from a Financial Train Wreck

An article on The WealthSimple.com website caught my eye. In their “Money Diaries,” they feature interesting people telling their financial life stories in their own words. 

This is the story of one couple who is a financial train wreck. They did just about everything wrong in their finances, and even acknowledge the mistakes they made, yet they refuse to change.

Their income is healthy by any standard. She makes $70,000, he makes $90,000 a year, additionally he earns $100- $250 per night a few times a week bartending at private events. Their total yearly salary is somewhere in the neighborhood of $170,000-$180.000. Yet they can’t make ends meet each month and they keep digging deeper and deeper into debt.

Spending whatever you earn without a thought to how you are spending it, or where it is going is a sure recipe for disaster.

The explanation for how they got into debt was, “I think education loans probably started us on this path. But credit cards got us in trouble.” Did you notice there was no acknowledgment of personal responsibility in those statements? No admission that THEY took out the student loans and THEY used the credit cards irresponsibly.

Not taking responsibility for financial problems also means they don’t have to take any responsibility for solving their problems. 

Sometimes you just have to look at yourself in the mirror and admit you were wrong and you need to do something to correct your mistakes. Facing up to mistakes is the only way to solve problems.

The wife has a law degree but has never practiced law. They think her student loan debt started at $90,000, but they aren’t sure of the current balance since the only time they check the student loan website is to request financial hardship status so they don’t have to make payments on the loan.

But the interest keeps building. With interest, the law school debt is now $120,000 to $140,000. That’s about $30,000-$50,000 or more they’ll pay in interest. 

They think they are escaping a problem by asking for deferrals on the loan, but all they are doing is pushing the problem into the future. The less they pay, the more interest adds on to the original loan amount, and the more they owe. That interest is building debt like a tsunami wave which will eventually crash down on them.

Like many people, this couple uses credit cards to sustain a lifestyle they can’t afford. They have a total of 10-15 credit cards, with 8 maxed out. Yet they freely accept more debt on the credit card and loan solicitations they get in the mail, even though they think the lenders are crazy for offering them more credit.

Maybe the banks just know a cash cow when they see one!

If you’re really serious about getting your finances straight, at some point you need to quit digging the hole deeper and deeper.

In addition to the student loan debt, they have no idea of their overall total debt. They think they have: $60,000 in credit card debt; $18,000 in a personal loan; $360,000 in a mortgage and a second mortgage, plus the unknown student loan amount. That’s close to $600,000 in debt!

The first way to control debt is to list it all. Every penny. Mortgage, car loans, credit cards, student loans, regular bills that are past due, and money borrowed from Uncle Fred. Then add up how much interest is charged each month. When people see how much money they waste every month by paying interest, it’s usually enough to get their attention and get serious about paying off debt. Yet they keep pushing it aside. 

They have 3 children who attend private school. The tuition is $32,000 a year per child or $96,000 total per year. But they declared a financial hardship and are only paying $15,000 total in tuition for the three children. But, of course, the $15,000 in school tuition is being charged to more credit cards. Another way they are digging the debt hole deeper and deeper.

They bought a house they couldn’t afford about 3 years ago. And they used both a first and second mortgage to buy the house. They have refinanced the first mortgage several times, which means more money down the drain in closing costs for refinancing. The house is worth $360,000, and that’s how much their mortgage debt is. If there is a need to sell, they will probably lose money.

They didn’t calculate the cost of the mortgage payment along with the other housing costs (repairs, maintenance, utilities, etc.) to ensure housing costs total no more that 40% of their monthly budget —mostly because they can’t even comprehend the thought of a budget.

Like many people in the same situation, they were looking for a quick fix. They cashed out his 401(k), which was around $70,000. They paid down the balances on three credit cards with the $70,000 and also paid off a $12,000 loan. Because there was some financial relief, they “Had a really good Christmas that year.”

But they didn’t fully understand the cost of the tax penalties in cashing in a 401K account, and they ended up owing $18,000 to the IRS and $2,000 to the state in penalties. Because cashing in the 401(k) didn’t work in eradicating their debt, they went to her parents and borrowed $40,000 to continue funding an unaffordable lifestyle.

If you want to escape from the trap of debt, there really isn’t a quick fix. Changing your financial life is like a diet. You can go on a starvation diet and lose lots of weight really fast. But you can’t keep it off. In a similar way, you can use easy money to pay off debt but if you have not changed your life style, debt is going to creep back up. 

In the article, it stated they shop at Goodwill for clothes because they can’t afford to pay full price, which is great. But when it came time to rent a tuxedo so their son could go to prom, they didn’t have enough cash to rent a tux, so they bought their son a tuxedo using their non-maxed out store credit card. They grow veggies in the back yard, but one of the kids likes to snack on sushi and a smoothie, which adds up to a $15-$20 snack!

The unfortunate thing is that they are not teaching their kids any financial responsibility. The kids are learning to be just as irresponsible with money as mom and dad are.

The really sad thing about this whole situation is the way they are destroying their marriage because they cannot handle their finances like responsible adults.

They closed the interview by admitting that one of them will probably have a heart attack and die from stress due to their financial situation. So, the solution is that the surviving spouse can use the life insurance proceeds to pay off debt. But that won’t solve anything if the surviving spouse continues to be irresponsible with money.

I don’t know if these people are Catholic, or Christian or if they even go to church. They never mention faith in the interview. 

The big piece they are missing is the joy of living as a steward of all the blessings God’s given them. That can change everything.

Stop Funding Your Adult Child’s Lifestyle

Your adult child comes to you for financial help. What’s your response? 

The adult child may be thinking: “They should help me—I deserve it. Mom and dad are fine financially, why shouldn’t they help me? I studied hard in school but I can’t find a job in my field. My roommates moved out and I can’t afford an apartment on my own.” 

Mom and dad may be thinking: “We need to save for retirement. We did our job to help them grow up. Now they are an adult and should be taking care of themselves. They waste money on unnecessary purchases why should we waste our money helping them do that?”

How much you should help adult children is a loaded question, and it’s two sided. Our children grow up and become adults, but we never stop being parents and often it’s hard to know where to draw the boundary between helping and hurting.

The best financial gift you can give your children is to teach them how to be financially independent when they are young. Giving them more and more financial responsibility as they grow from toddlers to teens to adults provides a solid foundation for being on their own.

If you’re a parent who wants your adult child to be financially independent, start when they’re young. Teach them to budget, because budgeting skills are key to long-term financial independence. It’s a learned skill, not something that they will pick up on their own. Start small so they can learn and gain confidence as they grow up and take on more responsibility. 

Even if you are paying for something when they’re teens, involve your child in budgeting. If you are paying for school clothes, give them an amount that can spend then allow them to spend it the way they choose. Or give them an amount they can spend on school lunches then let them manage the money. Don’t bail them out when they make mistakes. If they spend all their lunch money for the week on Monday, they’ll have to figure out how to eat lunch for the rest of the week without your help.

Teach them the difference between needs and wants. This goes along with budgeting, and learning the value of a dollar. Knowing the difference between needs and wants helps them map out a budget that takes care of the necessities before they blow money on something that is unnecessary

Define a transition plan. If your child will soon be leaving home, you may want to set up a deadline for financial independence, such as when they graduate from college and land their first job. Or you may want to implement a more gradual approach where you transition one financial obligation at a time. Whichever you decide to do it, have conversation to help them prepare for the transition. Your job is to be supportive but firm. Answer questions and give advice when asked but don’t bail them out if they miss a payment, incur a late fee or overdraft their bank account.

The transition plan needs to be clearly defined. There may be bills that make sense to pay jointly due to family plan discounts, such as a cell phone coverage. Or you may want to include the adult child in the family vacation without expecting them to contribute their fair share of the expenses. Or you may have saved money in a college fund that they can use for an advanced degree. Whatever it is that you are prepared to contribute to them, be sure to let them know.

This whole situation of how much to help adult children can be a very sticky subject between parents and children. It is important for both you and your spouse to be on the same page about what kind of financial assistance you may want to offer, how much and for how long. It can get even stickier when you consider there may be two married couples involved if your child has a spouse. The decision on how much to help is an art more than a science, which requires prayer and discernment. 

Supporting your adult children financially for too long, means you may fall into one of two traps. First, it drains money that you should be directing toward your retirement savings. Second, the more you help them, the more dependent they become.

There are many families who can support an adult child financially, but it is still a good idea to help them learn to handle their own finances. You may be in a solid financial situation today, but that can change.

There are ways to help them financially without providing financial support. Treat them to dinner when you visit. Give gifts of cash on special (or not so special) occasions so they can splurge a little (such as sending a check along with the Valentine’s Day card.) If you are visiting them, buy groceries and include a few extras things they enjoy but can’t afford.

Remember that a gift is a gift. If you are going to give a cash gift, they get to spend it the way they want to spend it. If you have strings attached, then it really is not a gift. 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.

If an adult child runs into financial problems that are no fault of their own, how much should you help? There are a lot of factors to consider to answer that question. How much can the parents afford? Is the child going to work and contribute to the household expenses? Are they married and are grandchildren involved? Is the problem able to be solved relatively quickly?

I believe that we should do whatever we can to help our children when something challenging happens to them that is beyond their control. You just have to walk the fine line between spoiling them and helping them. Provide just enough to help them stay out of debt for basic needs

If your adult child is married, do not usurp the role of their spouse. Your advice is secondary to their spouse. Don’t use your money to control their lives. Encourage them to be dependent on God and each other.

Teaching children to handle money God’s way AS THEY GROW UP is part of a parent’s responsibility. If you really want what is best for your children, and if you want them to remember you as a good parent, keep in mind this verse from Proverbs 22:6 “Train up a child in the way he should go; even when he is old he will not depart from it.”

Are Christmas Bills Flooding Your Mailbox?

The buying spree on Black Friday after Thanksgiving may have led you to experience Black Monday, Black Tuesday, Black Wednesday … as you pick up all those Christmas credit card bills from the mailbox each day.

For many people, the reality of Christmas bills arriving in the mail means the worst time of the financial year. Not budgeting for Christmas spending, but going on a spending spree anyway means the cost for all the gifts, decorations, travel and party food has hit the fan and it’s time to figure out how to pay for the Christmas spending.

Reviewing various websites, the average cost of Christmas is about $700 per family. Most of the money is spent on gifts and after that, the next largest Christmas expense is travel. 

Statistics show that the average family will be paying for Christmas 2018 – all the way until October 2019. And that’s about the same time the whole buying spree starts all over again!

If you are in a debt cycle now that the Christmas bills are rolling in, stop spending with your credit cards until you can get the Christmas charges paid off. Put your credit cards in a drawer and don’t use them again until your Christmas debt is paid in full. 

Or put the cards in a baggie, seal it up nice and tight, then put the baggie in a bowl, add water to the bowl and put the whole thing in the freezer. That will make the credit cards much harder to access and you’ll have to stop and think before using them.

While your credit cards spending is on hold, scour each and every spending category for ways to cut back. The only response to spending money at this time is NO! so you can direct every extra penny to pay off the Christmas debt.

Add up all of the Christmas purchases on each of your credit cards so you know the total you spent on Christmas by card. Then for each card make the minimum payment, plus as much as you can scrape up to pay against your Christmas purchases. If you have cards that you didn’t use for Christmas spending, but they still have balances—pay only the minimum payment until your Christmas debt is paid in full.

Luke 14:28-30 reads: “Which of you wishing to construct a tower does not first sit down and calculate the cost to see if there is enough for its completion? Otherwise, after laying the foundation and finding himself unable to finish the work the onlookers should laugh at him and say, ‘This one began to build but did not have the resources to finish.’”

Not planning for Christmas spending is like starting to build something with no idea of the total cost. You know Christmas comes every year on December 25th. You know that there is extra spending at that time of year. You know you have to spend money on gifts, decorations, travel and food. But just like the verses from the Gospel of Luke, if you haven’t planned your spending, you are the person who started building without calculating the total cost.

Make this be the LAST year that you get into debt for Christmas. Plan ahead for Christmas 2019!!

As soon as you have the Christmas debt from 2018 paid in full, figure out how many months are left until Christmas 2019. Multiple the number of months remaining by the amount you can afford to save for Christmas. And that calculation is how much you can spend on Christmas in 2019 so you can have a debt free holiday. The key is to limit your spending for Christmas 2019 to the amount of money you have saved!

This is the year where you get ahead of the debt cycle by paying off the Christmas debt and saving for the upcoming Christmas so it is important to control your spending and escape the ongoing debt.

If you were only able to save $400, that’s all you can spend. You can only spend what you have saved. Which is just the basic idea behind making and managing a budget.

Even ants know how to save! Proverbs 6:6-8 says: “Go to the ant, O sluggard, study her ways and learn wisdom; For though she has no chief, no commander or ruler, she procures her food in the summer, stores up her provisions in the harvest.” You are smarter than an ant, but, do you have the discipline to save like the ants do? 

Always remember—in the back of your mind—Christmas will be coming again on December 25th. Will you be ready celebrate Christmas this year without going into debt?

As Sirach tells us in 18:30, “Do not follow your base desires, but restrain your appetites.” Restraining your appetites means a healthy financial future. What’s more important—over the top Christmas spending or a secure financial future?

Make 2018 be the last year you go into debt for Christmas!

What is Socially Responsible Investing?

Biblically Responsible Investing (BRI) or Socially Responsible Investing, (SRI) is gaining in popularity around the US.  BRI is an attempt by investors to align their investment decisions with their personal belief system and convictions.

You know there is nothing in the Bible that gives you specific investment advice or tells you which stocks to buy in the stock market. But there are a lot of verses in the Bible about loving our neighbor, caring for the poor, and using everything in our life to honor God in all we say and do. And that “do” part includes how and in what we invest the money God has entrusted to us.

A socially responsible investor considers the nature of the business the company conducts as an investment criterion. This may include avoiding investments in companies that produce or sell addictive substances (like alcohol, gambling, and tobacco.) The investor may also seek out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts, as well as investments that support religious beliefs.

The policies of some investment companies have been avoiding businesses that deal in alcohol, gambling and tobacco products since the 1940’s!

There are several formal organizations that advocate SRI. One is the Interfaith Center of Corporate Responsibility (ICCR), which is considered the foundation of the movement. It started in the 1960’s in response to companies making money from tobacco, tainted infant formula being sold to mothers in the developing world, and agent orange.

Paragraph 1926 of the Catechism of the Catholic Church tells us “The dignity of the human person requires the pursuit of the common good. Everyone should be concerned to create and support institutions that improve the conditions of human life.”

The United States Conference of Catholic Bishops (USCCB) has been active in SRI since 2003 when they issued a list of principles that they follow regarding Church investments.

The main points of these principles are:

Principle 1: The Conference should exercise responsible financial stewardship over its economic resources obtaining a reasonable rate of return on its investments.

Principle 2: The Conference should exercise ethical and social stewardship in its investment policy.

Their investment strategy is based on Catholic moral principles which support the virtues of prudence and justice.

The primary strategy of the USCCB is a refusal to invest in companies whose products and/or policies are counter to the values of Catholic moral teaching. Rather, they focus on investing in companies which promote the common good. The investments they choose either produce some significant social good or promote the Church’s service to the poor.

The USCCB reports no negative impact on the financial return of the Conference’s investments since these Socially Responsible Investment Guidelines have been in place.

You may be thinking that this type of investment strategy is great for the church but not applicable to you. But stop for a minute and think of all the issues that are considered “hot buttons” today, such as: pro-life; climate change; human trafficking; handguns; and addictive substances.

Are your investments supporting those issues which align with your faith?

We must be aware of how our investments support businesses that honor God. Money talks and the more we make our investments align with our faith, the louder our money talks.

As a nation full of investors, we can make a difference if we just take the time to do it. If the laity can keep the issues alive we can have more effect than politics ever will.

There are many faith-based investment companies that screen businesses for these issues such as “sin stocks” (tobacco, alcohol, abortion, etc.)

We can use our position as stockholders to help change the policies of various businesses. You can have an effect on the way companies run their organizations.

Baby boomers see the world differently than their parents did. Millennials see the world differently than the boomers. The younger the investor, the more aware they are of the companies they are investing in.

If you want to make a difference, carefully choose the company that you use for investment advice. Most investment advisors and financial planners are only focused on the return and not what the company is doing to get that return.

If you carefully choose your investment company you will be able to help make a difference. Don’t believe the story from 20 years ago that you will not earn as much on your investment if you focus on SRI. Business schools have provided strong evidence that companies operating with sustainability metrics can actually do better than their peers.

That doesn’t mean everyone will agree with you. Even within religious communities, it’s sometimes hard to convince everyone that you can do well while you are also doing good.

Paragraph 1916 of the Catechism tells us, “As with any ethical obligation, the participation of all in realizing the common good calls for a continually renewed conversion of the social partners.”

Our Gospel commitment to Christ’s Kingdom of love, justice, and mercy always includes advocating and supporting fairness for all. God calls us to form a community and to correct both the symptoms and causes of injustice that rip apart the solidarity of a community.  (US Catechism for Adults)

Through SRI we can have an impact in solving the social justice issues of our modern culture.