Bishop Mike Rinehart
Let’s face it; most of us didn’t get very good advice from our parents about money. After all, money is taboo in our culture. It feels awkward asking anyone. So before you put any of these recommendations into practice, it’s probably a good idea to find a financial planner that will help you think through things. Here are some things that will save your bacon and help you be a good steward of your God-given resources.
We know. You’re dirt poor and have no accumulated assets. In fact, you’re in debt up to your eyeballs with school loans and a couple of nasty credit cards that got the better of you because you had no other options. You are now, however, in the generosity business. It will be very hard to preach generosity if you don’t practice it, and it could lead to hypocrisy. Starting salary and housing for a pastor in the Gulf Coast Synod is around $64K, not including the $5K Social Security offset for pastors, who are considered self-employed by the IRS. Given the fact that half the world lives on two dollars a day or less, this is a lot of money. Give away $6400. Plan it at the beginning of the year. If you’re married, talk about it with your spouse. Set it up on an automatic withdrawal so you’re not tempted to dip into it. Practice what you preach: first fruits giving. As an added bonus, you’ll feel good too. Nothing wrong with that.
- Draw up a budget
Failing to plan is planning to fail. No one builds a tower without first counting the cost, Jesus said. If you don’t make a plan for your money, it will slip through your fingers before you notice. If you’re married, sit down with your spouse and work this out together. Two days before every payday, decide where every single dollar is going to go. At the bottom of this article is a sample budget.
- Attack your debt
Most of us had to borrow for our education. If you didn’t, congratulations; you’re in the minority. School loans are usually low interest. Your house will be 3-5% in this economy, if you have good interest. Cars can range from 5% to 12%. Consumer/credit card can sock you 18-21% or even more. If you’re in debt up to your eyeballs, that will cut into your cash flow, create a lot of frustration, and put stress on your relationship, if you happen to be married. A huge percentage of divorced couples cited finances as one of their top conflicts. Dave Ramsey suggests the debt snowball. Line up your debt payments from smallest monthly payment to largest monthly payment. Forget about your mortgage or rent for now. Don’t consolidate. Instead, cut back on everything except the bare necessities, and make your minimum payments on everything, except the smallest payment. Pay as much extra on that as you possibly can every month. Don’t worry about whether it’s the highest or lowest interest rate. This is about emotions. It will be motivating when you pay off the first loan. Go after that small loan like a cheetah goes after the gazelle. Never borrow from your church, church members, or your family, if you want to keep those relationships in tact. Cut up your credit cards.
- Create an emergency fund of $1,000
More if you’re not in debt. Cars break. Kids get sick. Washers and dryers give out. If you don’t have an emergency fund, you will put it on a credit card, increasing your debt. Put as much as you can into an emergency fund until it’s up to $1000. When you dip into it, pay it back as soon as possible. If you don’t have debt, keep putting money into the emergency fund until you have 3 to 6 months of assets. If you get hurt or lose your job, you’ll be thankful.
- If you buy a house, get a 15-year fixed-rate mortgage
Banks invented a 30 year mortgage, because they want to get paid for 30 years instead of less. A 30-year mortgage is around 4% at the time of this writing in 2017. A 15-year mortgage, however is only 3%. The average price of a home in Houston is still under $200,000. We’ll go with $180K for this example. Let’s say two 30-year-old couples each buy a home, putting down 20% and borrowing $144K. The first couple gets a 30-year mortgage at 4%. The payment is $687/month (plus tax and insurance) until they turn 60. The total cost will be $247,492. The second couple gets a 15-year mortgage at 3%, $994/month until they turn 45. The total cost is $178,999. The first couple will pay $70,000 more for their home. When their friends have paid off their home, they will still be making payments for 15 more years – 15 more years. Now, I know that extra $300/month cuts into cash flow, but consider the cost of 15 years of $1,000 payments. Make sure your housing payment is no more than 30% of your monthly income, and don’t buy a house that costs any more than three times your annual income. Don’t buy a big house for ego. The average size of a home in the US is 2500 ft.², but that’s a lot of house. The more house you have, the more house you have to clean, the more house you have to fix when it breaks, the more grass you have to mow, and so on. Live simply. (If the church supplies you with a parsonage, negotiate a 5% equity allowance and don’t touch it. Someday you’re going to need a house.)
- Get a used car
We know, the gleam of a new vehicle can be irresistible. If you’re independently wealthy, then tithe and go get whatever car you want. But the rest of us have to think carefully about how we steward our resources. The average cost of a new car is a little over $30,000. The car will lose 10% of its value the moment you drive it off the lot, and 10% more off the original price each year. If you finance the car, you will likely be upside down the minute you drive off the lot. That is, you will owe more than the car is worth. This means the value of your car will be about:
- After the first year: $24,000
- After the second year: $21,000
- After the third year: $18,000
- After the fourth year: $15,000
Buy a car that is two or three years old. Let someone else pay the $9,000-$12,000 of depreciation. Remember, a car is a depreciating asset; less is more. It is always cheaper to fix the car you already own. It may be a hassle, but it’s less expensive. Even a $2000 transmission cost less than a $20,000 vehicle. Drive your car ten years or until it is no longer safe to do so. Change the oil regularly, and balance and rotate the tires. Deferred maintenance will cost you more in the long run. Care for your car so that it takes care of you. [video]
- Make an additional contribution to your retirement fund
You’re a part of a rare program. Your employer contributes 10% of your defined compensation into your retirement fund. Add an additional 1% of your own. As the years go by, increase the percentage. If you get a raise, split the difference. This will lower your taxes and set aside for that rainy day when you can no longer work. Save as Joseph did for the seven years of famine. Talk with someone at Portico, or a financial advisor of your own, to get advice on how you allocate the dollars in your retirement account. How much will you put in stocks, global funds, bonds? These decisions can make a big difference over the years, so pay attention, and rebalance every few years.
- Budget for your maximum out-of-pocket health expenses, or at the very least, for your deductibles
If you’re on Portico’s plan, you have an individual deductible is $1200 and a family deductible of $2400 for in-network health costs. You will then pay 20% co-pay until you reach your maximum out-of-pocket: $3800 for an individual and $7600 for a family. Budget for this. $350 a month. You’ll spend some of it, and if not, then you’ll have Christmas money at the end of the year and can put the rest in savings of your emergency fund. If that is high and finances are too tight, at least budget for your deductibles, at $100-$200 a month. If you have large medical bills, make regular small payments. You’ll be okay as long as you continue making payments.
- Set aside money each year in your Flexible Spending Account
If you’re young, you probably don’t have a lot of medical expenses or prescriptions. You will get sick at some point and have to see the doctor. Kids get sick too. Keep track of these expenses. Each year, at the beginning of the year, decide to set aside some money into a Portico Flexible Spending Account. These funds are sheltered from taxes and will save you money in the long run.
- Consult a financial planner
Choose wisely. There are plenty of people out there who will help you with your finances for just the possibility of your future business when you’re ready to invest. Portico can help. Thrivent can help. Ask around.
All this may seem like a lot to think about, but if you carefully plan, it will pay off in the long run. Compound interest can either be your friend or your enemy. No matter how much money we make, we Americans always seem to spend 105% of what we have. Break the mold. Set yourself free. Discipline yourself to give and save, then live off 80% of your income. It’s a challenge, but it can be done. You will find joy in your living and a freedom from materialism. There’s nothing magical about this. It’s just a few things we wish we had been told when we started out. As Jesus said, be wise as serpents, yet innocent as doves.
Sample Monthly Budget
Families come in different sizes and shapes. The housing market is different in various cities and small towns. But here is a budget for a family of two people with one income. A second income of any size will help this out, but let’s imagine there’s only one income at the starting salary of a pastor just out of seminary. Let’s say $60,000 or $5,000/month. The median income in the US in 2015 was $56,516. We will assume some educational and consumer debt. Obviously this pinches the budget. If there is no debt, those resources can go into the rest of the budget or savings. This is just a sample, different people will set different priorities.
Tithe $500 (10%)
Savings $500 (10%. Goes for emergency fund, Christmas, vacation, retirement, future car)
Debt $500 (10%. If debt repayment is higher, use savings above. If it is still not enough, then choices will be made to cut back on expenses below.)
Housing $1,250 (25%)
Cars $700 (14%. Including gasoline and maintenance.)
Utilities $250 (5%. Electricity, water, trash, phone, internet, cable.)
Food $400 (8%. Obviously, you need to avoid eating out on a tight budget.)
Clothing $250 (5%. If this seems like a lot, put some of it into food.)
Medical $200 (4%. In this budget we have saved just for deductibles.)
Insurance $200 (4%. Auto and life.)
Personal $200 (4%. Cosmetics, childcare, gifts, hobbies, pets.)