I am often asked to share basic financial moves. Here are my top six:
1. Make giving to the Lord’s work your top financial priority. The Bible calls us to honor the Lord with the first fruits of our wealth. I believe 10 percent of our gross annual income is the starting goal.
2. Have an Emergency Savings Account. Start with $1,000. Build it up to 3 to 6 months of your income to be prepared for unexpected expenses. It is more essential than a long-term retirement account.
3. Pay off debt. Consumer debt like credit cards, store accounts, or loans from family and friends needs to go first. After that, pay off student loans and mortgage loans.
4. Have an up-to-date, written will. If you don’t have a will, the government has one for you and you won’t like it. This is essential for married couples—especially those with children.
5. Be sure you have proper insurance coverage. It is best to have some level of health, life, and disability insurance. Regarding your property, at a minimum protect against catastrophes.
6. Automate a long-term savings plan. If your company offers a matching plan, take advantage of the maximum benefit.
While investing and retirement planning are important, I find many people jump to that step and skip over some of these basics. By covering this list first, you will be in a much better position to manage day-to-day financial challenges. Even more important is making giving your top priority. This step helps keep your financial priorities in order.
I was with a friend from church who was buying some musical equipment for his children. When he got to the place where the cashier made the pitch for the extended warranty plans he said, “Hold on a minute, I want to ask an expert.” He then walked over to me and said, “Should I take the extended warranty?” “Of course!” I said. Just kidding.
My friend, a professional accountant, laughed as I explained that I never buy them. He said, “Great! I never do either but just wanted to check and be sure I was not making a big mistake.”
Here’s why they don’t make sense to me.
* First, I am buying a brand new product that comes with a limited-time warranty from manufacturing defects. If the product does not work as expected you can likely return it within the first 30 days without a problem so long as you have not abused the product.
* Second, extended warranties are sold with lots of fine print that typically narrow the liability of the manufacturer. Unless I am willing to take the time to read all the fine print, I have no business paying for a warranty and assuming that it is unlimited the way it sounds while I am standing in the store ready to check out.
* Finally, the issuer of these extended warranties would not offer you the insurance coverage unless the odds were greatly in their favor that you will never use it. They have done the math and know that the probabilities are in their favor, not yours. For these reasons, I always pass.
Now, I am sure there are horror stories of folks who benefited from one of these warranty plans. I am not saying you should never purchase these policies. I am saying do your homework, know what you are paying for, and understand the cost vs. reward before you take the offer.
Americans are currently saving an average of 4 percent of their annual income. This is the lowest savings rate for any country in the developed world. At a seminar I just completed, a participant asked me, “Well then, what is the right percentage of our income that we should be saving?” Glad you asked.
First, make a distinction between money that you want to save and money that you want to invest. Savings should be money that is relatively safe and can be accessed at any time a need arises.
It is important to save $1,000 and to keep that money on hand in an Emergency Savings Account that you do not spend unless absolutely necessary. Next, keep saving until you have 3 to 6 months of your living expenses in this account.
After these savings goals have been met, you should save for major purchases and begin using those funds to invest. Most people I talk to have a problem because they start investing money BEFORE they have adequate savings. This means when an emergency arises, there is normally a penalty to take money out of your retirement plans.
Think of the horse and cart analogy. The horse comes first. It should be a regular savings habit sufficient to meet these two goals. The cart is the long-term investments that come later. The percentage is up to you so long as you are able to hit these minimum savings targets in a reasonable amount of time. Once you have hit those targets, I think a regular habit of saving 5 percent of your income is appropriate.
The Bible makes it clear that the standard for good stewardship is that we are to be both faithful and disciplined. Here is my list of best practices for good stewards.
1. Be faithful by honoring God with the first fruit of all your income. That means make giving to God’s causes your highest priority. All other financial decisions come second.
2. Be disciplined in your spending decisions. We are to “count the cost” before we start to build. By carefully spending less than you earn, you will create a surplus to be able to achieve your God-given goals and dreams. It takes financial margin to achieve our goals.
3. Be disciplined by consistently saving a portion of all your income. This means you should have an emergency savings account starting with $1,000 and growing that to a minimum of 90 days of your gross annual income.
4. Be faithful by acknowledging that God owns everything so that your purpose in life does not focus on accumulation but on becoming more and more generous.
5. Be disciplined to pay off all debt. Start with high interest consumer debt, knock out one at a time, then keep going until you are completely debt free.
6. Be faithful to set goals for allowing God to spend you however He wants to spend you vs. living to spend money however you want.
If any of these tips sounds difficult, we want to help you understand the biblical basis for each one. We have materials and books to help you make progress along the way!
According to Bankrate.com the percentage of banks offering free checking with no strings attached fell to 37 percent in 2015.
A total of 95 percent of the non-interest-bearing accounts Bankrate surveyed were either free or waive monthly maintenance fees for account holders who meet certain requirements, such as keeping a minimum balance or, most commonly, making regular direct deposits.
Unfortunately, according to the survey, “those who don’t meet those requirements for free checking are now paying higher fees as well. The average monthly maintenance fee posted a double-digit gain in this year’s survey, rising 11% to a new high of $5.86 (about $6).”
That means the average is now about $72/year to have a checking account if you don’t qualify for a free account. My advice is to find a way to get it for free. The best option is to do direct deposits or maintain a minimum monthly balance to qualify for the free account. If those aren’t possible, shop around for an account with a lower fee.
Although many large banks have abandoned free checking, a lot of small banks, credit unions, and online banks still offer it.
It is sad but unfortunately true that it is expensive to be poor. Those who can least afford to pay for a checking account are likely charged the most. If you cannot find a free checking account service, consider keeping your money at home in a fire-proof safe and carry your budget in physical envelopes to pay in cash. In that way, you become your own bank account.
This may surprise you, but I carry a credit card. I never fail to pay off my balance at the end of the month, and I never pay late fees. For that, Ann and I take advantage of the convenience the card allows, earn airline miles, and enjoy 30 days of interest-free money. I have been asked, “Why do you endorse credit cards? I was taught that they are evil and we should cut them up in little pieces!”
Credit cards are a form of currency. It is true that there are horror stories of unsuspecting folks who get trapped in a cycle of debt that is nearly impossible to escape. The problem is not the card; the problem is using one if you are ignorant of the contract you have signed or if you lack self-control. If either or both of those conditions are challenges you face, don’t use a credit card; use cash only.
However, 53 percent of folks 30 years or older who carry a credit card pay off their balance in full each month. That means millions of people are likely doing exactly what I do—enjoying the free loan, gaining rewards, and using their card responsibly.
Here’s my advice.
* Carry only 1 credit card. Pick a card with an excellent rewards program.
* Learn more about all the credit card options at Bankrate.com or Creditcards.com
* Never ever charge an amount on your credit card greater than what you will be able to pay off in full at the end of the month.
* If you ever fail to pay off the balance, stop using the credit card until you do!
* Don’t consider your credit card a fall back for emergencies. Save cash for emergencies. This way, you will stay out of credit card traps.
The average personal savings rate for Americans has been hovering around 4.9%. We save $5 out of very $100, which is not bad… unless we compare it to other countries. The Chinese average 38%, the Irish 19%, the French save 16%, and Australians save 9.3%.
For a developed country, we have one of the lowest savings rates in the world.
Here are some tips to help you improve and become a better saver.
Start today. Procrastination is your enemy! The sooner you start, the better. If you are reading this and thinking, “Hey it is a good idea to save money, someday” you will likely never do it! Start today.
Set a Purpose. Saving for “retirement” doesn’t motivate many folks until it’s too late. Write down a more specific purpose that excites you, something like – “We want to be able to take our grandchildren on vacations before we get too old” or “Our purpose is to be free to serve others without any dependency in our golden years.” This purpose will compel you to think differently about the spending decisions you are making today.
Practice steady plodding. Proverbs 21:5 says, “Steady plodding brings prosperity; hasty speculation brings poverty.” The tortoise always beats the hare! Put a little aside every month and increase it with each bonus or pay increase or surprise dividend. It takes discipline and time for it to accumulate, but if you have set a strong purpose, you will stay motivated to be faithful.
A friend recently sent me an article where the author gave this challenge – What is a better investment, planting an Apple orchard or buying Apple stock?
According to the author, “If you had bought Apple stock at its IPO in 1980, you’d be up over 200x your money. And that is truly phenomenal performance. But had you instead planted an apple tree back in 1980, that investment of roughly $1 would have yielded you THOUSANDS of dollars over the last 35 years.”
Now, the obvious difference is that working an orchard requires time, labor, and some knowledge about growing fruit, whereas owning stock is a passive investment. We are not comparing apples to apples, so to speak. However, the point is well taken that we should analyze and understand what we are investing in before making a rush to judgment about where we can get the greatest returns.
Experts have long said that investing in your own knowledge, skill, and ability is the highest long-term return on investment. That means you are a better risk than any other opportunity out there.
Here are some ways you can start today:
1. Educate yourself. This doesn’t mean you have to go to college to be educated, but you have to have a desire to learn and an appetite for studying those topics that interest you.
2. Get mentoring. Find someone who is an expert in the areas you want to learn more about and ask for time with them.
3. Get experience. Never make a blind leap of faith. Take small steps toward your long-term goals. Daily progress and perseverance are the keys.
A universal desire of a Christian is to hear those wonderful words of affirmation, “Well done, thou good and faithful servant. Enter into the joy of your Master.”
This well known and highly coveted reward is found in Matthew 25, where Jesus shared the parable of three stewards. To one Jesus gave 5 talents, which the steward increased to 10; to another Jesus gave 2 talents, which increased to 4; the last steward received 1 talent, which, well…it remained 1.
Essentially, the reward was given to those who doubled their original talents. Punishment and rebuke awaited the one who gained no increase on his talent. Jesus even told him that he should have at least entrusted the 1 talent with a banker so it would have gained some interest!
I think it is appropriate to overlay this parable with the Parable of the Sower. There Jesus says that the seeds that fall on fertile hearts will multiply 30, 60, or 100 fold!
Did you catch that math? The Lord rewards those who simply get a 1-fold increase in their talents, or double it. But if we are faithful to sow His Word, there is likely to be a 30, 60 or 100 fold increase in his Kingdom!
Here’s my point: Jesus set a standard, but the bar is low! He rewards those who make an effort to be productive with their time, talent, and money to have an impact on His kingdom. The math is tilted in our favor.
The Parable of the Talents should not be viewed as a high threshold over which to despair, but rather a motivating standard that should be achievable by all who are faithful. Notice, the standard is not to be successful, but faithful!
According to an article in Bloomberg Business, “Citigroup Inc. is sounding the alarm bells for the world economy. The New York-based bank’s chief economist, Willem Buiter, said there is a 55 percent chance of some form of global recession in the next couple of years, most likely one of moderate depth and length.
“Unlike the U.S.-driven international slumps of the past two decades, this one will be generated by sliding demand from emerging markets, especially China…
“The world appears to be at material and rising risk of entering a recession, led by EMs (emerging markets) and in particular by China,” wrote Buiter.
His reasoning is that China’s economy is slowing – at the same time that other emerging markets such as Brazil, South Africa, and Russia are already in trouble. In addition, developed economies are still lackluster. Commodity prices, trade, and inflation remain sluggish, and corporate earnings are slowing.
I agree with this perspective; however, having spent extensive time in Asia and China, I believe the risks of recession are higher than 55 percent. China is definitely slowing down. One economist described this as China’s economic winter after having 40 years of spring and summer. I want you to be prepared, not panicked.
Be sure you are diversified, have no or manageable debts, and have plenty of cash reserves. Even though a downturn may not affect your investments, it will likely impact your job or business.
We don’t know when the correction will occur, but when the experts say they think it is probable, we need to pay attention. The wise man sees danger and takes cover; the fool proceeds without caution.
