Download Welcome to the Good Sense Budget Course

Welcome to
Financial Freedom
“There is probably no area where we have a
greater opportunity to make a mess of our lives
than in this area of our finances. …….If we do
not get control of our money according to
God’s principles, we will never manage our
time and talents well for God’s purpose.”
Objective – Provide Tools For:
• Establishing personal goals
• Understanding what we are spending
• Developing a Spending Plan & Debt Reduction
Plan
• Controlling expenses
Cultural Myths
• Things bring happiness.
• We can have everything we want, and we
shouldn’t have to wait for what we want.
• Debt is expected and unavoidable.
• Our self-worth is directly connected to our
possessions and what we do.
• A little more money will solve all our problems.
• Life should be easy and fair.
The Steward’s Mindset
• God created everything – Genesis 1:1
…God created the heavens and the earth
• God owns everything – Psalm 50:12…the
world is Mine and all it contains
• We are managers of what He has given us –
Genesis 1:26-30….Let’s make man in Our
image…and let them rule over …all the
earth…
Five Areas Of Our
Financial Lives
•
•
•
•
•
Earning
Giving
Saving
Debt payment
Spending
A Budget Is:
• The tool that enables us to control our
money so that it doesn’t end up controlling
us.
• A Spending Plan for how we will allocate our
financial resources.
• The Spending Plan is the way to reach our
financial goals.
The Benefits of a
Spending Plan
• Gives us FACTS
• Avoids WASTE
• Keeps our VALUES and priorities in check
and should reflect our financial goals
• Leads to FINANCIAL FREEDOM
The Culture Says:
• “Our value is measured by our position,
achievement and our paycheck.”
• “A little more money will solve all our
problems.”
Earnings - The Bible Says
• Be enthusiastic & serve God.
Colossians 3:23-24
• Provide for those dependent on us.
1 Timothy 5:8
• Be grateful.
Deuteronomy 8:17-18
Earnings: Salaries # 1
(Net Take-home Pay) Is
The amount of the paycheck after all taxes
and deductions.
Earnings: Variable Incomes
Take a CONSERVATIVE estimate of our
after-tax annual income—based on our
income of the past few years—and divide by
twelve.
Example:
$30,000/12 = $2,500 per month
Earnings: Two-Income
Strategy
• Income #1: Basic Lifestyle Expenses
– Giving
– Savings
– Housing
– Food
– Clothing
– Transportation
– Basic household
– Debt payment
Earnings: Two Incomes
• Income #2: Extras
–
–
–
–
Additional giving
Additional savings
Accelerated debt repayment
Other non-essentials
• Entertainment
• Gifts
• Vacation
Earnings: Questions
• What happens to raises, bonuses,
overtime pay, income from an extra
job, or money received as gifts?
Three Cultural Myths
About Giving
• “Give if it benefits us.”
• “Give if there is anything left over.”
• “Give out of a sense of duty.”
God Wants Us to Give:
• As a response to God’s goodness – James
1:17
• To focus on God as our source of security –
Matt. 6:19-21
• To break the hold of money
For Those Not Giving:
• Begin by giving something.
• “Each of you must give as you have made
up your mind, not reluctantly or under
compulsion, for God loves a cheerful
giver.” 2 Cor. 9:7 (NIV)
Saving - Two Cultural
Myths:
• “If we have it, spend it; and if we don’t
have it, spend it anyway.”
• “It is futile to save.”
Saving: The Bible Says:
• It is wise to save.
– Proverbs 21:20
• It is sinful to hoard.
– Eccl. 5:10
Savings Is:
• Money we keep
• Future spending
Compound Interest Example
• $100 @ 6% = $6.00 interest
• $106 @ 6% = $6.36 interest
The extra $0.36 is compound interest.
Setting Goals
• Financial Goals will help us decide how
much to save each month
• Review goals often for motivation
• Prioritize goals
• Be realistic and make goals achievable
• Goals should reflect our values
• Goals must be quantified
Three Kinds of Savings
• Emergency savings
• Savings for major purchases
• Long-term savings
Key Question:
If giving is so right and saving is so wise,
why are they so hard to do?
Cultural Order for Using Money
• Lifestyle (Spending)
• Debt
• Saving
• Giving
God-Honoring Order
For Using Money
• Giving
• Saving
• Lifestyle is based on what is left
Transitional Order For Using
Money
• Give. . . SOMETHING
• Save. . . a LITTLE
• Debt. . . MAXIMIZE repayment of
consumer debt
• FRUGAL Lifestyle
Debt - Cultural Myth: “Debt is
Expected and Unavoidable”
Facts:
33% of Americans don’t have a CC
36% pay balance in full every month
31% carry a balance
The Cautious Debtor:
• Avoids entering into debt
• Is careful when incurring debt
• Always repays debt
Biblical Guidelines:
• Repay debt – Psalm 37:21 “The
wicked does not repay….”
• Avoid debt – Proverbs 22:7 “….The
borrower becomes the lender’s slave.”
Three Spiritual Dangers of Debt:
• Presumes on the future – James 4:14
“….you do not know what your life will be
like tomorrow….”
• Denies God the opportunity to teach us or
provide for us.
• Promotes envy and greed – Luke 12:15
“…be on guard against every form of
greed…”
Five Kinds of Debt:
•
•
•
•
•
Auto
Home
Education
Business
Credit card
Credit Card Studies:
– The amount families spent with a credit card
rose between 20% and 30% compared to
paying cash
– Average on groceries - $32.96 using cash vs.
$43.49 with credit
– Average spent on non-essentials at grocery
$9.08 with cash vs. $18.72 with credit
– McDonald’s - $4.50 cash vs. $7.00 credit
Credit Card Rules:
• Use a credit card only for budgeted items
• Pay the balance in full every month
• If you violate rule one or rule two, put away the
cards
• Select a card with no annual fee
• Consider a debit card instead of a credit card
• Keep a list of all credit card charges for
awareness
• Have only one card to reduce temptation
Debt Example
You owe $9,000 @ 13%
(Minimum payment = 4.5% of the balance starting at $405/mo.)
You Pay
$Minimum/month
$405/month
$405 + $100/month
Total Paid
$11,817
$10,352
$10,054
Time
11.1 years
2.2 years
1.7 years
Principles for Accelerating
Debt Repayment:
• Pay off the smallest debt first.
• As each debt is repaid, roll the amount you
were paying to the next largest debt.
• Incur no new debt!
Debt Reduction Plan
Item
Amount
Owed
Interest
Minimum
Monthly
Payment
Additional
Payment
$150
Payment Plan and Pay-Off Dates
3
Months
6
Months
15
Months
22
Months
26
Months
Sears
$372
18.0
$15
$165
Paid!
Doctor
$550
0
$20
$20
$185
Paid!
Visa
$1,980
19.0
$40
$40
$40
$225
Master
$2,369
16.9
$50
$50
$50
$50
$275
Paid!
Auto
$7,200
6.9
$259
$259
$259
$259
$259
$534
Paid!
Total
$12,471
$384
$534
$534
$534
$534
$534
0
Paid!
Debt Repayment is a Great
Investment
• Guaranteed
• Immediate
• High rate of return
Spending - Four Myths:
• “Things bring happiness.”
• “Our possessions define who we are.”
• “The more we have, the more we should
spend.”
• “Spending is a competition.”
Spending - Three Biblical
Principles:
• Beware of idols – Dt 5:7-8; Rom 1:25
• Guard against greed and seek
moderation – Lk 12:15; Prv 30:8
• Be content – Phil 4:12
Key Question:
Are we willing to be content with our
true needs vs. what the culture says
we need?
Spending: Mortgage/Taxes/Rent:
• Consider the issue of renting vs. owning
• Thinking of prepaying mortgage?
• Beware of basing a mortgage on two
incomes
• Exercise caution toward equity loans
• Consider an extended household
HOUSING: COST OF BAD CREDIT
ON $100,000 30-YR MORTGAGE
• A credit score of 520 will cost you $110,325
more in interest than someone with a 720
credit score.
• Or, $307.00 per month over the 30 years
CREDIT SCORES ARE BASED ON:
•
•
•
•
35% - Payment history
30% - Amounts owed
15% - Length of credit history
10% - New credit (opening several credit
cards)
• 10% - Types of credit - Credit cards, retail
accounts, installment loans, finance
company accounts, mortgage loans
CHECKING YOUR CREDIT
REPORT
• Free credit report from Equifax, Experian, or
TransUnion
• One report/year/bureau
• Suggest one report every four months
alternating bureaus
• Online at www.annualcreditreport.com
• Or 1-877-322-8228
Housing: Maintenance and Repairs:
Become a Mr. or Ms. “Fix-it”
Housing: Utilities
• Control the thermostat. Lowering the
thermostat by one degree in winter = 3 to
5% reduction in energy cost.
• Use phones wisely.
• Evaluate options for internet and cable
services.
Auto/Transportation Quiz
• What is the least expensive car we can own?
• When is it economically wise to buy a new (neverowned) car? Depreciation – 1st yr., 30%; 2nd yr.,
17% and 65% after 5 yrs.
• What are the economic advantages of leasing?
• What speed should we drive?
• What is the proper mileage at which it is best to
unload the old car?
Auto Statistics:
• Average Reliability
• Average Trade-in
– Life = 15 years
– Mileage = 150,000
– Time = 4 years
– Mileage = 55,000
Pay Cash for the
Next Car!
.
Auto Insurance Tips:
• Choose the highest deductible you can
afford. $1,000 deductible costs less
than $500 deductible.
• Shop for it.
• Combine policies.
• Look for other discounts.
• Consider eliminating collision coverage
on an older car.
Consider Other Insurance*
•
•
•
•
•
•
Health
Life (renewable term)
Home or renter’s
Disability
Umbrella liability
Long-term healthcare (as you approach 60s)
*
For more on insurance, take the course “Raising Your Financial IQ”
Household/Personal
•
•
•
•
•
Groceries
Clothing
Gifts – 44% of families don’t plan gifts
Household items
Books and magazines
Entertainment
• Going Out – Meals, Movies/Events, Babysitting
• Travel – Vacations/Trips
• Other – Fitness/Sports, Hobbies, Media
Rental
Professional Services
• Child Care
– Evaluate the financial costs (taxes, gas, clothes,
more meals out) and relational costs (stress,
less time together, less time with children,
fatigue) of two working parents.
• Other
– Use good judgment
– Seek referrals
– Evaluate progress
Three Possible Outcomes
• Scenario 1: Income exceeds expenses
• Scenario 2: Income equals expenses
• Scenario 3: Expenses exceed income
Three Ways to Adjust Our
Spending Plan
• Increase income
• Sell assets
• Reduce expenses (recommended)
Reducing Expenses
• Do I have optional expenses I can eliminate?
• Do I have variable expenses I can further
control and reduce?
• Can I eliminate any assumptions about my
“FIXED” expenses?
• Spending fast/procrastinate.
• Calculate the hours worked to make the
purchase.
Key Questions:
How serious am I?
What are my options and the consequences of
each option?
What are the consequences of continuing to
do what I am currently doing?
Benefits of Record Keeping:
•
•
•
•
Gives accurate data
Improves communication
Allows for mid-course corrections
Provides accountability
Three Record-Keeping Systems:
• Envelope
• Written record
• Electronic
– Quicken or Excel
– Mint.com
– Mvelopes.com - $7.00/month
Envelope System
Hints to Make Record
Keeping Easier:
• Keep the Spending Record where you will
see it daily – make it a priority
• Round off to the nearest dollar
• Combine categories
• Estimate when you forget to record
• Use even billing for utilities & insurance
• Have a miscellaneous cash envelope or
column for item 10 on the spending plan.
Electronic System
(Quicken or Excel)
There are some cautions involved with
starting here.
- Is the computer readily accessible?
- Will you do the updates on a regular basis?
Some Obstacles to
Budgeting
Inertia/procrastination
Discipline
Spouses not in agreement
No emergency fund to draw on
The Steward’s Mindset
• God created everything – Genesis 1:1
• God owns everything – Psalm 50:12
• We are managers of what He has given us –
Genesis 1:26-30
God is Able
• Philippians 4:13 says, “I can do all
things through Him who
strengthens me.”