A Penny Saved …

Scriptures: Proverbs 6:6-8; Ecclesiastes 11:2

Do you have $1000 in savings? 1 month’s expenses in savings? 3 month’s expenses?  One solid plan to avoid debt is to have savings, enough to cover emergencies and large purchases.  Start saving today, especially if you don’t have anything to draw from. 

But someone will say: Where is the incentive to save when interest rates on savings accounts are at historical lows, essentially zero? 

Instead, we rely (too often) on our credit cards to carry us through on emergencies and are willing to pay the exorbitant interest rates of the credit companies.  As a whole, we spend too much money on interest.  (How often do you think about “spending money on interest” when you make a purchase with a credit card?)

Often you will hear me say– do the math – and so we will. 

Consider placing $1000 in a savings account today at 0.1% – pitiful isn’t it!  In one year’s time, you will have ~$1001 at the end of the year.

Now, let’s charge $1000 and take one year to pay it off (and yes this requires you to pay more than the minimum payment since the credit card company will let you pay interest on this $1000 for 12 years with their calculated minimum payment!).  You have a great credit score and so the credit card company will only charge you 16% interest (note the sarcasm) on this balance.  At the end of the year, you will have paid ~$90 in interest charges – provided you didn’t charge anything else over the course of the year. 

If you had paid cash for the item instead of charging it, you would have saved $90 in credit card interest.  Subtract the $1 you didn’t earn by having it in the bank and you saved $89.  If you “saved” $89, then this is the equivalent of placing that original $1000 in a savings account that earned 7.25%!  Who wouldn’t want to make that kind of interest rate today?

Now before you comment, I agree that earning money as interest in a savings account is very different than spending money on interest – but that’s exactly my point.  Why should any of us be spending money on interest when it can be avoided?

Hopefully, this example helps you understand that paying cash today is much better than using credit cards!  In one case you only earned $1, but in the second you spent $90!  It is better to use cash, especially now that the interest rates on credit cards are so high. 

So how do you get started?

Start by building an emergency savings account and keep $1000 in it at all times.  This way, when the car breaks down, you can pay cash for the repair rather than spending money on interest by using a credit card. And the only way you are going to be able to save this $1000, is to start spending less than you earn.

The strange thing that will begin to happen is a shift from spending lots of money on interest  to saving lots of money that earns you more money!  You will find yourself hooked on saving money because the more you save, the more money you will earn.  Soon, you will have a whole month’s expenses saved; then three months – And at last you will have broken free from the credit card snare.

Consider George Washington Carver (1864-1943) when he said: “We have become ninety-nine percent money mad. The method of living at home modestly and within our income, laying a little [aside] by systematically [saving] for the proverbial rainy day which is due to come, can almost be listed among the lost arts.”

And Benjamin Franklin’s timeless saying: “A penny saved is a penny earned.”

Mission Possible – Debt-free Living

Scriptures: Proverbs 22:7; Nehemiah 5:2-5

Getting out of debt should be every person’s priority, Christian or not.  The steps are easy and often it doesn’t mean making more money.  Do you have plans for getting out of debt and staying that way? 

Too often we allow our personal contentment to outwit our reason; our emotions and our impatience persuade our intellect into making an impulsive purchase to satisfy their desire.  The end result is typically a financial train wreck.

When we don’t plan our expenses to live within our means (read as spend less than we make), then we will typically end up in trouble.  When we don’t do the math, the math catches up to us sooner rather than later – and I can speak personally to this kind of behavior.

When I was 22, I moved out of my parents’ house into an apartment.  It was a one bedroom apartment with a kitchen, dining area, bedroom, bathroom and living room; all in all about 800 square feet.  And boy did it look empty, so I set out to fill it up in a hurry.

I went to the furniture store and bought dressers, tables and couches; the department stores and bought kitchen stuff, knick-knacks and other stuff; and wow, that was really easy with credit – too easy!

Suddenly, I faced the rude awakening that I now had to pay for all of that stuff.  I quickly found myself living paycheck to paycheck. How was I going to get out of this mess?

I had flash backs to when I was nine years old and a group of men came to repossess our furniture, clothes dryer and our carpeting – yes they ripped up the carpeting! 

I needed a plan to eliminate my debt and it began with stopping all discretionary spending, writing down a budget and sticking to it.  I considered getting a second job but, instead, with some simple shifts in my spending habits, I was able to construct a budget that allowed me to pay off all of my debt.

I paid off my lowest bill first and then applied that payment to my next biggest bill and so on until I was out of debt.  Yes it took discipline and several years – yes years, unlike the few days of wild spending – of frugal living. 

While I first felt like I was facing mission impossible, I quickly discovered that it was, indeed, mission possible.  And living debt-free became a high priority for me.  This is my prayer for you too because it brings a freedom that you will scarcely want to give up. 

If you need help in pulling together a family budget, check out Crown Financial Ministries Family Budgeting article at: Family Budgeting

Read about techniques for getting out of debt at Dave Ramsey’s website:Getting out of Debt

Six of One, Half a Dozen of Another

Scriptures:  Romans 13:6-7; Matthew 22:16-22

If you itemize your federal taxes, did you know that the IRS allows you to deduct $5,000 when you give it to your bank for your mortgage interest or to your church; these both legally lower your tax burden.  Not having a mortgage does not necessarily mean you will pay more taxes.

The Internal Revenue Service creates dozen of rules derived from the laws passed by our government officials; the officials we vote into office.  But none of them are in office apart from God’s Will. And if we believe that God’s Will is to prosper us (Jeremiah 29:11), then there are ways that the government has allowed, and God has sanctioned, for us to benefit from the laws created by our elected officials. And these are the Schedule A (Sch A) deductions of the 1040 federal income tax return. 

The favorite Sch A deduction that most of us who own a home take advantage of each year is to reduce our Adjusted Gross Income (AGI) by deducting the interest for our home mortgage.  We buy our homes knowing that we will enjoy this holy grail of the tax deductions for years to come.  We adopt it like one our children. In fact, many of us hold onto this deduction as if were our precious (you know the magical ring from The Lord of the Rings). We will do anything to hang onto our precious!

When we refinance our homes for lower interest rates – somehow we desire this over eliminating our mortgage all together – we give no thought to reducing the term of the mortgage. But when we do this, we start the amortization schedule and begin paying large amounts of interest anew; losing sight of the fact that all mortgages mathematically frontload interest payments into the first 5 five years of a 30 year term (you only reduce your principal by 11% in the first 5 years but pay 27% of the overall interest liability). So, why would anyone want to keep up this vicious cycle of enslavement?

One of the most freeing moments in your life is when you pay off your mortgage.  Our parents often celebrated this event by having a mortgage burning party!  So, why don’t we hear about these parties today?  My contention is that we have all been blinded by the myth that we need a mortgage as the only significant way to reduce our tax burden.

Now, don’t get me wrong, I am not against mortgages in order to put a roof over your head.  All that I am suggesting – and recommending – that we all strive to eliminate our debt burden by having a solid plan to shorten the term of our mortgage.  It can be done. And there are still ways to reduce your tax burden without a mortgage interest payment.

Another IRS-approved AGI reducing deduction we take advantage of on the Sch A is the charitable deduction. And just like the mortgage interest deduction, for every $10,000 you donate to a charity, you receive a $2,500 reduction in your tax bill.  If an organization is designated as a 501(c)3, a non-profit charitable organization, then donations made to these organizations are deductible.  So, you see, there is still a way to preserve the precious tax deduction because as far as the IRS is concerned the tax reducing benefit is six of one, half a dozen of another.  The difference from our perspective, however, is who benefits from receiving the $10,000. 

Therefore, one thought I want you to consider is this – If you were going to invest $10,000 where the dividends could benefit God’s Kingdom and his people, where would you invest that money?

If you desire to make bigger investments into God’s Kingdom, then establish and begin executing a plan to eliminate your debt, including your mortgage.

My Dream, My Vision

It is my belief (and dream) that everyone should live debt-free, save for the future, provide an inheritance for the children and to their children’s children.  Unfortunately, this dream seems impossible to so many due to an oppressive financial burden of debt.  My hope is to share a plan, founded in God’s wisdom, that will secure this dream for all those willing to transform their attitudes and behaviors that no longer conform to the pattern of this world.

Living debt free requires several skills but mostly a stewardship attitude.  How we handle our money is rooted in the attitudes that began when we were young.  Over time and personal experiences our attitudes are shaped into what they are today.  And when those attitudes yield less than desirable results, change is required.

As a Christian, employing the financial principles of God’s Word should form the foundation of our attitudes.  Too often though, we only hear about the tithe from the pulpit.  The goal of my blog is to discuss many of the financial topics associated with the other 90% of the finances that our Lord has blessed us with.