Choosing to Spend

Scriptures:  Luke 14:28; John 13:29; 1 Cor 6:20

Spending often falls into two categories: discretionary and non-discretionary.  Yet do we place too much of our income into the non-discretionary category? How much money really is in each and how do we manage between these two categories?

When I looked this word discretionary up in the dictionary, I noticed that the base word is discreet and not discrete. While discrete is synonymous with distinct, discreet is synonymous with discern, from which we get the word discernment.  And so it is with discretionary, it is a decision left to our own discretion, our own judgment.

Our discretionary spending is the amount we choose to spend in a particular category, only dictated by our tastes and judgment.  We are not legally responsible to pay the amount, it is simply our choice to buy or not. Lots of items fall into this category.

On the other hand non-discretionary spending takes the choice out of our hands and therefore we are contractually or under the law to pay.  In this category there are very few items, specifically taxes and, I will say, the tithe.

But you might be tempted to say that your mortgage is a non-discretionary expense because you are contractually obligated to make a payment every month.  Didn’t you just say that non-discretionary expenses are contractual expenses?  Yes, I did but I will also say that it was first a discretionary decision to purchase the home in the first place!

Therefore, we have to be very careful with all of our decisions since we may be locking ourselves into an unmanageable, unsustainable financial situation.  For some, they have learned that their choice of home was a poor one financially and they found themselves either having to sell their home or have it foreclosed. Others just struggle month to month, barely having enough money to put food on the table or clothes on their backs.

Where you live is a discretionary choice. You can choose to live in a particular city, county, or state.  This not only determines the size and price of a home but it also determines how much state and local taxes you pay and so, to some extent, even your taxes have a discretionary component.  Many soon-to-be retirees often review the taxes they will pay in a particular area and then choose to buy a home in that area.

Taxes come in many forms but most us understand them to fall into three categories: income taxes, property taxes, and use or sales taxes.  When I moved from New Jersey to Colorado, I lowered my property tax bill from $8000 to $2000 per year for a comparable property & home.  I also lowered my state income taxes by at least two percentage points.  All this extra cash went a long way to paying off our home mortgage. 

Therefore, don’t feel like you are locked into a tax or mortgage situation because all of these are only partially non-discretionary expenses.  You have a choice of where you live and how large a home you live in.  Choose carefully and you will create a sustainable financial foundation for yourself. 

And yes, there are many ways you can legally reduce your income tax liability but I will leave this to the tax professionals.  But you may want to read my blog article, Six of One, Half a Dozen of Another, where I speak to the myth of losing your tax deduction when you pay off your home mortgage.

Bottom Line:

·         There is only one non-discretionary that goes without a choice or decision and that is the tithe.  If you are not tithing to your church please carefully and prayerfully decide how you will start doing so.  And while we are not bound to the law any longer but under grace, remember that the word tithe means a tenth. 

·         While taxes are mandatory, how much you pay in taxes is determined by where you live – choose wisely, especially those looking into retirement.

·         Contractual payments all begin as discretionary choice, first and foremost the decision to go into debt.  Make sure that the non-discretionary debt payment you are choosing to make yourself liable for is something you can sustain for the term of the contract.  Don’t bite off more than you can chew. 

Everything else is discretionary.  You choose to spend the money you are given according to all of your decisions, which are based upon needs and more likely wants. When you create your budget, be sure to know what is reasonable to spend in each category of your budget.  Spending 20% in a particular category may be considered excessive when compared to others.  See the article Benchmarking Your Budget. 

Finally, I will ask you to sincerely consider the price that was paid by our Lord for your salvation.  This has to be one of the most precious and costly discretionary expenses anyone has ever paid.  He didn’t have to do so but He did out of His deep love for us.  If you haven’t ever considered this, I urge you to do so today.  Your life will never be the same when you do.

Promising to …

Scriptures:  Eccl 5:5; Ps 101:7; James 4:17

When you sign a contract you are making a vow.  God holds us accountable to our vows.  What should our attitude be each time we make a vow?

I suspect most of us don’t think of the agreements we make each day as making a vow, but this is exactly what we are doing. Agreements are promises to act, serve or meet some condition in an agreement.  And so if we are making a vow then we must be prepared to make good on our promise!

Yet, for many of us, our promises go unsatisfied.  Sometimes we are on the receiving end (or should I say the un-receiving end) and sometimes we are the ones who are not delivering on our promises.  Either way, promises are broken each day and unfortunately we have simply come to accept it as a way of life – but should we?

God says, in no uncertain terms, we should be sticking to our agreement and we are to deliver on our promises. He even says that it’s best not to make a promise (vow) than it would be to make one only to break it. 

In the financial world, we often are promising to pay a creditor according to a set of agreed upon terms.  This is essentially the definition of the promissory note. We are agreeing to pay according to the terms and conditions of the agreement.  We do this every time we sign up for an application for a credit card, sign a rental lease for an apartment, or sign the many documents for a mortgage.  All of these are promises to pay the creditor according to the agreed upon terms.

For the most part, we are generally satisfied with the terms of the contract and more than willing to make good on our promises – that is, until something happens. This something can be the realization that we could have had a better deal, or we find ourselves jobless and unable to pay our bills on time. 

Finding a better deal is always a worthwhile goal.  We call this due diligence – doing all of the necessary research work prior to signing any agreement. I would even go so far and say many of us take pride in our ability to find the best deal possible.  But if we have signed an agreement then we must abide by the terms of that agreement, no matter how much of a better deal we find elsewhere.

Now there are lots of agreements that allow you to bail out when you discover you have a bad deal.  Some of these exit or termination clauses cost you money, others do not. 

For example, if you are looking to buy a house, you have the option to exit the contract if you discover issues during the home inspection as long as abide by the timelines set forth in the contract.  I have done this with a home I was interested in purchasing. After the home inspection I learned that there were more issues than I was willing to accept as part of the contract.  I therefore exercised my right to exit the contract – even though it cost me the expense of the home inspection, which was much better if I had gone thru with the deal.  The bottom line is that I operated within the bounds of the agreement and kept my promise.

Exit clauses are often found in the PENALTIES section of an agreement.  If you place you money in a CD or a 401(k) you know that there are withdrawal penalties if you need your money sooner than the agreed upon terms.  And these penalties can be substantial. 

And penalties aren’t just for exit clauses.  They are used throughout an agreement to deter a party from not keeping to their agreement. 

Late fees on your credit debt are a common example of a penalty for breach of contract.  We hate late fees but we must remember we agreed to pay them when we are late with our payment.  We shouldn’t complain.  We should keep to our promise and pay them.  Then we should take steps to pay on time and if we can’t, negotiate with the creditor for different payment terms if we need them.  Yes, you can do this as the creditor is often willing to do so since they would prefer to be paid than to have you default on your debt.  And we should always pay our debts, regardless of what may have changed for us, so take the necessary steps to keep to your agreement or make new ones.

Bottom Line:  If you sign an agreement, live by the terms of the agreement.  Remember that a borrower is slave to the lender.  Always have integrity.  And if you don’t like the terms of the agreement, then don’t sign, especially if you can’t negotiate a mutually beneficial set of terms.

Now I would like to switch gears here and talk about the promises we make to others that often don’t have a signed document to go along with them.  The first that comes to mind is the most important vow I ever made, the one I made to my wife when we were married. 

In my last article, When Two Become One, I talked about how important it is to develop a budget that both of you can live by. At that point, you made an agreement, a promise to your spouse! You have to live by that promise or suffer a lack of integrity and hurt the trust and love you have from your spouse.  Be strong and of good character – keep your promises!

Lastly, I want to make note of the fact that we also make promises to God that should also be honored.  And if we find that we struggle with keeping our promises to Him or others then we need to pray that God strengthen our integrity and to create in us the power to do what is right.