Archives For Saving

How Compound Interest Works

Corey —  January 12, 2010

       To get a small fortune, you have two options:

  1. Start with a large fortune.

  3. Use the power of compound interest (or returns).

       I don’t have any good tips on how to start life with a large fortune, but I can tell you about compounding and how it works.

Simple Interest

       First, you need to understand simple interest. Simple interest is just a flat interest rate paid only on your initial deposit year after year. Let’s say you’ve got a bond that pays you 8% simple interest. If you buy $100 worth of that bond, you’ll get $8 in interest for the first year. Then, because this is simple interest, you’re going to get $8 in interest every year after that until the bond is repaid (and you get your original $100 back). Here’s what it looks like on a chart:

       With simple interest, you’re only earning interest on your principal (or your deposit). You’ll get $8 every single year. You never earn interest on interest. At the end of 20 years, you’ll have your initial $100 plus $160 you earned from interest.

Compound Interest

       Compound interest lets you earn interest on your principal (what you start out with), but you also earn interest on interest you’ve already been paid. We’ll keep the same assumptions as before – you earn 8% interest and you start out with $100 – but this time we’ll be using compound interest.

       At the end of the first year, you’ll still only earn $8 in interest ($100 * 0.08). But at the end of the second year, you’ll earn a total of $8.64 in interest ($100 * 0.08 + $8 * 0.08). In the third year, you’ll earn $9.33 in interest ($100 * 0.08 + $8 * 0.08 + $8.64 * 0.08). This process keeps continuing and you keep earning more and more interest every year. Here’s what it looks like on a chart:

       Compound interest is all about earning interest on interest (and principal). You’re generating earnings from previous earnings. In the example above, you’d have your initial $100 plus $366.10 in interest at the end of 20 years. That’s $206.10 more than what you’d get from simple interest. The only difference between the two is the ability to earn interest on interest.

       Compounding is why it pays to start saving as early as possible. In the first year, you may only get an extra $0.64. But in the twentieth year, compound interest gives you an extra $26.43. The amount of interest you earn on previous interest just keeps growing and growing the longer you go.

       Let’s look at a quick example. Let’s say we have three people who are all going to invest for retirement. They’re all 25 years old, and they’re all looking to retire at age 65. They’re all going to invest $25,000 at one time, but they start at different times. Sue invests her $25,000 today, Bob invests his $25,000 ten years later, and Frank invests his $25,000 ten years after Bob. To keep it simple, we’ll assume they earn 8% every year. Here’s what happens:

       Sue only started ten years before Bob, but she ended up with over $290,000 more than he did. Likewise, Bob started only ten years before Frank, but he ended up with over $135,000 more. The only difference between these three people was how many years they let their money compound. Sue had 40 years, Bob had 30 years, and Frank only had 20 years. Compounding has the most power when you have the most time. That’s why it’s important to start saving early (not just for retirement, but for any goal).

Your Thoughts

       Did these examples help you better understand compound interest? If not, what questions do you still have? Let me know in the comments and I’ll do my best to help you and give a clearer answer.

Not for Itching Ears

Corey —  December 31, 2009

       If you want to hear how the Bible can make you a millionaire, you’re in the wrong place. If you want to hear that you can give 10% and you’ve done your duty to God, you’re in the wrong place. If you want to hear how easy life is going to be as a Christian, you should go do another Google search because you’re not going to find that here.

       Provident Planning is not a place for people with itching ears.

       But if you want to hear the Gospel of Jesus Christ, you’ve come to the right place. If you want to know what the Bible – not man – teaches about money, you’ve come to the right place. If you desire to be a lover of God rather than a lover of money, then I invite you to join me as I seek God’s Truth for personal finances.

       3 For the time will come when they will not listen to the sound doctrine, but, having itching ears, will heap up for themselves teachers after their own lusts; 4 and will turn away their ears from the truth, and turn aside to fables.

2 Timothy 4:3-4 (WEB)

       A lot of the most popular teaching about personal finance for Christians emphasizes how Biblical financial principles can make you rich. This naturally appeals to many people because the love of money is so prevalent in our society. Those who teach how the Bible can make you rich while putting little emphasis on God’s true purpose for those riches are doing nothing but scratching the itching ears.

       God’s Word is not a guide on how to get rich and enjoy all the fine things of the World. God doesn’t want rich Christians to splurge on luxuries while their brothers and sisters die from hunger and thirst. The Gospel is not about how you can prosper in this life. Jesus didn’t die on the cross so you can retire early.

       Jesus warned us of the dangers of greed. He taught us to give generously to anyone in need. He taught us to seek God’s Kingdom first – to make it our top priority in life. All of God’s Word testifies to the fact that our best life will be an eternal life in Heaven – not here on Earth. He has warned us that this life will be full of trials, tribulations, hard times, and difficulties. But He has promised us the most wonderful blessing – eternal life with Him for anyone who believes in His Son, Jesus Christ.

       3 If anyone teaches a different doctrine, and doesn’t consent to sound words, the words of our Lord Jesus Christ, and to the doctrine which is according to godliness, 4 he is conceited, knowing nothing, but obsessed with arguments, disputes, and word battles, from which come envy, strife, insulting, evil suspicions, 5 constant friction of people of corrupt minds and destitute of the truth, who suppose that godliness is a means of gain. Withdraw yourself from such.

1 Timothy 6:3-5 (WEB)

       Many false teachers talk about how God will bless you if you’re a Christian. Or they tell you to send them a love gift or plant a seed and God will pour out miraculous financial blessings for you. These people do not teach the whole Word of God! We are to have nothing to do with those who twist the Scriptures for their own financial gain or teach a gospel different from the one Jesus taught.

       As Christians, we are rich – but you can’t measure our wealth in dollars. We have eternal life with God as our promised reward for faith in Jesus. That reward outweighs anything you can imagine for yourself in this life – and that reward is why contentment and giving should be our primary concerns when it comes to money. Reflect on these words from the Bible:

       6 But godliness with contentment is great gain. 7 For we brought nothing into the world, and we certainly can’t carry anything out. 8 But having food and clothing, we will be content with that.

       9 But those who are determined to be rich fall into a temptation and a snare and many foolish and harmful lusts, such as drown men in ruin and destruction. 10 For the love of money is a root of all kinds of evil. Some have been led astray from the faith in their greed, and have pierced themselves through with many sorrows.

       11 But you, man of God, flee these things, and follow after righteousness, godliness, faith, love, patience, and gentleness. 12 Fight the good fight of faith. Lay hold of the eternal life to which you were called, and you confessed the good confession in the sight of many witnesses. 13 I command you before God, who gives life to all things, and before Christ Jesus, who before Pontius Pilate testified the good confession, 14 that you keep the commandment without spot, blameless, until the appearing of our Lord Jesus Christ; 15 which in its own times he will show, who is the blessed and only Ruler, the King of kings, and Lord of lords; 16 who alone has immortality, dwelling in unapproachable light; whom no man has seen, nor can see: to whom be honor and eternal power. Amen.

       17 Charge those who are rich in this present world that they not be haughty, nor have their hope set on the uncertainty of riches, but on the living God, who richly provides us with everything to enjoy; 18 that they do good, that they be rich in good works, that they be ready to distribute, willing to communicate; 19 laying up in store for themselves a good foundation against the time to come, that they may lay hold of eternal life.

1 Timothy 6:6-19 (WEB)

       So if you want to learn what God says about money and what the Bible teaches about personal finance, then please sign up for free updates to Provident Planning. And if you ever find me teaching anything contrary to the Scripture or the Gospel of Jesus Christ, please contact me and let me know.

       But if you just want someone to tell you the things you want to hear, you’ll have to go somewhere else to get your ears scratched.

Who or What Is Mammon?

Corey —  November 3, 2009

       19 Don’t lay up treasures for yourselves on the earth, where moth and rust consume, and where thieves break through and steal; 20 but lay up for yourselves treasures in heaven, where neither moth nor rust consume, and where thieves don’t break through and steal; 21 for where your treasure is, there your heart will be also. 22 The lamp of the body is the eye. If therefore your eye is sound, your whole body will be full of light. 23 But if your eye is evil, your whole body will be full of darkness. If therefore the light that is in you is darkness, how great is the darkness! 24 No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can’t serve both God and Mammon.

Matthew 6:19-24 (WEB)

       Many times “Mammon” is translated simply as money in verse 24. While the idea of serving “money” can help us get the gist of what Jesus was saying here, we can gain a better understanding by looking carefully at the meaning of “Mammon” and its context in these verses.

       The word “Mammon” originally came from the ancient Chaldeans. It has its roots in the word “confidence” but it also signifies wealth. The way Jesus used it here seems to mean the personification of wealth, as if it were a person, thing, or god that can be served. We can gain even more understanding from the fact that it is rooted in the same word for confidence. If we think of it as confidence in wealth, it flows very well to the next passage where Jesus tells us not to worry about food or clothing because God will provide. Our confidence should be in God and our priority should be to serve Him and Him alone.

       The idea of “Mammon” representing wealth also makes sense in the context of the preceding verses. Jesus tells us not to lay up treasures on earth but instead to lay up treasures in Heaven. We’re not to focus our lives on amassing treasure, or wealth, for our own use while we’re here on earth. Making that a priority in our lives is the same as serving wealth. It means that we make becoming rich more important than becoming like Christ – so that we are not serving God.

       This should be an area of extreme concern for all Christians because of the statement Jesus makes here. He says we cannot serve both God and Mammon. We must make a choice. And we must live out that choice. There is no middle ground. We cannot choose to amass wealth and claim to be following Christ at the same time.

       It’s clear why Jesus makes this statement. Mammon’s goals are directly opposed to God’s.

  • God says, “Give me your heart.” Mammon says, “No, give it to me.”

  • God says, “Learn to be content.” Mammon says, “Get as much as you can – anything you want.”

  • God says, “Never lie or rip others off. Be honest and fair in everything you do.” Mammon says, “Cheat anyone you can if you’ll gain something from it.”

  • God says, “Be generous and give to the needy.” Mammon says, “Keep everything for yourself. You deserve it, and you worked for it.”

       In every way the commands of Mammon are inconsistent with the commands of God – to the point where you cannot serve both at the same time. You must choose one or the other.

What Is Wealth?

       Some people have taken these teachings of Jesus to mean that we should not save any money at all for the future. The claim is that saving money, even for needs (not wants, or unnecessary things), demonstrates a lack of faith in God’s provision.

       But what, exactly, is Jesus attacking here? Is he telling us that prudent saving and wise management of our affairs is against God’s will? If so, how does that idea support the numerous Proverbs that encourage saving, wisdom, and preparing for danger and the future? Or how would Paul’s command that Christians should provide for the needs of their own family be following Christ’s instructions?

       The way Jesus describes serving Mammon does not preclude Christians from saving for their needs or the needs of their families. Jesus preached against unbridled greed and materialism. He taught us that if we value being rich and having things more than serving God then we will not enter the Kingdom of Heaven.

       Let’s look specifically at the idea of treasures, riches, and wealth. These words have never meant “any amount of money or possessions”. Who are the rich and the wealthy? Are they the people who have just enough to meet their needs, or are they the people who have far more money than they could ever possibly need to survive?

       Being wealthy or rich signifies that you have an abundance that goes far beyond what is sufficient for your needs. Having enough money saved to cover small emergencies or saving money for a time when you can no longer work does not necessarily make you rich or wealthy. You only come to the point of wealth or storing up treasures when you have more money than necessary to meet your needs.

       What exactly is Jesus condemning here? Clearly, He condemns putting money before God – service to money before service to God. The whole idea is that if you let money rule your decisions and how you live life, then you cannot let God rule your decisions and how you live life. When you make money your idol, your god, you are violating God’s command to never have any other god before Him and to never worship anything other than Him.

       For Jesus to say that it is wrong for His followers to save money, prepare for the future, and properly care for their families would require that He go against the Word God had already spoken. But Jesus isn’t saying those things in this passage – or even in the passage that follows concerning worry.

       What Jesus said is that those who follow Him must never put pursuing money above pursuing God. Indeed, if we make pursuing and serving God our top priority, we will not even become consumed with getting rich or having more money than we need (to cover our necessities). How can I say that? Because Jesus Himself said you cannot serve both God and Mammon (the greedy pursuit of wealth). So if you choose to serve God, His love will cause you to reject greed, materialism, and amassing wealth beyond your needs.

How Then Should We Live?

       Even though this teaching does not prohibit Christians from saving for the future, it should still convict us when it comes to materialism. When we choose to spend our money on things we don’t need we are deciding that our wants are more important than our poor brother’s needs. That is why John says:

       16 By this we know love, because he laid down his life for us. And we ought to lay down our lives for the brothers. 17 But whoever has the world’s goods, and sees his brother in need, and closes his heart of compassion against him, how does the love of God remain in him? 18 My little children, let’s not love in word only, neither with the tongue only, but in deed and truth. 19 And by this we know that we are of the truth, and persuade our hearts before him, 20 because if our heart condemns us, God is greater than our heart, and knows all things. 21 Beloved, if our hearts don’t condemn us, we have boldness toward God; 22 and whatever we ask, we receive from him, because we keep his commandments and do the things that are pleasing in his sight. 23 This is his commandment, that we should believe in the name of his Son, Jesus Christ, and love one another, even as he commanded. 24 He who keeps his commandments remains in him, and he in him. By this we know that he remains in us, by the Spirit which he gave us.

1 John 3:16-24 (WEB)
(emphasis mine)

       When we selfishly use the abundance God has blessed us with and close our hearts against the needs of the poor, we do not have God’s love in us. God’s love teaches us to lay down our lives for the needs of others. If we have some extra that we don’t really need and we see a brother in need, God’s love compels us to give generously to that brother – despite any claim or right we have to spend that money on our own wants. By choosing to follow Christ, we are saying we will lay down our rights just as He did so that others might be helped. If we do not follow God’s leading in that situation, then God’s love does not dwell within us. We must not only say we love our neighbors – we must prove it in our actions.

       Brothers and sisters, if you’re reading this right now and your heart is condemning you because you have chosen to place your wants above the needs of the poor, know this: God is bigger than the feeling of condemnation you have right now. He knows all things, and He knows that you want to do the things that please Him. His love can persuade your heart and give you compassion, so that you can testify to His power and love by laying down your life (setting aside your wants) for your brothers. Repent and pray to God for a change in your heart, that you might start serving Him and stop serving Mammon.

       Choose this day whom you will serve – God or Mammon. You must choose!

       The financial services industry is great at making you feel good while ripping you off. They’re also great at confusing you so much that you can’t even figure out how badly you’re getting ripped off. To make smart financial decisions, you need to realize how your “advisors” are getting paid and how their pay structure may affect the advice they give you.

       These advisors can include stock brokers, bankers, realtors, financial planners, insurance agents, lawyers, and accountants. Different compensation methods can create various conflicts of interest—situations where your best interests are not the same as your advisor’s best interests. This is a long article, but what you’ll read here can save you many problems and oceans of money.

Commission-based Advisors

       These advisors get paid a commission when you buy a product. The products they sell can include stocks, bonds, mutual funds, insurance policies, annuities, real estate, mortgages, other loans, and much more. (When you take out a loan, you’re essentially buying a product and the banker typically gets a commission or bonus.)

Chris Gardener by dbking on Flickr       The problem with this compensation structure is that the advisors are influenced to sell you products that give them a higher commission. This could mean selling you inappropriate or sub par products with high fees, telling you that you need permanent life insurance coverage, convincing you to buy the most house you can afford, or encouraging you to take out the biggest loan the bank will let you. You often don’t realize the cost of these decisions because the commissions are rarely disclosed in an honest, upfront, and easy to understand manner. It may seem like you’re getting cheap or free advice, but you end up paying much more in the end because of the commissions that are built into the products you buy.

       Commission-based advisors are also much more likely to persuade you to make many transactions (buying and selling investments many times) because this increases their pay. There are strict rules against “churning” in investment accounts, so be sure to seek help from the government or a lawyer if you believe your account is being churned.

       While there are some commission-based advisors who are trustworthy and do give their clients good advice, you’re best served by steering clear of commission-based advisors whenever possible. If you must work with someone who earns their fees by commissions, make sure you get full disclosure on their compensation and always get a second or third opinion on their advice. Do your homework, and you can avoid getting ripped off by commission-based advisors—but there are often better ways you can get help with your financial decisions.

Fee-based Percentage of Assets Advisors

       Fee-based percentage of assets advisors are paid a percentage of the assets they manage for you. This business model is also called the assets under management (AUM) model. This is generally seen in the investment world, though it can crop up in other areas. The typical fee is about 1% of your assets, but this can vary wildly between advisors. It’s important to keep in mind that this fee is almost always in addition to the fees in the products you purchase.

       The first conflict of interest with fee-based AUM advisors is the fact that they get more money when they manage more of your assets. They’ll often encourage you to transfer more of your assets to them and justify the advice with some compelling reasons. However, it isn’t always best for you to move your assets to an AUM advisor. Additionally, when you take money out of your account the advisor’s fee goes down. If you’re weighing the decision to pay off a loan with money the advisor is managing, how likely do you think it is that he will tell you to pay off the loan? If you pay off the loan, the advisor gets a pay cut.

       The next problem with fee-based AUM advisors is cost. When you pay 1% of your assets in management fees every year, the total cost can really add up. Let’s assume the advisor takes a 1% fee at the beginning of each year and your investment returns are 8%. Over 25 years, you’d pay $62,527 in fees for every $100,000 you had invested at the beginning of the 25 year period. Over a 65 year period, you’d pay $1,104,280 in fees for every $100,000 you initially invested. Most advisors will justify this cost by saying that you wouldn’t have received 8% investment returns if they hadn’t been there to advise you along the way. While this may be true, you can duplicate their results if you educate yourself enough about the long-term history of the markets and learn how to avoid stupid mistakes. You can also look into using an hourly or flat-fee advisor for a better deal without having to learn everything on your own.

       During retirement, these costs can be especially hazardous. Let’s assume a 5% withdrawal rate is probably safe for most people in retirement (assuming 25 years in retirement). If you have to pay an investment advisor a 1% fee to manage your assets, your safe withdrawal rate goes down to 4%. This means a $1,000,000 would only provide you with a $40,000/year income if you’re paying an investment advisor. Alternatively, you could have a $50,000/year income if you didn’t have to pay 1% of your assets to the advisor every year.

       The AUM model also isn’t very fair to the clients. If Bob has $100,000 and Joe has $200,000, Bob only has to pay $1,000/year but Joe has to pay $2,000/year. Why does Joe pay more? It’s only because he has more money. How is this fair for the clients? Having worked in the investment industry, I can personally tell you that not much more work goes into managing Joe’s $200,000 portfolio versus Bob’s $100,000 portfolio. Why should Joe have to pay twice as much for the exact same services? He shouldn’t, and that’s another reason why I am not too fond of the AUM model. Fee-based AUM advisors will try to justify this problem with different arguments, but there’s rarely a legitimate argument that would hold up when viewed by an unbiased party.

       Finally, fee-based AUM advisors are generally restricted to working only with wealthier clients. It’s much more profitable to spend 10 hours working with someone who has $1,000,000 than to spend 10 hours working with someone who has $100,000. This means young people and late starters with little money saved up are going to have a hard time getting a fee-based AUM advisor to work with them.

       Fee-based AUM advisors usually give much more appropriate advice to their clients than commission-based advisors, but there are still many conflicts of interest and problems with this compensation structure. Advisors using the AUM model like to advertise that their compensation structure eliminates many conflicts of interest present in the industry, but you should be aware that it does not eliminate all possible conflicts—no compensation structure can do that.

Fixed-fee Advisors

Good Advice by Gary J. Wood on Flickr       Fixed-fee advisors are paid a flat fee to provide certain services you agree upon. There are few of these advisors around, but their fee structure can eliminate many of the problems with commission-based and fee-based AUM advisors. You may also hear this fee arrangement referred to as a “retainer”.

       You’ll want to ensure that the flat fee you pay fixed-fee advisors is the sole source of their compensation. If the advisor still receives commissions for any products you may buy, then they will still have a conflict of interest in selling you the highest-paying products.

       You’ll also want to make sure you do not pay for more services than you really need with a fixed-fee advisor. Because these advisors are charging a flat fee, you can end up overpaying if you do not fully utilize the services and time included in the package. This is especially true for those who have a simple situation or for those who have the biggest areas of their financial plan implemented already. Since fixed-fee advisors often charge upwards of $1,500 or $2,000/year, it may not make sense to use them if you do not need much help.

       Since fixed-fee advisors are paid a flat fee, it is to their benefit to spend as little time as possible on any one client as this maximizes their hourly rate. While this is short-sighted, it is still a possible downfall of using fixed-fee advisors. If you feel your fixed-fee advisor is not providing the level of service you agreed upon, you should confront him or her to get an explanation. If you’re not happy with the service, you may want to change advisors.

       The major benefit of fixed-fee advisors is that they will not be tempted to advise that you purchase high-fee products or to put more money under their management. Since their compensation structure is separated from your assets, they are able to focus on your best interests when they provide advice. You’ll still want to make sure you’re not paying for more than you receive, and you should carefully consider any personal finance decision no matter where your advice comes from.

Fee-based Hourly Advisors

Good Advice by rick on Flickr       Fee-based hourly advisors get paid an hourly rate for the time they spend working on your situation. This time could include meetings with you, researching your situation, completing paperwork for you, or meetings with your other advisors. Most accountants and lawyers work under this compensation method, but you will hardly find this fee model in the investment, insurance, banking, or real estate industries. Fee-based hourly advisors eliminate many of the conflicts of interest present in commission-based and fee-based AUM models, but they are not without their issues.

       Because fee-based hourly advisors are paid for their time, they may try to give you complex advice to justify their fees and keep you dependent on meeting with them. If you feel like your fee-based hourly advisor is giving you the runaround, be upfront and let him or her know that you need a better explanation of why the advice is so complicated. If the advisor does not try to educate you, it’s probably time to seek another advisor. Any advisor should be more than willing to educate you about what is going on in your financial situation. If not, they could be hiding something or trying to keep you dependent on their advice.

       You may need to be more involved with your finances if you use a fee-based hourly advisor. Since you are paying the advisor by the hour, your costs will be lower if you can do as much as possible yourself. The fee-based hourly advisor should be willing to provide you with any instructions you need to complete simple tasks on your own. This could include setting up accounts, transferring assets between accounts, placing trades, purchasing products, or meeting with other professionals as needed. If you need help, you can always ask the advisor to assist you but your costs will be much lower if you do most of the grunt work yourself.

       With a fee-based hourly advisor, all clients are treated the same because they all pay the same amount per hour of the advisor’s work. These advisors can work with people who have few assets or people with a high net worth. As long as they only receive their compensation from you, they won’t be tempted to advise that you purchase high fee investments. On the contrary, they are likely to give you the best advice possible for your situation because they know that exceptional advice and education is the only thing that can really keep you coming back for their help.

Other Things to Keep in Mind

Good Advice by cornflakegirl on Flickr       You might find an advisor who uses some combination of these fee structures. Proceed with caution! The more complicated the advisor’s compensation the harder it is for you to understand exactly how he is getting paid. With any type of advisor, make sure you get full disclosure of their compensation in writing.

       Never be afraid to get a second opinion on your advisor’s recommendations. You can easily go to a fee-based hourly advisor for a one-time project when you’re making a major decision. For a few hundred dollars, you can get this second opinion and avoid a much more costly mistake. Even better, you could do substantial research on your own so you learn in the process and understand the situation better.

       Always remember that your advisors should be teaching and educating you throughout the process. If the advisor is reluctant to explain his recommendations, I would be very wary of trusting him. By finding an advisor who is a true teacher at heart, you can be more confident that the advisor is honest and trustworthy. The best advisor should be working to make himself completely unnecessary at some point!

       Don’t fall for slick marketing, a round of golf, free dinners, or nice gifts! Advisors who spend a lot of money in these types of “client appreciation” or advertising areas are simply using the money you pay them to give you “free” stuff just to make you feel good about getting ripped off. You should remember that the advisor is not going to give you so much “free” stuff that they don’t make a profit. While it may feel good to get that “free” round of golf or gift card to your favorite restaurant, you should never forget that you’ve already paid for it when you paid the advisor’s fee. Don’t fall for the illusion that it feels good to get ripped off! If you really want those things, pay for them yourself and stop paying through the nose to get it from your advisors.

Show Me in the Scriptures…

Corey —  October 27, 2009

       A reader recently left a comment on my post discussing how much you should have in your emergency fund. Frank said:

Could you please show me in Scripture where it says believers are to have an emergency fund?

Thank you.

       I responded to Frank’s question in the comments, but I think this is an important enough issue to address in its own post.

       Not all personal finance advice can be backed up with a specific quote from Scripture. Does that mean it is bad or unchristian? Not in the least. If the advice follows the pattern of teaching and wisdom in the Bible, it can still be considered good advice for Christians despite the lack of a specific Biblical reference.

       For example, is there a specific Bible verse telling you that you should create a will? No. But it’s still a wise thing to do. Is there a specific Bible verse that tells us to update our résumés? Again, the answer is no, but that doesn’t change the validity of the advice.

       This concept doesn’t apply just to personal finance. Is there a Bible verse telling us to buckle our seat belts? Nope. But does that mean you’re trusting your seat belt more than God if you buckle it? What about looking both ways before you cross the street? Do you lack faith because you do this?

       The problem with applying the “show me in the Scriptures” test is that there is not specific advice for every single situation we will encounter in life. There are guiding principles and values that, along with God’s Holy Spirit, will help us discern the wise choices. But you’re not going to find Bible verses telling you to brush your teeth, stop eating at McDonald’s, or to take advantage of an HSA if you’re eligible.

       Scripture does contain many verses teaching us the importance of wisdom in handling our affairs. Here are a couple examples:

       The simple believes everything, but the prudent gives thought to his steps.

Proverbs 14:15 (WEB)

       The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.

Proverbs 21:5 (WEB)

       Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.

Proverbs 21:20 (WEB)

       The prudent sees danger and hides himself, but the simple go on and suffer for it.

Proverbs 22:3 (WEB)

       In fact, the entire book of Proverbs points to the importance of wisdom and its place in the life of those who follow God. But what about all the times Jesus told us not to store up treasures on earth? Or when He taught us not to worry about what we’ll eat and drink and wear?

       Tell me, what did Christ mean when He said do not worry or be anxious? What does it mean to worry or be anxious? Those words mean to be distressed, uneasy, and tormented with care about something (material things in this case). Christ’s solution was for us to “seek first the Kingdom of God”. Instead of being worried about how we’ll meet our material needs, we should be worried about how we’ll meet our spiritual needs – how will we serve God and draw closer to Him.

       You can be worried and anxious about material things whether or not you wisely plan ahead. I can have an emergency fund and still be worried about material things. I can not have one and still be worried about material things. Even if I have an emergency fund, I can stop worrying either because I have that money saved or because I trust in God’s provision. That brings us to the other main teaching of Christ about money.

       When Jesus taught about storing up treasures and serving Money what did He mean? What does it mean to be wealthy or rich or to have treasure? All those words denote an abundance, which means having much more than what is sufficient or needed. Jesus’ warnings about wealth were not to tell us that we should never use money appropriately to meet our needs. Jesus warned us instead of the danger in accumulating more than what we really need. He told us not to become consumed with money and wealth.

       There is a vast difference between being consumed with accumulating an abundance of wealth and planning wisely to have enough to meet our needs. In the same way, there is a huge difference between being occupied with worry and prudently foreseeing needs and dangers and preparing to face those situations. These two teachings that Jesus gave us are so often stretched to mean that we should never save anything at all for the future because that demonstrates a lack of faith. The truth is that Jesus taught us to:

  1. Give God and His Ways priority in our thoughts and lives.

  3. Avoid storing up more money than we will need. (That is, not to let becoming rich be our priority in life.)

       Proverbs commends wisdom and many New Testament verses speak to the importance of providing for your own family. We are not taught to make ourselves a burden to others when it is within our power to care for ourselves. Instead, we are taught that if there are any among us who cannot provide for themselves it is our responsibility as fellow Christians to care and provide for those people. Jesus’ teachings combined with the rest of Scripture in no way preclude us from saving for the future, using insurance, or utilizing money in any other wise manner. What is forbidden is making Money our god – giving priority to accumulating more money than we really need instead of serving God.

       The real issue then becomes finding contentment in Christ and determining our true needs. The danger we face is allowing the world to dictate our needs and success (a bigger house, a fancy car, expensive clothes, etc.) instead of learning to live on enough (our daily bread). That is the bigger issue here and the battle all of us Christians face. Once we have submitted to God in our discontentment and covetousness, we will be able to make Money serve us and God’s Kingdom instead of allowing it to be our master. But these are all topics worthy of their own discussion (contentment, defining needs, and avoiding covetousness).

       Please share your thoughts on this topic in the comments. I’m looking forward to hearing from all of you!

       Do you want to eat healthier but you’re afraid it will be too expensive? I have three easy recipes you can combine to make a wholesome meal for less than $1 per serving. And it doesn’t taste like cardboard, either!

       These recipes come from the More-With-Less Cookbook, a collection of Mennonite recipes with a focus on affordable but nutritious meals. It’s also focused on moving away from processed foods and wisely using the world’s resources. I highly recommend you buy a copy if you don’t already have one. It’s a very affordable cookbook ($12.15 on Amazon) and a great value!

Middle Eastern Lentil Soup

Combine in soup kettle:

1 cup lentils
4 cups water
1/2 teaspoon cumin

Cook until the lentils are soft (about 30 minutes), adding water if needed to maintain a soup consistency.

Heat in skillet:

1 tablespoon olive oil

Add and sauté just until yellow:

1 onion, chopped
1 clove garlic, minced

Blend in:

1 tablespoon flour

Cook for a few minutes. Then add the sautéed ingredients to lentils and bring to a boil. After the soup boils, remove from the heat and stir in:

2 tablespoons lemon juice
salt and pepper to taste

Tomato Chutney

Combine in a bowl:

2 cups chopped fresh or canned tomatoes (about two medium tomatoes)
1 medium onion, chopped
3 tablespoons lemon juice
2 tablespoons vinegar
1 tablespoon sugar
salt and pepper to taste

Garnish with fresh cilantro, if available.


I hope you already know how to make steamed rice… :)

Fix up about 5-6 servings (1 1/4 to 1 1/2 cups dry rice).

The Meal

       Serve the Middle Eastern Lentil Soup over rice and top with the Tomato Chutney. This should make about 5-6 servings. Total cost per serving? $0.80! (Assuming you drink water, of course.) You could probably add a vegetable for an additional $0.20-0.30 per serving (or less if you use fresh veggies or grow them yourself). You can easily prepare and cook this meal in about 40 minutes. (Rice is easy, and you can fix the chutney while the lentils are boiling.)

The Nutrition

       Lentils are one of the healthiest foods you can eat. They’re high in fiber, folate, molybdenum, manganese, iron, and vitamins B1 and B6. They’ve also been shown to reduce the risk of heart disease. Serving lentils with rice ensures that you get the complementary proteins you need to match the complete proteins available in meats. The lack of meat, however, means that this meal is very low in cholesterol.

Eating Healthy for Less

       I plan to share additional recipes that will provide you with healthy meals at an affordable price. While this isn’t a cooking blog, it is about saving money. Saving money on your food bill shouldn’t come at the expense of your health. These types of recipes help you save money and eat healthier. In general, if you want to eat healthier and save money, follow these tips (from the More-With-Less Cookbook):

   Eat More:

  • Whole Grains- rice, wheat, barley, rye, oats, corn, and millet
  • Legumes – dried beans, soybeans, dried peas, lentils, peanuts
  • Vegetables and Fruits – inexpensive, locally grown, in season or homegrown and preserved
  • Nuts and Seeds – inexpensive, locally grown or homegrown

   Use Carefully:

  • Eggs
  • Milk, Cheese, Yogurt
  • Seafood
  • Poultry
  • Meats


  • Processed and Convenience Foods
  • Foods Shipped Long Distances
  • Foods Heavy in Refined Sugars and Saturated Fats

       Once you’ve established your emergency fund and built it up a bit, you’ll need to decide when you should and shouldn’t use your emergency fund. If you don’t set guidelines for yourself, you’ll find a reason to use it for non-emergencies. And when you need it the most (after losing a job), you won’t have as much saved up to cover the real emergencies. Define boundaries for what you consider an emergency and what you don’t.

Job Loss/Income Buffer

       Depending on your situation, you’ll want 3 to 12 months of your living expenses saved up as an emergency fund. This money is to help you cover your expenses while you’re looking for your next job. You need this money because relying on debt takes a stressful situation and amplifies it ten times over. You don’t want to find yourself digging out of debt as you start your new job. This can also apply if you are self-employed or depend on commissions for your income. You can use your emergency fund as an income buffer while times are tough so you can focus on getting more business instead of how you’ll pay the next bill.

Other Stuff

       This is where you need to decide how you’ll use your emergency fund. It’s clear that a job loss counts as a real emergency, but it’s not so clear for everything else. Medical emergencies, family emergencies, and household emergencies do happen, but there are also many situations for each of those examples that we can plan and save for ahead of time. We know that cars break down over time, so we should be saving up for car repairs even if our car is paid off. We know that household appliances break and things will need to be fixed, so we can save up for those problems.

       It doesn’t really matter how you lump together or separate your savings, as long as you know they’ll cover your unexpected expenses. For example, you can have an emergency fund that covers everything. Or you can choose to have an emergency fund that’s really only for when you lose a job while you have a car fund, house fund, medical fund, and “other” fund for those costs. It doesn’t matter how you break it up, as long as you know what you’ve decided to do.

       So if you’re going to have a catch-all emergency fund, you’ll want enough to cover your living expenses for a certain number of months plus some extra for all the other emergencies that will come up in life. Plus, you’ll need to keep replenishing it as you spend the money. You might decide to keep six months of living expenses plus another $3,000 in your emergency fund while continuing to add $50 or $100 every month.

       Or you can go with separate accounts for everything. The number and type of accounts you use will be very dependent on your personal situation, but let’s say you have a job loss fund, medical fund, car repair fund, house fund, and “other” fund. If you own, you’ll want a larger house fund than someone who rents. If your car is older, you’ll want more in the car repair fund than someone with a newer car. If you have children or a high-deductible health insurance plan, you’ll want more in your medical fund than someone who’s single with great health insurance. Think about your own situation, the cost of a typical emergency in each category, and how frequently those emergencies occur. Then set up a savings plan to build those funds and keep them replenished when you spend the money.

Avoiding the Double Emergency

       Without an emergency fund (or however you decide to do it), any emergency becomes a double emergency. Not only do you have to deal with the car breaking down, but you also have to worry about how you’re going to get the money. Every crisis adds a financial crisis because you don’t have a clear plan to deal with those money issues. Take the time to think about how you’re going to set up your emergency fund(s), what you’ll use them for, and how you’ll rebuild them after using them. It won’t eliminate the stress of the emergencies, but at least you won’t have to worry about where the money will come from. God can and will care for you in any emergency, but prudence teaches us to prepare for the emergencies we know we’ll face.

       The prudent sees danger and hides himself, but the simple go on and suffer for it.

Proverbs 22:3 (WEB)