This is the safe in my basement.  :-P       The first question most people have after they get a will is where they should keep it. It’s a good question to ask because you need a place that’s both safe and accessible for your important documents. It needs to be a safe location so they won’t get stolen or destroyed. But it also needs to be accessible so you (or your loved ones) can easily get to the documents when they’re needed.

The Problem with a Safe Deposit Box

       The first place that comes to mind for most people is to get a safe deposit box and keep their important documents there. The problem is that a safe deposit box can be a nightmare to get into after you die. If your box isn’t held jointly with someone who’s still alive after you die (or held in the name of your revocable living trust), then it’ll take a court order to open your safe deposit box and get to your documents. This can mean delays and headaches for your loved ones.

       You can avoid this by adding a joint owner you trust to your safe deposit box. Alternatively, you can make your revocable living trust the owner and your successor trustee will be able to access the box on your behalf. But you’ll want to make sure the trust document isn’t in the box, or your successor won’t be able to prove he has legal access!

The Fireproof and Waterproof Safe

       My personal choice is the fireproof and waterproof safe. They’re affordable and will protect your documents well. I found this SentrySafe Fireproof and Waterproof Safe on Amazon for $39.97:
 

 
       It’ll protect your documents from fire for half an hour at temperatures up to 1,550 degrees Fahrenheit and has a waterproof seal as well. (I wonder if it can protect from fire and water at the same time???) However, it’s not theft-proof. The lock could be opened by a thief who really wants it and it’s only 25 pounds. If theft is something you’re worried about, you can bolt your safe to the floor or wall with some hardware and tools. It’ll at least discourage the thief from trying too hard.

       The main caution with this option is to make sure someone else knows where the safe is and how to open it. Obviously, this should be someone you trust. The upside to using your own safe is that it will be easy to access whenever you need it.

At a Minimum…

       If you don’t want to get a safe deposit box or a home safe, you should at least keep your important documents on a high shelf. It won’t protect them from fire, but it may save you from some water damage. Also, make sure you and anyone who cleans around your house knows they’re important. You wouldn’t want to throw them in the trash accidentally!

Have a Financial Question?

       This post was written to answer a reader request. Have a financial question you’d like answered? Contact me and I’ll help you as best I can!

(photo credit: Cliff on Flickr)

This article was included in the Carnival of Personal Finance.

Greed Contained - If only it were that easy!       I’ve been thinking a lot lately about a Christian’s proper relationship to material wealth – especially in terms of what’s appropriate for us to desire and what’s not. The difficulty comes in trying to draw lines. When do our desires become excessive? How do we know when we’re pursuing the things of this world above the kingdom of God? Where does ambition stop and greed begin?

       Greed – that’s what I want to talk about today. But not so much talk about as discuss with you. What I want to know is how you define greed. What is greed? How do you know when you’re being greedy? How can Christians protect themselves from becoming greedy?

       Let’s look at a few definitions of greed, and then I’ll show you why I think it’s such an important concept to understand. The Bible says quite a bit about those who are greedy, and it’s not good…

Definitions of Greed

       Dictionary.com states that greed is “excessive or rapacious desire, especially for wealth or possessions”. In other words, greed is when you’d extort, rip off, and even steal to get more money. Obviously, that would violate Scripture and Jesus’ command to love our neighbors.

       On the other hand, WordNet, a project at Princeton University, defines greed as an “excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves”. That’s a much more difficult definition to wrestle with, isn’t it? Where do we set our level of “need” or of what we “deserve”? And when does a desire to acquire more than that level become “excessive”?

       I’ve talked before about needs versus wants. We act like many things are needs when they’re actually just wants. Our needs are very few: food and water, clothing, and shelter and warmth depending on your local climate. In the strictest sense, that’s all we truly need.

       And within each of those categories there’s a level beyond which the need becomes a want. We only need food that’s edible and enough to keep us going. We only need clean water. We only need enough shelter and warmth to protect us from the elements and provide a place to rest. And even that one is debatable to some extent.

       I don’t say these things to make myself or you feel greedy if we want anything beyond the most basic of necessities. I say it to point out how difficult it is to get a grasp on what greed really means. Most Americans would not think me greedy if I wanted a modest 1,000 square foot home. But even the smallest of homes in the U.S. are luxurious by most world standards simply because they don’t have a dirt floor!

       In the same way, it’s easy for me to look at Dave Ramsey’s new house and say “That’s too much!”, but I’m sure my friends in Haiti would consider me quite wealthy to be able to rent the small house I’m in now. I think they’d say the same of Dave Ramsey, but it does cause me to step back and examine myself a bit more closely.

       What do you think? Is greed more of the stop-at-nothing-to-get-more definition, or is it closer to the “excessive”-desire-for-more-than-you-need definition? Let me know what you think in the comments at the bottom of the page, but let’s take a look at greed in the Bible.

Greed in the Bible

       Checking the dictionary is all fine and well, but I think it’s more helpful to see what the Bible says about greed if we’re trying to look at this from a Christian perspective. Most of what I read online tends to point at the Christian definition of greed as the stop-at-nothing-to-get-more style. I certainly think that’s included, but I wonder if we’re not held to that higher standard.

       So I’ve found several verses that discuss greed. Coveting is another way the Bible talks about greed, so I’ve included verses that use either word or concept (like “love of money”). Let’s look at them and see if we can draw a conclusion about the Bible’s definition of greed. I’ll list the verses below and include any additional verses needed to get the context. All verses are from the World English Bible (WEB) version, but if you click the link on the reference you can get just about any version you want.

       You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, nor his male servant, nor his female servant, nor his ox, nor his donkey, nor anything that is your neighbor’s.

Exodus 20:17

       Neither shall you covet your neighbor’s wife; neither shall you desire your neighbor’s house, his field, or his male servant, or his female servant, his ox, or his donkey, or anything that is your neighbor’s.

Deuteronomy 5:21

       You shall burn the engraved images of their gods with fire. You shall not covet the silver or the gold that is on them, nor take it for yourself, lest you be snared in it; for it is an abomination to Yahweh your God.

Deuteronomy 7:25

       20 Achan answered Joshua, and said, “I have truly sinned against Yahweh, the God of Israel, and this is what I have done. 21 When I saw among the spoil a beautiful Babylonian robe, two hundred shekels of silver, and a wedge of gold weighing fifty shekels, then I coveted them and took them. Behold, they are hidden in the ground in the middle of my tent, with the silver under it.”

Joshua 7:20-21

       2 In arrogance, the wicked hunt down the weak. They are caught in the schemes that they devise. 3 For the wicked boasts of his heart’s cravings. He blesses the greedy, and condemns Yahweh.

Psalm 10:2-3

       17 For in vain is the net spread in the sight of any bird: 18 but these lay wait for their own blood. They lurk secretly for their own lives. 19 So are the ways of everyone who is greedy for gain. It takes away the life of its owners.

Proverbs 1:17-19

       He who is greedy for gain troubles his own house, but he who hates bribes will live.

Proverbs 15:27

       There are those who covet greedily all day long; but the righteous give and don’t withhold.

Proverbs 21:26

       One who is greedy stirs up strife; but one who trusts in Yahweh will prosper.

Proverbs 28:25

       Yes, the dogs are greedy, they can never have enough; and these are shepherds who can’t understand: they have all turned to their own way, each one to his gain, from every quarter.

Isaiah 56:11

       But your eyes and your heart are not but for your covetousness, and for shedding innocent blood, and for oppression, and for violence, to do it.

Jeremiah 22:17

       In you have they taken bribes to shed blood; you have taken interest and increase, and you have greedily gained of your neighbors by oppression, and have forgotten me, says the Lord Yahweh.

Ezekiel 22:12

       They covet fields, and seize them; and houses, and take them away: and they oppress a man and his house, even a man and his heritage.

Micah 2:2

       21 For from within, out of the hearts of men, proceed evil thoughts, adulteries, sexual sins, murders, thefts, 22 covetings, wickedness, deceit, lustful desires, an evil eye, blasphemy, pride, and foolishness.

Mark 7:21-22

       He said to them, “Beware! Keep yourselves from covetousness, for a man’s life doesn’t consist of the abundance of the things which he possesses.”

Luke 12:15

       33 I coveted no one’s silver, or gold, or clothing. 34 You yourselves know that these hands served my necessities, and those who were with me.

Acts 20:33-34

       For the commandments, “You shall not commit adultery,” “You shall not murder,” “You shall not steal,” “You shall not give false testimony,” “You shall not covet,” and whatever other commandments there are, are all summed up in this saying, namely, “You shall love your neighbor as yourself.”

Romans 13:9

       9 I wrote to you in my letter to have no company with sexual sinners; 10 yet not at all meaning with the sexual sinners of this world, or with the covetous and extortioners, or with idolaters; for then you would have to leave the world. 11 But as it is, I wrote to you not to associate with anyone who is called a brother who is a sexual sinner, or covetous, or an idolater, or a slanderer, or a drunkard, or an extortioner. Don’t even eat with such a person.

1 Corinthians 5:9-11

       17 This I say therefore, and testify in the Lord, that you no longer walk as the rest of the Gentiles also walk, in the futility of their mind, 18 being darkened in their understanding, alienated from the life of God, because of the ignorance that is in them, because of the hardening of their hearts; 19 who having become callous gave themselves up to lust, to work all uncleanness with greediness.

Ephesians 4:17-19

       3 But sexual immorality, and all uncleanness, or covetousness, let it not even be mentioned among you, as becomes saints; 4 nor filthiness, nor foolish talking, nor jesting, which are not appropriate; but rather giving of thanks. 5 Know this for sure, that no sexually immoral person, nor unclean person, nor covetous man, who is an idolater, has any inheritance in the Kingdom of Christ and God.

Ephesians 5:3-5

       1 If then you were raised together with Christ, seek the things that are above, where Christ is, seated on the right hand of God. 2 Set your mind on the things that are above, not on the things that are on the earth. 3 For you died, and your life is hidden with Christ in God. 4 When Christ, our life, is revealed, then you will also be revealed with him in glory. 5 Put to death therefore your members which are on the earth: sexual immorality, uncleanness, depraved passion, evil desire, and covetousness, which is idolatry; 6 for which things’ sake the wrath of God comes on the children of disobedience.

Colossians 3:1-6

       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. 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.

1 Timothy 6:3-10

       For the overseer must be blameless, as God’s steward; not self-pleasing, not easily angered, not given to wine, not violent, not greedy for dishonest gain;

Titus 1:7

       Be free from the love of money, content with such things as you have, for he has said, “I will in no way leave you, neither will I in any way forsake you.”

Hebrews 13:5

       1 Where do wars and fightings among you come from? Don’t they come from your pleasures that war in your members? 2 You lust, and don’t have. You kill, covet, and can’t obtain. You fight and make war. You don’t have, because you don’t ask. 3 You ask, and don’t receive, because you ask with wrong motives, so that you may spend it for your pleasures.

James 4:1-3

       In covetousness they will exploit you with deceptive words: whose sentence now from of old doesn’t linger, and their destruction will not slumber.

2 Peter 2:3

       There’s no doubt that the majority of those verses cover the stop-at-nothing-to-get-more definition of greed. But several of the verses point toward greed as the “excessive”-desire-for-more-than-you-need idea. In particular, Proverbs 21:26, Luke 12:15, and 1 Timothy 6:3-10 all seem to describe greed as being selfish, not being content, and desiring things for the sake of having more (often, more than your neighbor). That certainly fits in with the broader definition – greed as excessively desiring more than you need.

       Personally, I think the Gospel of Jesus Christ eliminates any semblance of greed as an option for Christians. If we’re to be focused on loving others and helping the poor, how can we spend our time daydreaming about bigger houses, nicer cars, more exotic vacations, and lazy retirements? That certainly wouldn’t fit the instructions of Colossians 3:1-6.

Your Thoughts

       But I want to know what you think. What is greed? What does it mean to be greedy? Is greed limited to the stop-at-nothing-to-get-more definition? Or is it more broad as in the “excessive”-desire-for-more-than-you-need definition? And in that same line of thought, when does a desire for more than you need become excessive and when does it remain acceptable? (That’s a question worthy of it’s own post!)

       Let me know what you think in the comments below, and we’ll work through this issue together.

(photo credit: See-ming Lee)

This post was included in the Carnival of Personal Finance.

       We’ve discussed how God calls Christians to work hard as a way to glorify Him and because of the benefits hard work affords. However, there is a third aspect to this calling. God knows that laziness and too much rest can be dangerous for our well-being and can become a stumbling block in bringing others to Christ. In the next three parts, we’ll look at the dangers of too much rest and laziness.

The Traps of Laziness and Excuses

       The problem with laziness and excuses is that their full effect is not felt for quite a while. It never seems like a little more sleep here and a little more fun there will cause our entire world to crumble. But it’s the cumulative effects of our procrastination that can wreak havoc in our lives. With steady, diligent care we can manage our lives well. But if we allow ourselves to get sidetracked with sleep, idleness, or unimportant things, we can quickly lose track of what we need to be doing and become overwhelmed with the mess that piles up.

       30 I went by the field of the sluggard, by the vineyard of the man void of understanding; 31 Behold, it was all grown over with thorns. Its surface was covered with nettles, and its stone wall was broken down. 32 Then I saw, and considered well. I saw, and received instruction: 33 a little sleep, a little slumber, a little folding of the hands to sleep; 34 so your poverty will come as a robber, and your want as an armed man.

Proverbs 24:30-34 (WEB)

       Continual neglect of our work and the important matters in our lives, even if it doesn’t seem like a big deal at the time, can cause poverty and want to creep up on us – even to the point where we don’t realize it until it’s too late. In stark contrast, continual care, maintenance, and repair, even though it doesn’t seem like much, can keep our work running smoothly and help us deal with our lives much more easily – especially when disasters strike.

       But even if you’re at the point where your neglect has ruined your work or your finances, do not fear. With the Lord, nothing is impossible. You can overcome the weeds that have taken over your life, if you will fall back on the Lord and commit to His ways. The same thing that prevents the ruin of poverty and neglect can overcome it – diligent, hard work over time will bring you and your affairs back into order. During this recovery time be careful not to forget prayer and do not be so proud as to reject the help of your fellow Christians.

       The are two main ways to prevent poverty and disaster from sneaking up on you. One, be careful of how much you sleep. And two, be cautious of using excuses to avoid work.

       Don’t love sleep, lest you come to poverty. Open your eyes, and you shall be satisfied with bread.

Proverbs 20:13 (WEB)

       Sleep and naps can easily rob us of time we need to do work. While sleep is necessary and a quick nap may refresh us enough to get some work done, it’s easy to fall into the habit of excess. But it’s easy to see that too much sleeping and napping can quickly bring you to poverty. You just can’t do any work while you’re sleeping or napping.

       The sluggard will not plow by reason of the winter; therefore he shall beg in harvest, and have nothing.

Proverbs 20:4 (WEB)

       Another trap we must avoid is using excuses to get out of work. I don’t just mean calling in sick to get a day off. These excuses can come in all kinds of disguises depending on your circumstances. It’s up to you, through the power of the Spirit, to uncover those excuses for what they are – lies designed to distract us from the work God calls us to. I’m not saying you should be out breaking your back if you’re on your deathbed. But we all know how we use excuses and half-truths to get out of things we don’t feel like doing at the time.

       If a farmer doesn’t plant his seed in the spring, there will be no harvest in the summer and fall. And if we don’t do our work when we need to, there won’t be a paycheck to pick up next Friday. Don’t let the excuses Satan feeds you distract you from the work God has called you to. Pray to God for deliverance from Satan and ask for His strength and guidance. His will can overcome any excuse.

I’m Back from Florida!

Corey —  November 16, 2010 — 8 Comments

Not in Florida - but we were by the ocean! :)

       I’m sure all of you were extremely upset when you didn’t get a new post last Tuesday and the rest of this past week! (I’m only kidding…) The reason you didn’t see any updates was because I was on vacation in Florida. My wife and I drove her grandma (a snowbird) down on Tuesday. Then we spent the rest of the time visiting my mom and step-dad, and my sister and new niece. We got back today, and Provident Planning will return to its regular schedule tomorrow!

(photo credit: joiseyshowaa on Flickr)

Should Christians Save Money?

Corey —  November 8, 2010 — 9 Comments

Saving Money - Greed or Wisdom?       My Sunday school class recently finished the book Crazy Love: Overwhelmed by a Relentless God by Francis Chan. I think it’s an excellent look at the dangers of being a lukewarm Christian, and Francis shares some valuable insights into the awesomeness of God’s love for us and how we should respond to that love.

       For the most part, I thought Francis was spot on in his assessment of lukewarm Christians and how we need to be obsessed with serving God. But one particular aspect of his ideas bothered me. Specifically, this part from page 78 concerned me:

Crazy Love:  Overwhelmed by a Relentless God by Francis Chan       Lukewarm People do not live by faith; their lives are structured so they never have to. They don’t have to trust God if something unexpected happens – they have their savings account. They don’t need God to help them – they have their retirement plan in place. They don’t genuinely seek out what life God would have them live – they have life figured and mapped out. They don’t depend on God on a daily basis – their refrigerators are full and, for the most part, they are in good health. The truth is, their lives wouldn’t look much different if they suddenly stopped believing in God.

from Crazy Love: Overwhelmed by a Relentless God by Francis Chan

       Francis then quotes the parable of the rich fool from Luke 12:16-21. Along with some other parts of the book, Francis seems to be hinting at the fact that Christians shouldn’t save money at all. They should be giving everything away.

       Make no mistake. I firmly believe that Christians should be marked by radical generosity. But I think the flaw in Francis’ ideas is that they ignore the counsel of Scripture as a whole.

Treasures in Heaven

       I think some people are quick to say Christians shouldn’t save because of Jesus’ words in Matthew 6:19-21:

       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.”

Matthew 6:19-21 (WEB)

       I’ve heard some comment on this passage as though Jesus is condemning anyone who saves up money. Their logic is that if you’re saving up money and not giving it away, then your heart is attached to that money rather than to God.

       But think for a moment about the word “treasures”. We’d hardly use that word to talk about just enough to meet our needs. Rather, it denotes the idea of wealth – an abundance that far exceeds our needs. When we look at the whole of Jesus’ teachings about money, we see that His warnings were targeted at greed and selfishness rather than prudent money management combined with contentment.

       I say this with some confidence because Jesus never contradicted Scripture. And throughout Scripture we see admonition and teaching to wisely manage our affairs while still trusting in God.

Prudence and Responsibility

       Consider the numerous verses in Proverbs that commend wisdom in handling money and our affairs. Here are just a few:

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

Proverbs 22:3 (WEB)

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

Proverbs 21:20 (WEB)

       6 Go to the ant, you sluggard. Consider her ways, and be wise; 7 which having no chief, overseer, or ruler, 8 provides her bread in the summer, and gathers her food in the harvest.

Proverbs 6:6-8 (WEB)

       Additionally, the New Testament speaks to our responsibility to care for the needs of our family (including ourselves) so that we will not burden the Church.

       But if anyone doesn’t provide for his own, and especially his own household, he has denied the faith, and is worse than an unbeliever.

1 Timothy 5:8 (WEB)

       If any man or woman who believes has widows, let them relieve them, and don’t let the assembly be burdened; that it might relieve those who are widows indeed.

1 Timothy 5:16 (WEB)

       11 …and that you make it your ambition to lead a quiet life, and to do your own business, and to work with your own hands, even as we instructed you; 12 that you may walk properly toward those who are outside, and may have need of nothing.

1 Thessalonians 4:11-12 (WEB)

       Clearly, we are to do what is wise and honorable so that we can provide for our family and our needs within reason. This would also include saving, since we know that the unexpected happens. Car repairs, medical expenses, job loss – they often come without warning and we should be prepared for them. That doesn’t mean we aren’t depending on God or trusting in Him. We’re simply fulfilling our responsibility to do what we ought to do.

The Danger of Saving

       Despite the fact that we are encouraged to save and handle money wisely, we must still be on our guard against trusting in money. This is what Jesus was warning against. In our efforts to provide for our family, we can go overboard. We can save too much.

       But the Christian who is seeking contentment in Christ and the heart of God will be concerned for the poor as well as responsible money management. That’s where our total walk with Jesus works to help us understand our true needs, meet those needs through work and saving, and generously give away as much as possible. I think Paul’s words to the Corinthians summarize the basic idea of Christian giving well:

       13 For this is not that others may be eased and you distressed, 14 but for equality. Your abundance at this present time supplies their lack, that their abundance also may become a supply for your lack; that there may be equality.

2 Corinthians 8:13-14 (WEB)

       The goal is not to live on the edge but to give generously from our abundance so that we can meet the needs of others. The idea is almost communistic except that it is not forced. This is the kind of giving that flows from love. We restrict our standard of living by not satisfying all of our wants so that we can show love to others through generosity. That’s the key to Jesus’ message on wealth and giving.

Your Thoughts

       Do you think Christians shouldn’t save money? Why? And if not, have you ever encountered someone who felt this way? How did you approach this issue with them? Share your thoughts in the comments below!

(photo credit: Liz West)

       Besides providing for our needs and bringing honor to our name and God’s, hard work can help us to gain wealth beyond what is required to meet our needs. To honor God with this extra money, we need to be focused on how we can serve Him with our extra instead of thinking about how we can use it all for ourselves.

Hard Work Brings Wealth

       Hard work is the fuel for wealth. (The engine would be spending less than you earn because that’s what actually gets you to wealth.) We cannot gain wealth without hard work, regardless of whether we’re trying to honor God or ourselves. And it’s not enough to work “just enough”. We have to be willing to put in the effort:

       He becomes poor who works with a lazy hand, but the hand of the diligent brings wealth.

Proverbs 10:4 (WEB)

       Once we combine work with diligence and focus, then we can begin to gain wealth. We can all think of people we’ve worked with who did only what was required so they didn’t get fired. But it’s rarely those people who get the promotions, raises, and bonuses. This principle of working with a diligent hand is even more important for the self-employed. When you are your own boss, your income is primarily the result of your effort.

Honoring God with Your Wealth

       We’ve already determined that God calls Christians to work hard. Being lazy and bumming around when we are able to work does not glorify God at all. When we begin working hard, we not only honor God but we also reap the benefits of our work – namely providing for our needs.

       The desire of the sluggard kills him, for his hands refuse to labor.

Proverbs 21:25 (WEB)

       But it’s not just how we work that makes Christians different from the rest of the world. It’s what we do with the wealth we gain from our work. The worldly view is to use whatever you earn for yourself – it’s your money, so do what you want with it. The Christian view should be vastly different. Everything we have, do, earn, or gain belongs to God. And after meeting our needs, we are to honor God with the rest of our wealth by giving generously. (And by needs, I do not mean a luxury car because you “need” transportation.)

       Take a moment to realize how different that idea is from the rest of the world. While everyone else is worried about how they can get a bigger house, better car, nicer clothes, fancier country club – more and nicer stuff – Christians are supposed to be focused on how we can glorify God with what He has given us. How can we bless more people, meet the needs of the hungry, cloth the naked, shelter the homeless, heal the sick, comfort the mourning and the lonely? Those are the things that should constantly be on our mind. While the world is seeking more and more for itself, we’re trying to give more and more of ourselves.

       There are those who covet greedily all day long; but the righteous give and don’t withhold.

Proverbs 21:26 (WEB)

       This idea of giving generously out of our wealth, even to the point of denying many of our own wants, seems like utter foolishness to the world. But for Christians who trust in God and believe Christ, it is a sure reward. We are no longer working just so we can buy more stuff. We’re not breaking our backs so we can keep a house that’s much larger than we actually need. We are working so we can glorify God by giving away the wealth we gain and blessing the poor and needy. We are working for a sure reward.

       Wicked people earn deceitful wages, but one who sows righteousness reaps a sure reward.

Proverbs 11:18 (WEB)

Using Rules of Thumb for Retirement Planning?  FAIL       In my post on why the save 10% of your income for retirement rule is stupid I mentioned that expecting you’ll need 80% (or 90% or any other %…) of your pre-retirement income in retirement is stupid as well. How much income you’ll need in retirement is one of the major variables in calculating what you should save for retirement, so it’s important to use the most accurate estimate you can. Relying on a percentage rule of thumb is likely to steer you in the wrong direction for several reasons. Here are a few.

Housing

       Do you plan on downsizing in retirement? Or maybe you’re thinking about upgrading. Planning to move? That’s going to change more than just your housing costs. If you’re going to be renting or still paying a mortgage in retirement, you’ll need to figure that in as well.

       Consider maintenance costs as well. If you’re a handyman now and do most of your own repairs, how long will you be able to keep that up in retirement? Eventually, your physical abilities are likely to become limited and then you’ll need to hire others to do those repairs.

       You can’t plan for every possible variable in your housing costs, but these are the kinds of things you need to consider when figuring out how much income you’ll need in retirement. Housing is the highest cost for most people, so it’s even more important you get this one as accurate as you can.

Transportation/Travel

       Have you thought about how your transportation and travel costs might change in retirement? I’m guessing they’re probably not going to mirror your pre-retirement spending. The lack of a commute and the desire to travel more may offset each other for some people but not for most. This one might be difficult to figure out all at once, but if you take each aspect at a time you can come up with a reasonable estimate.

Food

       Will you be more likely to eat out in retirement, or do you want to improve your culinary skills and cook more at home? You’ll have an excellent opportunity to lower your food costs in retirement by cooking more from scratch, but many retirees look to eating out as a way to engage in social life and get out of the house. Depending on your preferences, skills, and plans, this could be another area that you’ll need to consider carefully.

Health

       During retirement, you’re going to be shouldering more of your health insurance expenses. Your health will also be at a higher risk of declining as you age, so you’ll have to expect more health costs overall. This is one area where many retirees experience a large increase in spending – especially as retirement goes on.

Income Taxes

       Depending on your personal situation and how you decided to save for retirement, your taxes in retirement could look quite different than before retirement. This is especially true if the income you’ll need in retirement is very different from your pre-retirement income. There are a number of variables that affect income taxes and they change from person to person. Assuming you can count on an average to help you might the right decision for your retirement is foolish.

Savings

       This is at least one area where the percentage rules directly account for some changes in retirement. But there’s still a problem. Maybe you waited until 10 years before retirement and had to save 30%, 40%, or 50% of your income to catch up. That’s going to drastically change once you enter retirement, so you need to look at your unique circumstances. Or maybe you hit a windfall sometime in your life and haven’t been saving anything for retirement. Following one of these rules of thumb won’t work for your situation either.

       It doesn’t matter if you don’t fit into one of the examples I shared above. The point is that your situation is different and unique to you, and you need to plan accordingly.

So How Should You Figure Out How Much Income You’ll Need in Retirement?

       I think it should be clear by now that the only prudent way to figure out your retirement income needs is to carefully consider your own situation by looking at your circumstances and expenses alongside your goals. When I was creating my free retirement calculator, I wrote an article specifically designed to help you start thinking about how much income you’ll need in retirement based on your situation. It doesn’t cover every possibility, but it will help you get started.

       My goal in pointing out how stupid these rules of thumb are is not to make things difficult for you or to make fun of others who give this kind of advice. I want you to see that your financial decisions involve factors that are unique to you. You shouldn’t risk making a wrong decision because you followed an easy rule of thumb. Take the time to really think about your situation, learn what you need to know so you can make a smart choice, and use that knowledge to manage your money well.

photo credit: (Hans Gerwitz on Flickr)

This article was included in the Best of Money Carnival.

This article was included in the Carnival of Financial Planning.