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What Makes Christian Personal Finance Different?

Corey — February 4, 2010

If you spend much time reading personal finance advice for Christians (either on Provident Planning or somewhere else), you’ll probably start to realize that it’s not all that different from other personal finance advice. Most of the good advice for Christians applies equally to non-Christians as well. Stick to a budget, spend less than you earn, avoid excessive debt, keep an emergency fund, minimize your taxes, don’t buy insurance you don’t need, save for the future – none of those things are particularly Christian in nature.

There may be some points in which Christian personal finance and secular personal finance will differ, but, generally speaking, good personal finance advice is the same regardless of your religion. The difference – and this is a major difference – is in the ultimate purpose, the final goal, of following that good advice.

As far as the world is concerned, it makes sense to make smart personal finance decisions because that’s what is best for you. Good money management will help you meet your goals, maximize your wealth, and get the most out of the money you’ve earned. And according to the world, that’s what you should do with your money. Use it for the things you want. Use it to meet your goals and fulfill your dreams.

But for Christians, making smart decisions in our finances is not important just so we can maximize our wealth and meet all our desires. Our purpose is not to find fulfillment in this world and the things it offers. Our purpose is to honor and glorify God – to serve Him with our entire being in everything we do. Our goal is to do His will. And part of God’s will for us is to share His love by caring for those in need through generous giving. We don’t try to maximize our wealth for our own use. We try to maximize our wealth for God’s use.

I want you to remember this as you read the articles I write. Many times there won’t be a Bible verse in a post. Personal finance in the Bible is more about the principles that should govern our decisions – not specific applications (like how to get out of debt). But it’s very important that we remember the purpose of seeking and following good financial advice.

When I talk about spending less, it’s so we’ll have more to give. When I talk about earning more money, it’s so we’ll have more to give. When I talk about making smart financial choices, it’s so we’ll have more to give. It all comes back to giving – giving motivated by love that flows out of our response to God’s Gift to us.

Yes, making good financial decisions will have benefits for you personally. But our focus as Christians is on the benefits those decisions will have for the Kingdom. In our efforts to follow good financial advice, let’s keep our eyes focused on Christ and our minds focused on how we can serve Him fully.

The advice we follow may not be all that different from non-Christians. But the motivation, goals, and results should be very, very different. And that difference will serve as a witness for the power of God’s love working in our lives.

What do you think makes Christian personal finance different? Let me know in the comments!

In Budgeting, Contentment, Debt, Estate Planning, Frugality, Giving, Insurance, Investing, Marriage, Personal Finance Bible Study, Prosperity, Retirement, Saving, Stewardship, Taxes, Work

Frugal Tips from The Complete Tightwad Gazette: Track Your Spending for 3 Months

Corey — February 1, 2010

I borrowed The Complete Tightwad Gazette by Amy Dacyczyn from my local library a while back because I’d read so much about it on other personal finance blogs. I started reading through it, and I found so many good tips and ideas that I decided to buy a copy for myself from Amazon. This post is the first in a series where I’ll share my take on some of my favorite tips from the book.

Track Your Spending for 3 Months

One of the first tips you’ll find in the book (on page 9, in fact) is to track your spending for 3 months. Amy says the first step for anyone who’s looking to become more frugal is to find out where your money is going now. I agree with her. It’s hard to know where you should start looking to save money if you’re not sure what you’re spending it on.

By taking the time to track all of your expenses, you’ll learn two things. First, you can categorize your expenses into essentials (needs) and non-essentials (wants). Breaking things down this way will help you see where you can make room in your spending.

Second, you’ll see just how much you’re spending on your budget categories. Knowing this helps you target the biggest expenses to get the most impact. It will also make you more aware of where your money is going. Blind spending is a quick way to destroy your finances.

How to Do It

So if you want to track your spending, what are your options? Here are some ideas:

Paper – You can always do it by hand with pencil and paper. This is a time intensive method and makes it difficult to work with the data you collect. I wouldn’t recommend this method.

Spreadsheet – Microsoft Excel, Open Office Calc, Google Spreadsheets, or Zoho Spreadsheets can be also be used to track your expenses. This is another manual method that takes a bit of time, but at least you can sort and use your data. If you’re not dedicated to routinely entering your expenses, it won’t work for you.

Budgeting Software – Three of the best software choices for budgeting and tracking expenses are Quicken, You Need a Budget, and Gnu Cash. The advantage of these programs is that they store all the information on your computer, and they can automatically download your transactions from your banks and credit cards. They also offer more advanced reports than you’ll want to create in a spreadsheet. This is a much easier solution than the first two.

Online Budgeting Websites – There are multiple options if you’re interested in using an online budgeting website. Mint, Thrive, Wesabe, and Yodlee all offer a free, online solution for budgeting and tracking your spending. You might not be able to use these sites if you bank at a credit union or small local bank, and you might be concerned about security issues with having all your info in one place. Security was my initial concern, but I did some research and decided to go with Mint. I like it so far, and I’d recommend you read their FAQ if you’re interested. This is by far the easiest solution. It only took me about an hour to set it all up the way I wanted.

Sign Up for Free Updates!

If you want some more good ideas on saving money from The Complete Tightwad Gazette, make sure you sign up for free updates from Provident Planning. I write on a wide variety of personal finance topics, so even if you’re not interested in frugality I’m sure you’ll find something useful here.

In Budgeting, Frugality, Reviews

A Penny Saved Is Nearly Two Pennies Earned

Corey — November 19, 2009

Benjamin Franklin is quoted as saying “a penny saved is a penny earned”. And others have discovered that a penny saved is more than a penny earned. But did you know a penny saved can be worth nearly two pennies earned? Before you dismiss money-saving activities as “not worth your time”, you need to consider just how much of your earnings goes to taxes.

If You’re Not Self-Employed…

If you’re not self-employed, you’ll pay your marginal federal income tax rate, 7.65% for FICA, plus any applicable state or local income taxes on any money you earn. Add all of these up and you’ll get a total tax rate anywhere from 17.65% up to 51.65%. You may also have to pay sales tax on the things you buy (as opposed to making or doing them yourself).

The chart below shows just how much a dollar you earn is worth after taxes depending on your marginal federal tax rate, FICA, and state and local income and sales taxes. I only went up to the 25% tax bracket on the federal side, and I used the national average rates for the state and local income and sales taxes.

Not Self-Employed Tax Rates

Most people will probably fall in the 15% federal tax bracket. If you’ve got state & local income taxes and sales taxes and you’re in the 15% federal bracket, then every dollar you can save is equal to $1.49 if you had earned it. You lose $0.29 to taxes from every dollar you earn, and then you’ll pay another 6% sales tax (on average) when you spend the money. In this case, a penny saved is worth 1.5 pennies earned.

If You’re Self-Employed…

Entrepreneurs have the extra burden of the self-employment tax to pay on their earned dollars. However they do get to take a tax deduction for one-half of the self-employment (SE) taxes, so their SE tax rate works out to 14.13%. So a self-employed person could automatically lose anywhere from 24.13% to 58.13% in federal, SE, state, and local income taxes for every dollar they earn. And they’ll still have to pay any applicable sales tax on top of that. The high-earning self-employed people can easily say “a penny saved is two pennies earned”.

I put together a chart for self-employed people similar to the one above. The only difference is the substitution of the SE tax for the FICA tax.

Self Employed Tax Rates

As you can see, a dollar saved is almost worth two dollars earned for someone in the 25% federal bracket who has to pay state and local income and sales taxes. They’ll lose $0.45 to taxes on every dollar they earn, and then they’ll pay another 6% sales tax when they spend the money that’s left over.

Why This Matters

Realizing how much you pay in taxes is key in figuring out if it’s worth it to do something yourself or pay someone else to do it for you. You’ve got to know your after-tax hourly rate to be able to compare it to how much you’d save by doing it yourself.

For instance, let’s go back to the first chart for people who aren’t self-employed. If your federal tax rate is 15% and you have state and local income taxes of 6%, you’re going to lose almost $0.30 to taxes (including FICA) for every dollar you earn. That means if you’re getting paid $20/hour you’re only taking home $14/hour after taxes for each extra hour you work.

Now let’s say you can pay $25 to have your oil changed, or you can do it yourself for $13 (a savings of $12) plus your time. If it takes you 15 minutes, your hourly rate for doing it yourself is $48/hour. If it takes you 30 minutes, you’re saving $24/hour. And even if it takes you 45 minutes, you’ll still save the equivalent of $16/hour. Now compare that to your after-tax hourly rate from your job ($14/hour), and you can easily see that it makes sense (by the numbers) to change your oil yourself.

You can apply this logic to any number of money-saving activities to see if it makes sense to do it yourself. In the case above, anything that saves you at least $0.23/minute you spend doing it is worth your time. So taking 10 minutes to make an extra stop at a different grocery store can be a smart financial choice if you’re going to save at least $2.30.

Understanding that saving money can be more effective than earning it will also help you realize the importance of being frugal. I’m not saying that being frugal is better than earning more money, but it’s a powerful tool and you’d be foolish to refuse using it. Combining frugality with earning more will help you get out of debt, save more, or give more.

How Much Is a Dollar Saved Worth to You?

Because this greatly depends on your tax rates, I’ve created a little calculator below that you can use to figure out how much a dollar saved is worth to you. Try it out and let me know your results in the comments!

*Note: Click the ‘Click to Edit’ button to use the calculator with your own numbers.

In Budgeting, Frugality, Taxes, Work

How Big of a Mortgage Can I Afford?

Corey — November 5, 2009

Before you go shopping for a house, it’s important to set a limit for yourself on how much you’ll spend. If you’re paying in cash, it’ll be easy to set that limit. But if, like most people, you’ll be using a mortgage and a down payment to purchase your house, the question becomes how big of a mortgage can you afford.

The Quick Method

The quick way to estimate how much of a mortgage you can afford is to take your gross (before-tax) annual income, subtract your debt payments, and then multiply by 3 (use 2.9 if the mortgage rate is 6%, 2.7 if it’s 7%, or 2.5 if it’s 8%). Here’s an example. Let’s say you earn $50,000/year before taxes and you pay $200/month for student loans (which works out to $2,400/year). Subtract your annual debt payments and you’ll get $47,600. Multiply by 3 (since mortgage rates are currently around 5%) and you’ll find that you can afford a mortgage of roughly $143,000.

To translate that into a purchase price for the house, divide by 0.8 (assuming a 20% down payment). Doing so will tell you that you can afford a $179,000 home if you have a $36,000 down payment. Don’t forget that you’ll have to pay some closing costs on the mortgage as well (possibly an extra $2,000-3,000). Set your limit at the number you come up with, and do not go looking at houses above your price range.

The Better Method

If you want a more accurate method with less math on your part, I highly recommend Dinkytown.net’s Mortgage Qualifier Calculator. By entering all the information it asks for, you can come up with a home price and mortgage amount that will be affordable for your situation. You’ll need to enter your annual income, cash on hand, mortgage interest rate, mortgage term, property tax rate, homeowner’s insurance, closing costs, and your debt payments.

You can estimate your mortgage information by doing a few searches on Google. You can also find information on property tax rates and homeowner’s insurance costs for your area by searching Google. If you can’t find that information, call a real estate agent and ask them for some estimates. They’re very familiar with such costs and can help you guess at those costs.

What You Can Afford May Not Be What You Need

Just because a calculator spits out a number telling you that you can afford a $200,000 house does not necessarily mean you need a $200,000 house. If your actual needs are less than what you can afford, by all means buy a less expensive house and use the money you save for your other needs. Buying more house than you need is unlikely to do you much good in the long run. You’ll pay higher property taxes, insurance rates, and maintenance costs for something you’re not fully using.

If There Are No Homes Available in Your Price Range

Then you likely need to save a larger down payment or move to an area with a lower cost of living (if that’s an option). Stretching yourself to buy a house outside of your affordable range can easily lead to disaster when hard times hit. Beware of exotic mortgages (like interest only and other variations), and be very careful of ARMs (adjustable rate mortgages). The most manageable and safest mortgage is the traditional 30-year or 15-year fixed interest rate mortgage.

Another option is to keep shopping around until you find a house within your price range. Patience is a powerful tool when buying a house. Rushing the biggest purchase in your life is not a wise decision. Don’t let the emotions of searching for a home control your decisions and put you in a financial bind.

If you have any questions, leave a comment. I promise to respond as quickly as possible!

In Budgeting, Debt

Cable/Satellite TV Subscriptions Actually Cost Nearly $64,000!

Corey — October 30, 2009

Think it sounds ridiculous? Bear with me and I’ll explain how I came up with that number. This obviously isn’t the exact cost for every single person, but it probably isn’t far off. I didn’t include the cost of electricity, purchasing and replacing your television, or the cost of lost opportunities due to the hours wasted watching television. I’m also basing the cost on the amount I pay for satellite TV. Your actual costs may be higher or lower (probably higher as I have the most basic package).

The Assumptions

I assumed a cost of $40/month for the subscription. This is the cost of my basic satellite TV subscription. There’s a good chance most people pay more than this, so my estimate is probably conservative.

I assumed you started your subscription at age 22 (when most people are out on their own) and you keep it until you die at age 80.

I assumed an inflation rate of 3.8% and an investment rate of return of 8% (very reasonable over a 59 year time period).

The Results

If you decide to give up your cable or satellite TV subscription and instead invest the money, you’d have over $577,000 at age 80. If we adjust for inflation, that $577,000 would be about $63,900 in today’s dollars (e.g., what costs you $63,900 today will cost you $577,000 in 59 years because of inflation).

By age 65, you’d have an extra $177,700 because you gave up that cable/satellite TV subscription. This is the same as $34,300 in today’s dollars. That could mean retiring a year earlier! (depending on your income needs in retirement)

What About the Cost of Purchasing a TV?

If you’re 22 and you decide to save $100 instead of purchasing a TV set, you’ll have an extra $2,955 by age 65—or $570 in today’s dollars. (While the price tag says $100, it’s really costing you $570 because you could have invested that $100.)

If you save $500, that’s an extra $14,780 by age 65—over $2,850 in today’s dollars.

If you save $1,000, you’ll have an extra $29,550 by age 65—more than $5,725 in today’s dollars! (That $1,000 big screen TV is really costing you $5,725.)

And we haven’t even figured in the cost of lost opportunities because you watched so many episodes of Lost…

The $64,000 Question

If Dish Network, DirectTV, or Comcast told you that subscribing to their service would really cost you $64,000, would you do it? Even with the first month free, I just don’t see how it’s worth it.

Add in the cost of purchasing a TV (and replacement TVs), the higher medical bills because you sat on your butt so much, and the other reasons you should stop watching TV and you’ll soon find that it’s just not worth it.

If you’re struggling to get by, TV should be one of the first things you cut. It’s a drain on your finances (a $64,000 drain!), wastes your time, and can get in the way of quality family time. Your time is better spent finding ways to increase your income, cut your expenses, and enjoy your life the way you want (instead of the way the TV tells you to enjoy it).

Disclaimer and Other Stuff

Even though I know how much television costs, I have not given it up completely. However, I do watch a lot less than I used to and I’m amazed at how much more I can accomplish! Now I tend to only watch a couple shows on Discovery Channel. (I’m a science geek at heart.) I’ll watch in social situations as well, but overall I probably watch less than a couple hours a week on average.

Not all TV is bad. Like I said, I like to watch Discovery Channel. Educational shows can be a good way to get some entertainment while expanding your mind at the same time. But most TV shows are an absolute waste of time—end of story.

In Budgeting, Frugality, Stewardship

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:

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

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!

In Budgeting, Contentment, Debt, Estate Planning, Frugality, Giving, Insurance, Investing, Miscellaneous, Personal Finance Bible Study, Personal Finance Bible Verses, Prosperity, Retirement, Saving, Stewardship, Taxes, Work

Cheap, Healthy Food: A Wholesome Meal for Under $1/Serving

Corey — October 26, 2009

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.

Rice

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

Avoid:

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

In Budgeting, Cooking & Recipes, Frugality, Reviews, Saving

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