Presentation on theme: "Welcome to Financial Freedom “ There is probably no area where we have a greater opportunity to make a mess of our lives than in this area of our finances."— Presentation transcript:
Welcome to Financial Freedom “ There is probably no area where we have a greater opportunity to make a mess of our lives than in this area of our finances. …….If we do not get control of our money according to God’s principles, we will never manage our time and talents well for God’s purpose.”
Objective – Provide Tools For: Establishing personal goals Understanding what we are spending Developing a Spending Plan & Debt Reduction Plan Controlling expenses
Cultural Myths Things bring happiness. We can have everything we want, and we shouldn’t have to wait for what we want. Debt is expected and unavoidable. Our self-worth is directly connected to our possessions and what we do. A little more money will solve all our problems. Life should be easy and fair.
The Steward’s Mindset God created everything – Genesis 1:1 …God created the heavens and the earth God owns everything – Psalm 50:12…the world is Mine and all it contains We are managers of what He has given us – Genesis 1:26-30….Let’s make man in Our image…and let them rule over …all the earth…
Five Areas Of Our Financial Lives Earning Giving Saving Debt payment Spending
A Budget Is: The tool that enables us to control our money so that it doesn’t end up controlling us. A Spending Plan for how we will allocate our financial resources. The Spending Plan is the way to reach our financial goals.
The Benefits of a Spending Plan Gives us FACTS Avoids WASTE Keeps our VALUES and priorities in check and should reflect our financial goals Leads to FINANCIAL FREEDOM
The Culture Says: “Our value is measured by our position, achievement and our paycheck.” “A little more money will solve all our problems.”
Earnings - The Bible Says Be enthusiastic & serve God. Colossians 3:23-24 Provide for those dependent on us. 1 Timothy 5:8 Be grateful. Deuteronomy 8:17-18
Earnings: Salaries # 1 (Net Take-home Pay) Is The amount of the paycheck after all taxes and deductions.
Earnings: Variable Incomes Take a CONSERVATIVE estimate of our after-tax annual income—based on our income of the past few years—and divide by twelve. Example: $30,000/12 = $2,500 per month
Earnings: Two Incomes Income #2: Extras – Additional giving – Additional savings – Accelerated debt repayment – Other non-essentials Entertainment Gifts Vacation
Earnings: Questions What happens to raises, bonuses, overtime pay, income from an extra job, or money received as gifts?
Three Cultural Myths About Giving “Give if it benefits us.” “Give if there is anything left over.” “Give out of a sense of duty.”
God Wants Us to Give: As a response to God’s goodness – James 1:17 To focus on God as our source of security – Matt. 6:19-21 To break the hold of money
For Those Not Giving: Begin by giving something. “Each of you must give as you have made up your mind, not reluctantly or under compulsion, for God loves a cheerful giver.” 2 Cor. 9:7 (NIV)
Saving - Two Cultural Myths: “If we have it, spend it; and if we don’t have it, spend it anyway.” “It is futile to save.”
Saving: The Bible Says: It is wise to save. –Proverbs 21:20 It is sinful to hoard. –Eccl. 5:10
Savings Is: Money we keep Future spending
Compound Interest Example 6% = $6.00 interest 6% = $6.36 interest The extra $0.36 is compound interest.
Setting Goals Financial Goals will help us decide how much to save each month Review goals often for motivation Prioritize goals Be realistic and make goals achievable Goals should reflect our values Goals must be quantified
Three Kinds of Savings Emergency savings Savings for major purchases Long-term savings
Key Question: If giving is so right and saving is so wise, why are they so hard to do?
Cultural Order for Using Money Lifestyle (Spending) Debt Saving Giving
God-Honoring Order For Using Money Giving Saving Lifestyle is based on what is left
Transitional Order For Using Money Give... SOMETHING Save... a LITTLE Debt... MAXIMIZE repayment of consumer debt FRUGAL Lifestyle
Facts: 33% of Americans don’t have a CC 36% pay balance in full every month 31% carry a balance Debt - Cultural Myth: “Debt is Expected and Unavoidable”
The Cautious Debtor: Avoids entering into debt Is careful when incurring debt Always repays debt
Biblical Guidelines: Repay debt – Psalm 37:21 “The wicked does not repay….” Avoid debt – Proverbs 22:7 “….The borrower becomes the lender’s slave.”
Three Spiritual Dangers of Debt: Presumes on the future – James 4:14 “….you do not know what your life will be like tomorrow….” Denies God the opportunity to teach us or provide for us. Promotes envy and greed – Luke 12:15 “…be on guard against every form of greed…”
Five Kinds of Debt: Auto Home Education Business Credit card
Credit Card Studies: –The amount families spent with a credit card rose between 20% and 30% compared to paying cash –Average on groceries - $32.96 using cash vs. $43.49 with credit –Average spent on non-essentials at grocery $9.08 with cash vs. $18.72 with credit –McDonald’s - $4.50 cash vs. $7.00 credit
Credit Card Rules: Use a credit card only for budgeted items Pay the balance in full every month If you violate rule one or rule two, put away the cards Select a card with no annual fee Consider a debit card instead of a credit card Keep a list of all credit card charges for awareness Have only one card to reduce temptation
Debt Example You owe 13% (Minimum payment = 4.5% of the balance starting at $405/mo.) You Pay Total Paid Time $Minimum/month$11, years $405/month$10, years $405 + $100/month$10, years
Principles for Accelerating Debt Repayment: Pay off the smallest debt first. As each debt is repaid, roll the amount you were paying to the next largest debt. Incur no new debt!
Debt Repayment is a Great Investment Guaranteed Immediate High rate of return
Spending - Four Myths: “ Things bring happiness.” “Our possessions define who we are.” “The more we have, the more we should spend.” “Spending is a competition.”
Spending - Three Biblical Principles: Beware of idols – Dt 5:7-8; Rom 1:25 Guard against greed and seek moderation – Lk 12:15; Prv 30:8 Be content – Phil 4:12
Key Question: Are we willing to be content with our true needs vs. what the culture says we need?
Spending: Mortgage/Taxes/Rent: Consider the issue of renting vs. owning Thinking of prepaying mortgage? Beware of basing a mortgage on two incomes Exercise caution toward equity loans Consider an extended household
HOUSING: COST OF BAD CREDIT ON $100, YR MORTGAGE A credit score of 520 will cost you $110,325 more in interest than someone with a 720 credit score. Or, $ per month over the 30 years
CREDIT SCORES ARE BASED ON: 35% - Payment history 30% - Amounts owed 15% - Length of credit history 10% - New credit (opening several credit cards) 10% - Types of credit - Credit cards, retail accounts, installment loans, finance company accounts, mortgage loans
CHECKING YOUR CREDIT REPORT Free credit report from Equifax, Experian, or TransUnion One report/year/bureau Suggest one report every four months alternating bureaus Online at Or
Housing: Maintenance and Repairs: Become a Mr. or Ms. “Fix-it”
Housing: Utilities Control the thermostat. Lowering the thermostat by one degree in winter = 3 to 5% reduction in energy cost. Use phones wisely. Evaluate options for internet and cable services.
Auto/Transportation Quiz What is the least expensive car we can own? When is it economically wise to buy a new (never- owned) car? Depreciation – 1 st yr., 30%; 2 nd yr., 17% and 65% after 5 yrs. What are the economic advantages of leasing? What speed should we drive? What is the proper mileage at which it is best to unload the old car?
Auto Statistics: Average Reliability –Life = 15 years –Mileage = 150,000 Average Trade-in –Time = 4 years –Mileage = 55,000
Pay Cash for the Next Car!.
Auto Insurance Tips: Choose the highest deductible you can afford. $1,000 deductible costs less than $500 deductible. Shop for it. Combine policies. Look for other discounts. Consider eliminating collision coverage on an older car.
Consider Other Insurance* Health Life (renewable term) Home or renter’s Disability Umbrella liability Long-term healthcare (as you approach 60s) * For more on insurance, take the course “Raising Your Financial IQ”
Household/Personal Groceries Clothing Gifts – 44% of families don’t plan gifts Household items Books and magazines
Entertainment Going Out – Meals, Movies/Events, Baby- sitting Travel – Vacations/Trips Other – Fitness/Sports, Hobbies, Media Rental
Professional Services Child Care – Evaluate the financial costs (taxes, gas, clothes, more meals out) and relational costs (stress, less time together, less time with children, fatigue) of two working parents. Other –Use good judgment –Seek referrals –Evaluate progress
Three Possible Outcomes Scenario 1:Income exceeds expenses Scenario 2:Income equals expenses Scenario 3:Expenses exceed income
Three Ways to Adjust Our Spending Plan Increase income Sell assets Reduce expenses (recommended)
Reducing Expenses Do I have optional expenses I can eliminate? Do I have variable expenses I can further control and reduce? Can I eliminate any assumptions about my “FIXED” expenses? Spending fast/procrastinate. Calculate the hours worked to make the purchase.
Key Questions: How serious am I? What are my options and the consequences of each option? What are the consequences of continuing to do what I am currently doing?
Benefits of Record Keeping: Gives accurate data Improves communication Allows for mid-course corrections Provides accountability
Three Record-Keeping Systems: Envelope Written record Electronic –Quicken or Excel –Mint.com –Mvelopes.com - $7.00/month
Hints to Make Record Keeping Easier: Keep the Spending Record where you will see it daily – make it a priority Round off to the nearest dollar Combine categories Estimate when you forget to record Use even billing for utilities & insurance Have a miscellaneous cash envelope or column for item 10 on the spending plan.
Electronic System (Quicken or Excel) There are some cautions involved with starting here. - Is the computer readily accessible? - Will you do the updates on a regular basis?
Inertia/procrastination Discipline Spouses not in agreement No emergency fund to draw on Some Obstacles to Budgeting
The Steward’s Mindset God created everything – Genesis 1:1 God owns everything – Psalm 50:12 We are managers of what He has given us – Genesis 1:26-30
God is Able Philippians 4:13 says, “I can do all things through Him who strengthens me.”