Tag Archives: finances

Personal Finance

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Finances can be complicated. Do you feel overwhelmed by the difficulties and options of managing money? The Simple Dollar is a blog dedicated to helping average people improve their financial situation.

If you’re looking for a starting point, the author of the site has provided a 49-page “book” that he says, “weaves together most of my favorite ideas on personal finance and a lot of other goodies into one document.” It starts out with a single page covering “Everything You Ever Really Needed to Know About Personal Finance,” then explores the basic concepts throughout the other pages.

Click below to get it:

http://www.thesimpledollar.com/onepage/

Generosity vs. Equality

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Equality eliminates generosity. You can’t be generous unless you have an excess. If you disagree with that statement, then consider this: two people have equal resources; Person 1 exhibits generosity by giving some of his resources to Person 2. Result: Person 1 and Person 2 no longer have equal resources.

Think about this the next time you hear someone talk about “redistribution of wealth.”

“Do not steal” implies (and condones) ownership. You can’t steal something unless it belongs to someone else. The Eighth Commandment declares that it is wrong to steal, and by implication declares that it is right for individuals to maintain ownership and control of their resources.

This about this the next time you hear someone talk about “communal ownership.”

See http://instruct.westvalley.edu/lafave/hb.html for an interesting look at these concepts.

Finances

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Some thoughts on financial management, budgeting, getting out of debt, etc.

It takes time. You need to be organized, and take the time to keep track of your finances.

It can seem overwhelming at first. When someone is thousands of dollars in debt, sometimes they would rather just not think about it. That only makes the situation worse, because if you don’t figure out exactly how much you make and how much you owe, you cannot create a plan to get out of debt.

First steps:

1. Net Worth: Know where all your money is, and how much there is.
-Some people have multiple checking/savings accounts, and may not even know how much is in each account. Consolidate multiple accounts. Use your bank’s website to keep tabs on your account balances.

2. Income: Figure out how much you make. (net salary, after taxes, on a monthly basis)
-Don’t include overtime or odd jobs if they can’t be counted on for regular income.

3. Expenses: List all of your regular expenses. (mortgage/rent, car payments, other loan payments, utility bills, phone/cable/internet, magazines, food, gas, etc.)
-For expenses that don’t occur once a month, figure out the monthly equivalent. (expenses for total year, divided by 12)

4. Liabilities: Add up all past due bills. (we’ll come back to this one after Step 5)
-List your debts in ascending order, for the smallest amount owed to the largest amount
-Be aware of interest rates, late fees, service charges, etc.

5. Balance your budget.
If your expenses (#3) are more than your income (#2), then you need to aggressively reduce your expenses and/or increase your income. Increasing your income isn’t always within your control, but reducing expenses usually is. TV, internet, cell phones, magazines, movies, etc., are all optional expenses that may need to be eliminated. You may need to find strategies to save on gas money and food. You may decide you can’t afford your current car or residence, and need to trade down. You may need to find a second job. Do whatever it takes to make sure that your income is greater than your expenses.

6. Manage expenses.
Now that you have a budget that allows you to live within your means, you need some structure to keep your spending under control to make sure you stick to your budget. This is why keeping track of your spending habits is important, so you don’t get to the end of the month and realize (too late) that you’re out of money. Many people find it helpful to use an envelope system. At the beginning of each month, take out the budgeted amount of cash for food, gas, entertainment, and other discretionary expenses, and put each amount in it’s own envelope. Use only the allotted cash to make your purchases (don’t write checks or use your credit card). If your food money runs low, you’ll have to eat peanut butter and jelly for a while. If your gas money runs low, you’ll have to stay close to home for a while. If you don’t use all your gas money in a given month, don’t just blow it on something else: save it, or use it to pay off debt.

7. Pay down debt.
While you’re creating your budget in Step 5, it’s important to not just have your expenses be equal to your income, but to have your expenses be less than your income. This excess income is used to create savings and pay off accumulated debt. It is often recommended to eliminate your smallest debts first, and work your way up, but sometimes the debt with the highest interest rate or highest late fees should get top priority. Once a debt is payed off, don’t treat the money you were paying as being freed up for other expenses, roll it over into paying off the next debt.

This is the step that people are often the most worried about, but without doing Steps 1 through 6, Step 7 will never happen.

Continue reading →

Credit

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While a hunter/gatherer or farmer of the past may have been self-suffcient, or while past cultures may have relied more on bartering, today’s culture relies on money. It has also become common to purchase things when we don’t actually have the money to pay for it.

Originally posted 3/29/2005 on bibleforums.org:

There are a couple of problems that we have in the good ole U.S. of A.
1) There is a mentality some people have that they deserve to live at a socially acceptable standard of living. The socially acceptable standard of living includes a shiny car (or two), a big screen TV, lots of TV channels, movies, eating out, etc.
2) Many people assume that if they can make the monthly payment today, then they will be able to pay the debt off in the future.

This results in increased spending and an increased willingness to take on debt.

My personal approach to credit: I’ll only buy something on credit if I could turn around and get out of debt immediately if required.

I use my credit card for most of my purchases, but I only buy something if I have the money in the bank to pay for it, and I never carry a balance on my credit card.

I borrowed money to buy a new car, but I put enough down that even with the depreciation, the car was always worth more than I owed on it. (I then payed it off in under 2 years so I didn’t have to keep paying interest.) I don’t particularly recommend borrowing money for a car, but if you do, you should never let your loan get upside-down (what you owe is more than what the item is worth). I did it partly to build my credit rating, because I knew I would be applying for a mortgage in the future.

I borrowed money to buy my house. This is the one scenario where I see debt as a “good” investment. Yes, it’s possible to save up money and pay cash for a house, but in the meantime you’re paying rent that doesn’t build any equity. By getting a mortgage, at least some of your payment is towards the principle, the interest is tax-deductible, and you can still put additional savings towards the principle. That doesn’t mean every mortgage is worthwhile; you still need to make a wise choice in the property that you purchase, and not over-extend yourself. However, if you buy a decent property and put enough money down, the house will always be worth more than you owe.

When I bought my furniture, I took advantage of the “18 months same as cash” deal. I could have paid for it in full, but, hey, if they’re going to let me keep my money for another 18 months, I’ll do it. I don’t recommend that for everyone, because not everyone has the discipline to set the money aside and not spend it. Furniture, appliances, etc., are not the sort of things you can easily turn around and sell for as much as you paid for it, so I definitely don’t recommend buying anything like this on credit unless you have the cash on hand. If you do have the cash on hand, it doesn’t make sense to pay in installments if you are paying interest, but if you don’t have to pay interest and you’re disciplined enough to keep the money in the bank, there is financial benefit to hanging on to your money for as long as possible.

Borrowing money for education is debatable. I know some financial advisors (including Larry Burkett and Ron Blue, I think) see college as an investment for which it is worthwhile to borrow money. However, this is not like buying a house or a car that you could sell if you were forced to pay off the loan. There is no guarantee that you will be able to pay the debt. What if you get out of college and can’t find a job? More than a few people exit college with a new spouse, a pile of debt, and a job that doesn’t pay very well. In many cases, it may be a worthwhile investment, but there is definitely some risk involved. The level of risk depends on what field of study and occupation you pursue. It’s one thing to get student loans if you’re pursuing a professional degree (doctor, lawyer, engineer, accountant, teacher, etc.). But I have mixed feelings about coming out of college in debt to the tune of $40,000-$60,000 or more, and planning to be a pastor or missionary.

Insurance

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How do you decide what type of insurance to carry, and how much?

In order to answer this question, it’s probably necessary to first identify the purpose of insurance. As I understand it, the purpose of insurance is to protect against catastrophic events resulting in costs that you (or your loved ones) could not afford to pay on your own. Perhaps some would define it differently, and no doubt there are varying opinions about what constitutes catastrophe and what is considered “affordable.”

To some extent, I see the insurance industry as purely a middle-class phenomenon. Poor people can’t afford to buy insurance, and rich people don’t really need insurance because they can cover pretty much any expense without it. However, as a member of the middle-class, I feel a responsibility to take prudent measures to protect the resources with which God has blessed me. However, sometimes it’s not clear when insurance ceases to be protection, and becomes a bet that’s not in your favor. Let’s look at some common types of insurance and evaluate the necessity of each.

Health Insurance
Purpose: Pay for medical bills related to sickness and/or injury.

Given the high cost of medical care, most people would be devastated if they contracted a critical disease, were in a serious accident, or were plagued by ongoing illness. Therefore, some type of health insurance is a good idea. My employer provides a good plan and pays for a large portion of it, so I don’t have any reservations about this one.

Auto Insurance
Purpose: Pay for damaged property and/or medical bills related to an automobile accident, and/or miscellaneous damages to your own vehicle.

Every state that I know of requires liability insurance in order to drive legally, and most people could not afford to pay the bodily injury costs if they caused an accident, or the property damage if they run into someone’s Rolls Royce. Collision and Comprehensive is where it gets a little fuzzy; there comes a point where they just aren’t worth it. There’s no sense in paying for collision and comprehensive on a rusty old beater. Where do you draw the line though? Right now I carry both collision and comprehensive on my car and motorcycle. Once I’m comfortable on my bike, I’ll probably drop the collision and comprehensive on it, because if something happened to it, it would not be catastrophic. Even on my car, it would put a big hole in my savings if I totalled it, but I could still afford to replace it without insurance.

Home Insurance
Purpose: Pay for property damage related to natural disasters.

Banks require home insurance in order to give you a mortgage, but even if you own your home outright, most people don’t have enough cash to replace their home if it were destroyed, so home insurance is a worthwhile means of protection.

Life Insurance
Purpose: Pay for burial expenses when someone dies, and provide living expenses for survivor(s)

Since I’m not married, I don’t have any additional life insurance beyond what is provided to me at no cost through my employer. When (if?) I do get married, I don’t see the point in a large policy. My goal is to save enough so that my family is cared for without needing to rely on life insurance. A reasonable term-life policy can provide a cushion until adequate savings are available.

Long-term Disability Insurance
Purpose: Provide continued income in the case of a long-term disability.

This is one that I don’t currently have, but I’m thinking I probably should add. The income we make over a lifetime is much, much more than the $20,000 car or $100,000 house that we insure. It makes some sense to insure our livelihood against a disability that would prevent us from working.

Long-term Care Insurance
Purpose: Pay for in-home nursing care, assisted living, or nursing home.

Most recommendations I’ve seen advise against long-term care insurance until you’re closer to retirement age, and then it depends your current financial state.

Accidental Death Insurance
Purpose: Like life insurance, but only pays in the event death is caused by an accident.

Most recommendations I’ve seen advise against paying for accidental death insurance. Regular life insurance is sufficient.

Other types of insurance:
Travel insurance, credit insurance, etc.
What other types of insurance have people tried to sell you, and should they be considered?