Financial Plan Setup

Caveat: I am not a financial planner. I speak from my experience and research. I have spent hours researching and trying to pull together materials that will help you become a good steward. Make sure that you are a good steward based on God's principles not just my suggestions. Listen to God in your financial decision making.

Never take your marching orders from people with a vested interest - bankers, investors, loan companies, car salespeople. You can ask advice from several of these but always take care not to fold under pressure. Make sure that you hear the other side of the argument. Make sure that you understand all your options. Take time to understand before you sign any financial agreement and be sure to read the fine print with a legal expert or qualified individual (lawyer)

If they say this is just a deal for today - walk away. Tell them if they change their mind later or can do even better to get back to you. Stay in charge. Often they come back with a better price tomorrow. Never shut the door completely. Always be courteous so you could go back if you find out that it was a great deal that they presented to you.

I want you to be the kind of steward that God delights to bless. I want you to be thankful for the great blessings that God has given you. I want to see all of you with a generous heart not a selfish, stingy heart. Greed and covetousness will destroy your faith. Live your life by faith which is a belief that God will keep His promises. When preparing a financial budget, plan to under spend so that you can over give. Enjoy the thrill of being generous and receive the reward from God for being a good steward.

The goal of doing this series is not to get you to give more to the church. I want you to prosper in your soul and be a good steward of what is entrusted to you.3 John 1:2 Beloved, I wish above all things that you may prosper and be healthy, even as your soul prospers.

I want you to be rewarded in heaven by God Himself. There is nothing wrong in saying that if you are faithful, God will be faithful to supply all your needs. We can't expect to live a careless life with our finances and expect God to supply our needs. It requires careful planning and thought to be a good steward. Sometimes we wonder why we are struggling financially when God has supplied all our needs according to his marvellous riches in glory but we have misspent those blessings.

God is more interested in the 90% that you don't give than the 10% that you do. You might think you are off the hook to be a good steward if you give 10% of your income. God still holds you accountable for the other 90%. The more wealth that you have the more accountability because you have been entrusted with more so God expects more from you.

On the other hand how little can you live on? Proverbs 30:8-9 "Keep falsehood and lies far from me; give me neither poverty nor riches, but give me only my daily bread. Otherwise, I may have too much and disown you and say, ‘Who is the Lord?' Or I may become poor and steal, and so dishonour the name of my God."

If you were unemployed for a year, would you survive? What about 2 years? What would you do to survive? What if you were a person living in the jungles or living in Africa, what would you have to spend? We live in a global village allowing us to see the great disparity between the rich and the poor.

Minimalism is a philosophy of living which allows us to minimize our possessions and maximize our sharing. (I thought I was coming up with a new term here but then I went to the internet and checked and found that there are lots of web sites that talk about this already.) Sam Polk talks about wealth addiction and his transition from Wall Street to simple living.

1 Timothy 6:9-11(NIV) Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. 10 For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs. 11 But you, man of God, flee from all this, and pursue righteousness, godliness, faith, love, endurance and gentleness.

Minimalism allows us to declutter our lives and move away from materialism. I have been very materialistic. Most North American men have focused on greed - getting things and using people. We see the speck in our brother's eye (or employer's eye) and can't see the moat in our own.

Fritz Kreisler, world renown violinist said, "I was born with music in my system. I knew musical scores instinctively before I knew my ABC's. It was a gift of providence. I did not acquire it. So I do not even deserve thanks for the music. Music is too sacred to be sold, and the outrageous prices the music celebrities charge today are truly a crime against society. I never look upon money I can earn as my own. It is public money. It is only a fund entrusted to my care for proper disbursement.

"I am constantly endeavouring to reduce my needs to the minimum. I feel morally guilty in ordering a costly meal, for it deprives someone else of a slice of bread - some child, perhaps , of a bottle of milk. My beloved wife feels the same way about things as I do. You know what I eat, you know what I wear. In all these years of my so called success in music, we have never built a home of our own. Between it and us would stand all the homeless in the world."

A Financial Plan is not there to restrict spending but to take the financial pressure off by assessing spending and if needed re-aligning your finances to give you financial freedom. Many families have no idea of where their money is spent. One book on finances is called, "Money Talks, It says Good-bye". I want you to make goals for your finances but before you can make future goals you need to know your current status.

Financial plans help couples prepare for major expenses - car repair, or replacement; home improvement, appliance replacement, home purchase and mortgage or debt retirement.

Money has led many couples to fight and divorce.

Basics

You should never spend more than you take in. It leads to enslavement. Proverbs 22:7 "The rich rule over the poor, and the borrower is slave to the lender."

You should seek to get rid of all debt including car payments and mortgage as quickly as possible. Romans 13:7, 8 "Give to everyone what you owe them: if you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honour, then honour. 8 Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law."

Many people have poverty mentality. When they get a little extra money, they think they have to spend it because they have been so deprived that they need to reward themselves.

Wealth mentality thinks that it doesn't matter what I do with my money. If I gamble a little and lose, that is OK because there is more coming in. "No big loss."

Stewardship mentality will see extra money as an opportunity to pay off debt, be generous, make up for extra costs not anticipated or have money for special projects

Setting up a Spending Plan (Budget)

The first step in making sure that you know where your finances are is to keep track of every penny (nickel) you spend. We do this on the computer but in the past did it on paper. Financial Freedom comes from making a plan and following it carefully.

Request a receipt when you make a purchase so that you can record the purchase when you arrive at home and have time to write it down.

Go over your credit card purchases each month - or more often to write down your purchases.

Go over your check book or bank statements and log spending information that comes from automatic withdrawals.

Spending Tracking

When you know where your money is being spent you can adjust spending to get in line with where your financial goals are.

Plan budget with your spouse; share it with your Children.

Blessings Received

Include all money that you receive from all sources. Make this as big as you can so that you can spend as much as possible.

Keep track of every income you have. You may need to go back on your bank statements to find out quarterly and annual incomes (Interest income, GST, Child Benefits, Income Tax Refund, etc.). A lot of income is summarized on your last year's income tax returns. If you are self employed or have sporadic income use your last years income tax to determine an average monthly income and pray God will supply your need in the coming year.

You need to make sure that you identify all income including gifts (gift cards) as they will replace some of the cash purchase you would have had to make. Sometimes we like to fudge the numbers so that we have some cash to spend "outside of the budget" Let's get honest. You won't become successful unless you know the whole picture.

Question: Do you have a joint account with your spouse or keep single accounts that you have to negotiate what gets paid?

If you have single accounts is there mutual accountability with your spouse? Does this lead to harmony or continued tension?

Some income only comes once a quarter or once a year. GIC's sometimes have multiple year terms so put down what you will get this year based on the rate of interest and the principle invested.

You may receive cash for gifts. You will use this to offset expenses for clothes, household goods or eating out so include it in the blessings that God has entrusted to you..

Disbursement Plan

If we find out that our income is not enough for our expenses, we have three options.

1. Increase income by selling off something to reduce payments or get cash to pay off debt.
2. Reduce spending.
3. Do a combination of increasing income but reducing spending.

We need to have a handle on our current spending. Thus we need to create a spending plan. More information will be given on each of these categories as we discuss each of these categories in greater detail

The first month you may not really have a budget. You need to collect data and get information about where we spend money. A Spending Plan will take the live data and then analyse it. You need to ask the following questions about your Spending Plan. Were your expenses more than your income? Was that expected? Why did that happen? Were there savings to cover the shortfall or was that put on a charge card? Are any adjustments necessary? Do you have a balanced Budget? Did you have any extra? Where did that money go and where will you use it? Remember there will be months when there are larger items (like taxes) that will tax your budget so be sure to plan for these times.

Generosity

Some financial planners suggest that your generosity 10% should be based on your gross income before taxes. Others suggest to give to others based on your net income. What do you want God to bless you on? Your net income giving or your gross income giving?

Luke 6:38 ‘Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.'

Paul in his letter to Timothy tells him that those that teach the truth are worthy of double honour. 1 Timothy 5:17 The elders who direct the affairs of the church well are worthy of double honour, especially those whose work is preaching and teaching. Our giving priorities should reflect that we want to honour God and our church leadership by supporting them financially. In our congregation we can all have input into how the giving is spent by individuals thoughtfully creating a spending plan and then presenting it so that we can be agreed and committed to its completion.

How do we evaluate mission giving? Is there a way to determine what percentage that you give goes to the people in ministry and what percentage goes to overhead and office salaries? What are things to watch for? What percentage of gifts actually go to the end project? What accountability is there? Randy Alcorn in his book the Treasure Principle links to a set of 19 Questions to ask when considering giving to an organization.

I have included other ways in which we might be generous to others. Most parents give gifts to their children at special times like Christmas, Graduation or Birthdays. We have made a decision to limit how much we spend per year for each child and grandchild based a number of factors. One primary motivating factor is a balanced budget. You may choose to combine things like clothes into that giving so that your clothes spending plan doubles in your gift budget. It is good for your children that they learn to budget as well and if they know your limits, will not pester you or be disappointed when they don't get a new car for their 16th birthday.

Random Acts of Kindness

This is an idea that comes out of Dave Ramsey's book and radio programs. He suggests that when we are financially free we should seek to help others. He suggests putting some money in a fund and then ask the Lord to direct you to someone who really needs the money. This is a new category for us. This is fun money but bringing joy to others. WMUZ promotes a project where you pay for the person behind you in a coffee lineup.

Non-Profits

We often have children coming around to do fund raising for special projects at school. We have told them that we will sponsor or fund them one time each year. That should be a part of our generosity plan.

Housing

Mortgage - Minimizing mortgage interest costs. Make sure that you have options to accelerate payments. Pay every two weeks. Some loans allow up to 10% of the principle to be paid annually. Thousands of dollars can be saved by reducing the payment period.

Property Taxes - When setting up your spending plan make sure that you take your annual cost. Our local municipality charges us quarterly

Utilities

Hot water tank rental - very bad idea and difficult to get out of the contract. Life of tank is 10 or more years. A good quality tank will last longer and not need repairs. When considering cost of hot water consider gas vs electric especially with the cost of electricity going up.

Furnace maintenance cost - questionable cost unless you have a very old furnace.

Phones - What is needed? Young adults think they couldn't live without a phone. What is the cost? Do you need the features it just because they are available? Some people run their business from their phones but some people bully others using a phone.

Internet - What options are available? What can you afford? This is considered almost a necessity today but remember it is an entertainment expense.

Maintenance - Roof, plumbing, painting, furnace, appliances

Minimize ownership to reduce replacement cost, maintenance or repairs. The more we own the more that we will have to maintain or replace. The more we own, the more we are tied down.

Insurance - If your house is mortgaged you will be required to purchase Home Insurance. If you are a renter you should have liability insurance at the basic minimum.

Do you have a 5 year plan? Do you have a plan for emergencies? Do you know the life expectancy of each of your vehicles or appliances or do you think they will last 30 or 40 years? What repairs could you expect to pay for repairs? What do you think replacement cost will be? Where will that money come from?

Food

We all need to eat to live but not live to eat.

Groceries - We have found that it costs us about $175 per month per person.

Eating out - This is anything that is at or from a restaurant. (Includes takeouts) Eating out costs about 3 - 4 times the price of eating at home and making your own food.

Snacks, Coffee Breaks - One coffee @1.50 per day costs $547.50 per year. That can sponsor a child in a third world country.

Transportation Costs

Vehicle Loan / Lease - A vehicle is not an investment, this is a debt on a purchase that loses value very rapidly. Car dealers calculate that most vehicles will lose their value in 5 years. A vehicle has no trade in value after 6 years depending on the kilometers driven. That means a depreciation of about $6,000 per year on a new vehicle purchased for $30,000. Taxes and licensing are only extra expenses which will never be recovered.

When purchasing a vehicle, consider the full cost of the vehicle after all initial expenses are paid including all delivery charges, extras, insurance, taxes and licensing. Set a limit on how much you are willing to pay after the extras are included. If you have $20,000 to purchase a vehicle, the HST tax will cost about $2,300 so you are left with $17700. Any other fees should be considered to get to your base amount that you can go into the car dealer with the maximum amount that you can afford to pay for a car and then stick to your budget. The $20,000 car that you can afford can only have a $17,000 sticker price or your finances will take a hit.

If you have to finance, find out what the bank will loan you for a vehicle and then look at your budget to see if those payments will work for you if you loose your job. Be careful for the "I can afford the payment" mentality.

I do not think that leasing is a good option for individuals. Some businesses can use this model for vehicle acquisitions but if you want to keep your vehicle beyond the lease period, which I think you should, you should consider purchase of the vehicle.

Most new cars have warranty repair but you will have to do oil changes and other maintenance. If you get free oil changes at the dealership, you paid too much for your vehicle. Learn how to fix small things on your vehicle. Determine what you will need for tires, brakes and other repairs and be prepared in your budget for these maintenance items at the appropriate times.

Keep receipts for fuel and perhaps even the mileage that you are getting

Health Care

Perhaps you have a company plan that covers most of these expenses but many do not. Take time to understand what services are paid for by your insurance.

Medical Services - Things like a chiropractor, massage therapist are usually not covered by medical insurance. If you use such services, this is the place to put it into your spending plan.

Medications / vitamins. Some insurance policies cover the complete cost of medications. Some require you to pay the dispensing cost which can vary based on the pharmacy that you deal with. Take time to ask what rates are at different places. Even if you only save a couple dollars, that is money in your pocket not theirs.

What are your dental costs per year. Most people go in once a year for cleaning and dental check up. Hospital dental surgery is covered. If you have several wisdom teeth pulled out, that could be done in the hospital.

Optometrist - Eye examinations are covered by OHIP for people under 20 and over 65 once a year. Others in between are only covered if they have a medical condition requiring eye examinations.

Health Insurance is can be obtained at places like Green Shield. They have a personal policy that people can purchase. Be sure you know what things are covered with these policies and when the occasion for needing these services, make sure that you have the proper documentation for refunds if the payment is not billed directly to the insurance company. Some times there is co-pay which means that you pay a part and the insurance company or employer pays a part.

Personal Insurance - Some people take out other kinds of insurance for medical expenses. That cost would be entered here.

Insurances

Insurance is a way of covering emergency or catastrophic expenses by paying in advance. If you never use it you will never reap any benefit from it but you will have helped others with their expenses and paid for a lot of other people to work. Typically companies make between 15 and 35% profit from these plans.

Life Insurance is insurance that is purchased to help those who are left behind in case you die. Since there are many kinds of life insurance we will take more time to explain this kind of insurance later if you are interested.

Disability Insurance - Insurance purchased in case you are injured and cannot work. Most people are covered by work place injury but many injuries occur outside of the workplace. Most company policies do not cover outside the workplace. The government has a Disability Pension for those who can no longer work because of injury or other disabilities.

Long-Term Care - Long-term care services may be provided in a variety of settings: at home, through adult day care, in a retirement home, assisted-living setting, or long-term care facility. Services may include: nursing care, rehabilitation and therapy, personal care (help with activities of daily living such as dressing, eating and bathing), homemaking services (cleaning, laundry, preparing meals), having another person there to watch over you and help you when and where you need it.

Personal Care

Clothing, shoes, etc. - Clothing can become a very expensive part of our spending plan. Most of us have plenty to wear. The hardest part of getting up in the morning for some is having to make a decision of what they will wear. People in many third world countries don't have that problem. They only have one or two sets of clothes that they wear each day.

Hair, Personal Products, Tissue products - We all get hair cuts and use products that keep us clean and looking nice. It is amazing how expensive this category can become if we are not careful. The home perm has evolved to hair colouring, hair styling, manicures, pedicures, hair removal and a host of other services and products.

Child Care - Baby sitting might be considered under entertainment expenses if the baby sitter is used for going on a date but if both spouses are working, child care after school or sometimes even in the morning is required.

Family Care Expenses - Expenses incurred while taking care of parents or other members of the family. Those who might have family members who are disabled sometimes require extra costs to take care of these family members.

Debt and Banking

We will take more time to work on debt later. This is just to determine what kind of debt we have and how much of the personal spending plan it requires. We have this category when we have insufficient funds to pay for the things we want.

Personal Loans - A personal loan is sometimes taken out to pay for an item that we have insufficient funds for but need or cannot wait to collect the necessary funds together to purchase it. Pawn shops, Cash loans, Promissary Notes and other kinds of loans could be entered here.

Credit Card Debt - One of the most expensive kinds of debt that people incur. If you cannot pay off your credit card each month, then enter the balance here.

Bank Charges - What does your bank charge you annually for it's services. Checks, insufficient funds, banking services are a million dollar business. If you pay anything here, it is too much.

ATM Charges - The convenience of ATM machines are attractive but expensive. Wise planning should eliminate all ATM fees.

Debt Retirement - How much do you want to put aside to get rid of debt? Most mortgages allow up to 10% of outstanding principle to be paid off annually. Most people don't and pay thousands of dollars more for their home.

Monthly, Quarterly and Annual Payments - Do you have student loans, private loans or other debt that you pay off on a regular basis?

Entertainment

I have included a lot of different things in this category. Most of these are not necessities. They are a part of our social and leisure time. Your spending plan is not passing any kind of judgment on these activities. It is just an attempt to determine where your money is spent and the next step is to determine whether you are satisfied with your stewardship of these resources.

Gifts, Cards, Weddings, Birthday Expenses - We often go to showers, weddings, birthday parties and these expenses sometimes add up into the hundreds of dollars.

TV, Cable, Satellite, Internet - Many people spend money on internet, cable or other TV or computer services.

Travel/Vacation, Passports, Travel Insurance, Vacation Expenses - What are the costs of these activities? Try to include everything including souvenirs and travel insurance.

Hobbies, Activities, Sports, Books, Computers, Cameras, Gym - Include expenses for group sports whether it is an adult Baseball team or a kid's hockey team. What are the costs involved? If you didn't participate in these activities how much would you be saving? Are there other alternatives which will achieve the same results?

Newspapers, Magazines, Subscriptions, Books, eBooks, Libraries - What does your reading entertainment cost you?

Movie rentals, Netflix, Movie Theatre - How much do you spend annually on going to the movies, renting movies or subscribing to Netflix or similar product.

Sports Vehicles, Insurances, Fuel - Boats, ATV's, Motorcycles, Snow mobiles etc., require licences, fuel, maintenance, insurance and other expenses.

Alcohol, Tobacco, Gambling - These expenses are not necessities in spite of the addictive qualities of these products. Gambling includes things like raffles, lotteries, playing cards for money, etc. If you purchase tickets to support a charity, consider giving directly to this charity as sometimes more than half the amount given is used for the prizes whereas a donation will be used 100% for the charity.

Pets - food, shots, care - Pets can become like a family member but they do require major expense. Our dog cost us more in dog food than our children when they were young.

Savings

Savings should be a part of our spending plan. Besides having funds set aside for emergencies, it is a good practice to set aside funds for future purchases and retirement.

Interest Free Savings - The Canadian Government allowed all Canadians to set aside saving from after tax dollars to be put into a saving account and taxes will not be charged on the interest that is accumulated on those savings. There is an annual limit as to how much can be invested. You can withdraw funds from this account but are limited as to how much you can repay back into the savings account.

Tax deferred saving accounts. RRSP, RESP, RRIF etc. These government allowed savings accounts can reduce the amount of taxes we pay and set aside funds for the future. You can defer paying taxes and the amount of tax you pay depends on your income at the point when you withdraw the funds and how much you are withdrawing at that time.

GIC's - Guaranteed Investment Certificates. This is a category for giving banks money for an extended number of months of years in return for a higher rate of interest. If you cash in or withdraw these funds before the agreed upon date of maturation, the bank usually charges a penalty. The rate if interest received is usually higher than a regular savings account.

Savings Accounts - Banks give you a small amount of interest on these accounts. They usually allow you to transfer your funds from the savings accounts to the checking accounts without notifying them. If you have a higher interest savings account, the banks sometimes require a couple days notice to transfer funds from one account to another.

Stocks, Bonds, Annuities, Mutual Funds - There are a number of investment opportunities which have no guarantee of return on investment but many great promises.

Miscellaneous

Miscellaneous can be a lot of things that don't fit into the other categories. If you find a lot of things the same in this category as you are entering all your receipts, consider putting it under another category for next year.

Unique Expenses

Unique expenses are not things which are long term or experienced by a normal household. They are important to factor into your spending plan because they will sometimes take a sizable chunk of your finances.

You need to record at least one month's spending to begin checking to see if you have set up a good spending plan. If you find that ordinary expenses have been significantly higher or lower in the first month or two, you can adjust your spending plan.