Financial Peace With the Prince of Peace

My favorite mantra delivered by Dave Ramsey is the one that he uses to end his radio show:

The only way to true financial peace is to walk daily with the Prince of Peace.

Our lives should be focused on primarily serving our Lord, our comfort and our King.  Today’s morning prayer from the Liturgy of the Hours speaks of the peace the Lord provides:

Alone with none but thee, my God,
I journey on my way.
What need I fear, when thou art near,
O King of night and day?
More safe am I within thy hand,
Than if a host did round me stand.

My destined time is fixed by thee,
And death doth know his hour.
Did warriors strong around me throng,
They could not stay his power;
No walls of stone can man defend
When thou thy messenger dost send.

My life I yield to thy decree,
And bow to thy control
In peaceful calm, for from thine arm
No power can wrest my soul.
Could earthly omens e’er appal
A man that heeds the heavenly call!

The child of God can fear no ill,
His chosen dread no foe;
We leave our fate with thee, and wait
Thy bidding when to go.
‘Tis not from chance our comfort springs,
Thou art our trust, O King of kings.

As we seek to improve our financial lives, let us always remember to first find peace in the Prince of Peace!

Measuring Progress – Tracking Net Worth

As we budget, save, grow our income, and practice self-control in spending, it’s important to have a method for tracking progress.  After all, if we are indeed working to improve our financial lives, shouldn’t we have a way to measure our improvement (or regression)?

I have a coworker who has turned into a terrific friend and we’ll often talk personal finance in our downtime.  He shared with me his primary method for tracking progress in his financial life:  Tracking net worth.  This was definitely a “light bulb” moment and something I started doing (in November 2012) after we had the discussion.

In summary, you list your assets, list your liabilities, and take the difference, which gives you your net worth.  I calculate (actually Microsoft Excel calculates) my net worth every month and this lets me see how I’m doing financially.  Increasing the value of my assets or decreasing debts will send my net worth in the right direction.  Alternatively, keeping monthly tabs on my net worth lets me see where I might be slipping and hurting my net worth, giving me the chance to correct bad habits.

The following is the Excel spreadsheet I use to track my net worth:

Net Worth Spreadsheet
Net Worth Spreadsheet

If you would like to download this spreadsheet, click here.  The spreadsheet includes some simple formulas, including what percentage each asset comprises of each asset category.  Columns F, G, and H detail my net worth history and columns J through P detail what comprises the net worth value.

Categorizing your assets and liabilities can turn into an exercise, as you’ll need to consider whether certain items are assets, liabilities, or both.  For example, you could list your home’s equity as an asset, but you’ll also want to list your mortgage as a liability due to it being a debt owed to the bank.

As you keep track of your net worth, I think you’ll find a sense of accomplishment if you’re growing your net worth.  This will provide added motivation to steer your financial ship properly.  If you’re going in the wrong direction, use this as a tool to help identify what’s driving your loss and what you can do to fix it.  Good luck!

The Debt Snowball

One of my favorite concepts from Dave Ramsey’s Financial Peace University (FPU) is the debt snowball.  The debt snowball is the second of Dave’s baby steps to financial peace and is a technique for paying off debt that pays off the smallest debt first, the next smallest debt next, and so forth.

The debt snowball starts with you listing all of your debts.  You then pay the minimum on all your debts except for the smallest debt.  With the smallest debt, you pour all of your excess cash to paying it off.  An example:  If you have a $40,000 student loan, a $2,500 credit card bill, and a $15,000 outstanding balance on a new car, the debt snowball technique has you pay the $2,500 bill first, the $15,000 bill second, and the $40,000 last.  While you’re paying the $2,500 credit card bill, you continue making minimum payments on the two other debts.  The end result is that you pay off the smallest debt quickly.

You may have noticed that I made no mention of considering interest rates when determining which debt to pay first.  From a mathematical perspective, it certainly makes more sense to pay off debt with the highest interest first.  Dave Ramsey teaches, though, that if personal finance was strictly a mathematical issue, hardly anyone would be in debt.  On the other hand, Dave recognizes that personal finance has a large behavioral and psychological component to it.  By paying off the smallest debt first, you receive a psychological victory that rewards your discipline.  Having achieved this small victory, you’re then more likely to stick to your debt reduction plan.  You then focus on the second debt and gaining another psychological victory.

 

Happy Independence Day!

I wish you, your family, and your friends a happy Independence Day!  Let freedom ring!

Happy Easter!

Happy Easter!  I pray that you enjoy this joyous day with family and friends.  Christ the Lord is risen today!

Tithing in the Catholic Church

This year’s Corpus Christi Sunday’s readings got me to wondering about the Church’s stance on tithing.  From the first reading, Genesis 14:18-20:

In those days, Melchizedek, king of Salem, brought out bread and wine,
and being a priest of God Most High,
he blessed Abram with these words:
“Blessed be Abram by God Most High,
the creator of heaven and earth;
and blessed be God Most High,
who delivered your foes into your hand.”
Then Abram gave him a tenth of everything.

So, since Genesis makes a reference to “a tenth of everything” and common knowledge regarding Christians and financial giving says to give ten percent of our income, Catholics must interpret “tithing” as giving ten percent to the Church, right?  Maybe not.  Let’s dig a little more.

The Catechism of the Catholic Church

As Catholics, we don’t believe in Sola Scriptura.  That is, we don’t believe in the notion that the Bible can stand on its own as the sole source of knowledge for the Christian life.  We must supplement scripture with the teachings of the Magisterium, including the Catechism.

Paragraph 2447 of the Catechism makes it clear that we are called to commit works of mercy, including giving alms to the poor:

The works of mercy are charitable actions by which we come to the aid of our neighbor in his spiritual and bodily necessities. Instructing, advising, consoling, comforting are spiritual works of mercy, as are forgiving and bearing wrongs patiently. The corporal works of mercy consist especially in feeding the hungry, sheltering the homeless, clothing the naked, visiting the sick and imprisoned, and burying the dead. Among all these, giving alms to the poor is one of the chief witnesses to fraternal charity: it is also a work of justice pleasing to God:  He who has two coats, let him share with him who has none and he who has food must do likewise. But give for alms those things which are within; and behold, everything is clean for you. If a brother or sister is ill-clad and in lack of daily food, and one of you says to them, “Go in peace, be warmed and filled,” without giving them the things needed for the body, what does it profit?

Though this passage does not give a specific percentage regarding how much we are to give financially, we see that giving alms is “one of the chief witnesses to fraternal charity.”

Scriptural References

1 Corinthians 16:1-2 provides further clarity:

Now in regard to the collection for the holy ones, you also should do as I ordered the churches of Galatia.  On the first day of the week each of you should set aside and save whatever one can afford, so that collections will not be going on when I come.

What’s interesting here is that no hard and fast number is given regarding the amount an individual should tithe.  Rather, the phrase “whatever one can afford” is used in order to provide room for personal discretion.  From 2 Corinthians 9:5-8:

So I thought it necessary to encourage the brothers to go on ahead to you and arrange in advance for your promised gift, so that in this way it might be ready as a bountiful gift and not as an exaction.  Consider this:  whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully.  Each must do as already determined, without sadness or compulsion, for God loves a cheerful giver.  Moreover, God is able to make every grace abundant for you, so that in all things, always having all you need, you may have an abundance for every good work.

This passage encourages cheerful and free giving, not forced withholding.  Just as God loves us freely, we have free will to decide the degree of love we give him and his people.  God promises that the more we love (i.e., sow), the more we will reap in the long run.

Book Review: The Millionaire Next Door

The Millionaire Next Door by Thomas Stanley and William Danko provides profiles of several millionaires’, their lifestyles, and the financial decisions these individuals make.  The authors divide the book into chapters based on factors that allowed these millionaires to achieve financial independence.

My favorite advice from the book is:  “You will never achieve financial independence without acquiring assets that appreciate without realized income.”  Simply put, this can be interpreted as “let your money work for you.”  I find this philosophy especially interesting as I didn’t learn this concept until recently, while the wealthy teach their children this concept from an early age.  Now that I’ve learned this concept, one of my focuses financially is that of acquiring assets that generate passive income.  So far, my passive income is generated by equity investments, bond investments, and cash in savings accounts.  I would eventually like to enter the rental real estate market and use it as a source for passive income.

The Millionaire Next Door makes another point that resonates with me:  The wealthy spend more time managing their finances than do the less wealthy.  This time usually includes a very methodical approach to spending and saving.  A coworker once told me, “Why do we work so hard for 40 hours (or more) a week, but spend so little time managing the money we earn in those 40 hours?”  The wealthy understand that achieving the goal of financial independence requires meticulous planning and discipline in spending and saving.

Of the personal finance books I’ve read, this is by far my favorite.  I definitely recommend the book and also recommend it as good financial reading for students.

Cash Flow Planning – Step by Step

I previously posted an article regarding cash flow planning and noticed that a lot of the visitors coming to this site are viewing this article.  I decided to create a more thorough walk through of creating your own cash flow planning Microsoft Excel spreadsheet.  Having learned to cash flow plan through Dave Ramsey’s Financial Peace University (FPU), I use my cash flow plan on a weekly basis, but I remember that I had plenty of questions when I first learned the concept.

Of course, if you’d prefer to just download my already-prepared spreadsheet rather than create your own, you can download it here:  Cash Flow Plan

Creating a Cash Flow Plan Spreadsheet

  1. Open Microsoft Excel.  I’m using Microsoft Excel 2010, but any version of Excel will suffice, as we’re not using any of the advanced features.
  2. In cell G1, enter your monthly net income.  In my spreadsheet, I’ve entered $2,878.59, which equates roughly to an annual salary of $42,979.61, the average wage of a U.S. worker in 2011 according to the Social Security Administration.Add Net Monthly Income
  3. In cell A2, type Category. This column will be filled with categories where you will allocate money (for example, savings, housing, etc.).
  4. In cell B2, type Description. This column will be filled with the descriptions of items where you plan to spend your money (for example, rent, renter’s insurance, mortgage, etc.).
  5. In cell C2, type Sub Total.  This column will list the amount spend per each item listed in the description column.
  6. In cell D2, type Total.  This column will include the total amount allocated for a category.
  7. In cell E2, type % Net.  This column will contain calculations indicating how much of your net pay will be allocated per category.
  8. In cell F2, type Actually Spent.  This column will indicate how much you actually spent per item and will allow you to see where you underspend and overspend.  Your spreadsheet should now look like this:2
  9. The next step is to consider major categories that your spending falls into.  Examples might be charity, saving, housing, etc.  Enter your first category in cell A3.  Enter your next category in cell A6.  Then enter all other categories, giving yourself a couple of cells of cushion for each.  The spacing isn’t critical here, as you can simply cut and paste later in order to give yourself more room.  Here is what my spreadsheet now looks like:Categories
  10. You’ll now want to fill in each spending item in column B.  For example, under the Charity category, you may list Church, Catholic Radio, Franciscan Friars of the Renewal, or any of your favorite charities.  Go through each category with the intention that all of your spending is classified (i.e., every penny you spend should fall under a category and sub-category).  Here is what my spreadsheet now looks like:Spending Items
  11. Your next task is to determine how much to allocate for each item.  Certain items are easy to place a number on, like rent, mortgage, and your cable bill.  These bills are the same each month.  Other items will be more difficult to come up with, as they fluctuate on a monthly basis.  After tracking your spending for a few months, you’ll develop a better idea of how much you spend on these items.  You can then update your spreadsheet accordingly.  Here is my updated spreadsheet:Items with Amounts
  12. In cell D57, type the following:  =SUM(C4:C54)  This will provide a sum of all of the values in column C and will tell you how much you’ve allocated.  This should match cell G1.
  13. (Optional)  I consider this step optional, but I like to do this so that I can see what proportion of my money I spend on each category.  In cell E8, type =(SUM(C4:C7)/G1)  This will tell you what percentage of your net monthly pay you have allocated toward the Charity category.  If you aim at a 10% figure for tithing, this tells you that you need to allocate more for charity.  Do this for each category of spending.  My updated spreadsheet:Percentages
  14. Next, we’ll want to enter formulas for calculating how much you *actually* spent.  In cell F8, type =SUM(F4:F7)  At the end of the month, after you go line by line in your cash flow plan and enter how much you have to your diocese, your parish, and so on, cell F8 will tell you how much you actually gave to charity.  Do this for each category in your spreadsheet.
  15. Finally, add up how much you actually spent for the entire month.  In cell F56, type =SUM(F8,F14,F18,F24,F28,F36,F40,F43,F49,F53)  Note that the cells in this formula are the summations of each category.  If you added an item or took an item away, you’ll need to adjust your formula accordingly.  My finished cash flow plan looks like this:8

Your cash flow plan will be a work in progress, especially for the first few months that you practice using it.  You’ll find categories to add, items to add, and things to rename.  Good luck!

Greater Than Silver or Gold

I periodically post finance-related verses from the Bible and the Catechism of the Catholic Church.

Today’s Mass reading from Acts 3:1-10 speaks of the worth of the graces and blessings Christ gives us:

Peter and John were going up to the temple area
for the three o’clock hour of prayer.
And a man crippled from birth was carried
and placed at the gate of the temple called “the Beautiful Gate” every day
to beg for alms from the people who entered the temple.
When he saw Peter and John about to go into the temple,
he asked for alms.
But Peter looked intently at him, as did John,
and said, “Look at us.”
He paid attention to them, expecting to receive something from them.
Peter said, “I have neither silver nor gold,
but what I do have I give you:
in the name of Jesus Christ the Nazorean, rise and walk.”
Then Peter took him by the right hand and raised him up,
and immediately his feet and ankles grew strong.
He leaped up, stood, and walked around,
and went into the temple with them,
walking and jumping and praising God.
When all the people saw him walking and praising God,
they recognized him as the one
who used to sit begging at the Beautiful Gate of the temple,
and they were filled with amazement and astonishment
at what had happened to him.

This verse prompts us to remember the graces and blessings Christ gives us on a daily basis and to give thanks for them.  Through God’s grace we have life, health, family, friends, and many other signs of his love.  Thanks be to God.

How to Save for Retirement and Not Miss the Money

A recent Wall Street Journal article indicates that 28% of Americans have no confidence that they’ll have enough money saved to retire comfortably.  In the same article, 57% of those surveyed indicate that they have less than $25,000 in savings and investments outside of their home values.  Given that retirement calculators indicate you’ll need much more than $25,000 for retirement, the 57% cited in the Wall Street Journal article have a lot of ground to cover.  Undoubtedly, many Americans are being squeezed by the current less-than-stellar economy, so how can a person save more for retirement when they’re already using their entire paycheck?

A Painless Solution

As an employee, one of the financial benefits I look forward to every year is an annual pay raise.  The pay raise coincides with the new fiscal year at the organization where I work, so I can count on a pay increase at about the same time every year.  One thing I have done recently is increase my 401(k) retirement contribution by 1% when my pay raise kicks in.  The idea is that, if I have not gotten used to the larger paycheck yet, I won’t miss the 1% that automatically goes to my 401(k) account.

If every year you follow the pattern of saving 1% with each pay raise you receive, within several years you’ll have saved more for retirement without having missed the money.  Ideally, you’ll reach a 401(k) savings rate of at least 10%, which will provide a substantial sum for retirement.  In order to have a rough estimate of how much you’ll need saved for retirement, make sure to run through a retirement calculator or two, taking into account your expected retirement spending habits, retirement healthcare costs, and inflation.

Set it and Forget it

Some employers allow employees to sign up for automatic retirement contribution increases.  If this is the case for you and you’re not saving enough, take advantage of the opportunity so that you have one less chore to do come pay raise time.  As you approach retirement, you’ll be thanking yourself for making your life easier.

Catholic Personal Finance