April was Financial Literacy month, and Evangel partnered with Vital Magazine to present a guest series of topical articles by Dr. Duane Praschan, Associate Professor in the Business Department and author of the book, Personal Finance Made Simple.
Praschan serves as the Coordinator of the Master of Organizational Leadership program. Prior to joining the EU family, he was bi-vocational, serving several churches as lead pastor or associate pastor while working in management at Philips Electronics in their Healthcare Division.
Information for these articles was compiled by Dr. Denny Wubbena, Professor of Marketing in the Business Department.
5 Financial Red Flags and How to Fix Them
Before you do anything else with your money, address these problem areas.
A key concept taught in Scripture is that we are stewards. In Genesis 1, God tells Adam that he is to steward creation. If I understand this concept, then I realize that all that I have has been given to me by God, and He asks me to steward those resources well. This concept works itself out in a number of ways.
As a parent, I realize that my three sons do not belong to me. My wife and I have been entrusted to create an environment that allows them to become what God has designed them to be, but ultimately they belong to Him. God holds me accountable only for how I steward them.
The same principle applies when we talk about money. God wants us to manage resources to honor Him and display His purposes for our lives. If you are not disciplined in this area, then it is difficult to be disciplined in other areas of your life. That is why I believe God spends more time in his Word talking about money than any other subject.
Passages like Luke 16:13 remind us that “you cannot serve two masters.” Indeed, handling money can point to areas of distrust and idolatry in our hearts. One of the main competitors to surrendering to Jesus is holding tightly to money and stuff. I believe that many in the Kingdom do not reach their potential because they fail to search themselves and submit to managing money God’s way.
The path to financial health can be a long and difficult road, but starting to walk in the right direction is a good start. Here are five behaviors or patterns that suggest you may be in some real financial trouble:
Read More
-
You pay minimum monthly installments on credit cards.
To illustrate why this should be avoided, consider the individual who has a credit card balance of almost $1,800. If the interest rate on the card is 18 percent and only the minimal payment is paid, it will take more than 17 years to pay off the balance.
-
You borrow to pay routine expenses or purchase depreciating items.
This practice makes it tough to keep track of what you owe, and where. This is a sign that your lifestyle is not in step with what you earn.
-
You hide expenditures from your spouse.
It is imperative that you and your partner are in agreement on how to handle money. Unfortunately, this is usually indicative of something far greater than just money.
-
You need a co-signer for a loan.
This indicates that the lending institution believes you are at high risk for not being able to make the payments. This reminds us why co-signing can be so damaging. If the lending institution does not believe you are a good credit risk, why should your friend or family?
-
Your Kingdom-oriented giving is reduced or non-existent.
Luke 12:34 essentially says that your heart will follow your money. Failing to support meaningful work in the Kingdom should be a concern for anyone who wants to draw closer to God and pull away from this temporary world.
If you are trapped in any or a few of the above circumstances, it may feel like nothing is ever going to change. But now let me line out five practices that can help get you on the path to financial health, and perhaps even allow God to accomplish new and exciting purposes through your new found freedom.
-
![Download the 2012-2013 Master Catalog]()
Download a budget sheet for your family’s personal use
Have a budget.
Just because it’s a simple principle doesn’t mean everyone does it. Having a budget demonstrates that you have a plan or purpose for your money. Without a budget, you are planning to fail financially. Planning is powerful because it brings clarity to financial discussions and priorities. There are a number of good online resources that will help you budget by whatever time increment you choose.
-
Have insurance.
When looking for places to cut back, look somewhere besides your insurance coverages. Insurance reduces the risk on you if you don’t have the financial means to deal with a loss. For example, most people don’t have lots of cash sitting around to replace a car if it was totaled. Visit with your insurance agent to see how you might be able to save some money while remaining covered.
-
Be open.
Financial problems can feel embarrassing, but more likely than not, someone in your network has experienced a similar situation. Most of all, don’t hide your financial reality from your spouse. Allow your church family to pray for you and equip you with resources for getting to a healthier place.
-
Understand your health care situation.
There has been much in the news – mostly political and not very helpful regarding the Affordable Care Act (Obamacare). But if you are a young adult, one key element of the act that should be followed is to stay on your family’s coverage until you turn 26. Even if you are out of school or get married, this can provide financial relief during your young adulthood.
-
Appreciate the time value of money.
The right time to start saving for the future is now. If you can’t do it now, then start to make steps towards doing it soon. That’s because the interest rate and time of money is crucial to your long-term financial health.
Let me illustrate the role of time: Two twins (Bob and Ralph) have two different approaches. Bob is 25 and saves $100 per month for 10 years. After 10 years, he stops saving and lets the money grow through compounding. If he is able to obtain an interest rate of 10 percent (yes, this is still possible through good growth mutual funds), by the age of 65 he will have contributed $12,000 which has grown to $333,574.
His brother Ralph decided to wait and start saving when he was 35. He saves $100/month for 30 years, so by the age of 65 he has contributed $36,000 that has grown to only $197,400.
This is the power of compounding. The lesson? Start early, realizing that the growth of your money is most significant the last few years.
I believe we all desire to make a difference. If you are in financial trouble, realize the warning signs and understand that there are resources available to help. In the next installment of this series, we’ll break down finances based on what stage of life you are in, and cover some real long-term goals and strategies.
Steps to Take Now for a Better Financial Future
Depending on which life stage you are in, there are some distinct opportunities and risks that you may face on your financial path
Last time, we considered stewardship and five red flags that inhibit financial health. Today, as we continue this series inspired by Financial Literacy Month, I want to discuss the different stages of life. Depending on which stage you are in, there are some distinct opportunities and risks that you may face on your financial path.
Life is a wonderful gift, with each day an opportunity to respond to the purposes for which each of us was created (Ephesians 2:10). However, life events are not always predictable and there are times in which we find ourselves in challenging situations.
The typical response to financial struggle is to rely on credit. Planning is often avoided based on a multitude of reasons that really serve as justification for procrastinating.
Marketing researchers have identified patterns of financial behavior that are common for people in distinct life stages. Examining these stages provides insight for avoiding pitfalls and planning for the future.
Read More
The Bachelor/Bachelorette Stage
Characteristics:
Young, unmarried, fully employed (have graduated from either high school or college), and no dependents.
Risks:
Unwise purchasing decisions, while attempting to buy bigger and better to match what they grew up with in their parents’ home.
Opportunities:
There is a great deal of mobility and few financial commitments beyond a possible student loan and/or a car payment. Any surplus in this stage should be used to establish an emergency fund (three-six months of take home) and reducing any debt.
Newlywed Stage
Characteristics:
Both spouses employed, with no kids.
Risks:
Making financial decisions based on ability to make the monthly payments rather than the total cost associated with item purchased. Failing to aggressively deal with debt, especially school loans. Taking on debt to achieve a desired lifestyle – borrowing money on furniture, vehicles and home.
Opportunities:
However possible, try to live on the largest of the two incomes and use the other spouse’s income to reduce debt and save for big purchases. This approach prepares people for their first child because the budget is already organized for increased demands.
Married with Kids
Characteristics
Career-oriented, gaining work experience and increasing earning power. Starting a family brings huge excitement, often leading to the purchase of a home if not done in an earlier stage.
Risks
Underestimating the financial challenges of raising a family. If too many financial commitments (including debt) have been made, a one-income household is not realistic. This is why decisions made in the newlywed stage are so significant.
Opportunities
Rather than assume that income will increase at the same pace as expenses, stick to a budget and continue to reduce debt or invest in the future. Obtain adequate life insurance on both spouses to allow the family to have adequate income should something happen to one of the parents. Rather than assume that income will increase at the same pace as expenses, stick to a budget and continue to reduce debt or invest in the future
Married with Teenagers
Characteristics
One or multiple children with food, clothing, insurance and school activity funding needs. Competing desires and needs in the household.
Risks
Overuse of credit to solve cash shortages. Not preparing for college education, potentially creating financial difficulties for the next generation and/or creating more debt.
Opportunities
One of the best opportunities is to avoid emotional decision-making. Teens typically want designer clothes and won’t be caught dead driving that old car. Use this time as an opportunity to teach them good financial practices through realistic saving and spending patterns (while putting your own money in more useful places).
Empty Nest Stage
Characteristics
Empty homes, reducing some financial stresses, but causing new relational norms for married couples.
Risks
There are many risks in this stage. In an attempt to enjoy life after the grind of raising children, some people splurge on vacations or other large expenditures. This throws off the financial balance and leads to having to work longer than desired. It can even impact retirement. Others try to catch up with investments for retirement and take unwarranted risks.
Opportunities
Spouses that had stayed at home may now return to work, increasing cash flow and discretionary funds. Paying off the mortgage or other outstanding debt may become realistic during this stage. Choose an investment strategy that protects assets.
Retirement
Make sure you have completed a personal information form to help your family avoid stress
Income is drastically reduced. Expenses are now being paid from the investments (fewer companies are offering traditional pensions) that you must manage. Increased reliance on Social Security. While some expense items are lessened, healthcare can be substantial.
Risks
Relying on Social Security as your primary source of income. Social Security should only be part of your financial picture because it will not be adequate. Being ill-equipped for long-term care can wipe out your portfolio in just a few years.
Opportunities
Document your plans with family members to help them avoid stress with hospitals and nursing homes if you become ill. But mostly, enjoy the time you’ve prepared for with wise financial decisions earlier in life.
What stage are you in? What do you need to do to prepare for the next stage? How you answer these questions will ultimately determine what type of steward you have been with God’s resources.
The post Financial Literacy tips from Dr. Duane Praschan appeared first on Evangel University.
