Mike Henderson

The Cost of Financial Illiteracy

Let's be honest.  Who among us has not made a boneheaded financial mistake?  Too often it was because we were stung by the power of now.  We simply could not wait, and our impatience led to a financially dumb decision.

While I have made my share, let me take you back in time, about thirty years ago.  While working for my dad we had a guy working for us named Larry.  He had been with the company for a while and was very dependable.  As a result he eventually got a company truck, which meant he no longer had to buy gas, tires, insurance, brakes, and whatever other expenses a typical truck owner incurrred.

As I recall he was making $9 an hour.  Thirty years ago that was not too bad, plus throw in the truck.

My guess is that Larry wanted to make a little more money so he went shopping.  A competitor offered him $9.50 an hour.  That translates into $20 for a forty hour work week.  Or $1,000 more a year in take home pay, or should I say before the taxes come out.  Add up federal, state, and FICA taxes and he probably added $750 to what he took home in a year.

He took the $9.50 and left to work for the other company.  That day I realized many people are really bad at third grade math.  By third grade they typically teach you how to add and subtract.

So let's do a little addition and subtraction.

Let's start by taking away the company truck.  That one subtraction item alone will now add the following expenses to his personal account.

Because I can't recall the price of gas, let's just say it was $1 a gallon.  Yes, those days actually existed.  I forgot to mention, he lived in Winchester, VA.  That means he is driving at least fifty miles one way to work as most of the work was around the Beltway which circles Washington, DC.  That comes out to one hundred miles a day, five hundred miles a week, and at twenty miles to a gallon we arrive at using twenty-five gallons a week.  We are now up to an additional $25 in expenses a week just in gas alone.  Hello $.50 raise, good-bye $.50 raise and I'll raise my personal expenses $5 a week ($20-$25= -$5).

Whoa!  So Larry just took a pay cut of $5 a week and we have not yet added in the cost of brakes, oil changes, insurance, and tires.  Even if all of our estimates are conservative Larry will be spending an additional $1,000 out of his pocket.  Also consider that those expenses come after he pays his personal income taxes.  In other words, to pay the additional $1,000 in expenses, he must make an additional $1,200, because $200 (probably more) will be eaten up in taxes.

Add, subtract, and think through this.  Larry was looking to make more money, but wound up going in the hole at least $1,500 in a year's time.  And that is a very conservative calculation.

Now making $20 more a week seems like a small decision.  For Larry he thought it was going to put him on the road to prosperity.  However, a bad case of financial illiteracy put him in the hole, big time.

At the end of the day financial illiteracy will cost you. 

 

 

 

Negatives are Hard, But Not Impossible to Overcome

As the new year is now well under way many have discovered that the bad habits and negatives of 2011 will take a while to overcome in 2012.

Think about how hard it is to turn things around.  Here are a few examples:

1. I love donuts and even had one the other day.  But I know that I must limit my intake.  Just one donut probably costs me one hour of intense exercise.  Wow.  20 seconds to eat and sixty minutes to work it off.

2. Credit card debt is a national phenomenon.  One of the easiest things to do is spend money, whip out the plastic, and enjoy what we can purchase on credit.  Moments or even days of fun can take years to pay off.

3. In a marital relationship, the highly respected John Gottman suggests that for every negative it takes several positves to overcome.  He says "men tend to have shorter fuses and longer-lasting explosions than women."  As I read that I realize men may have the harder job, because they may have more negatives to overcome.  Some even estimate that it takes as many as twenty positives to overcome just one negative.

4. In church world it is not uncommon for people to begin reading their Bible, only to get stuck by mid-summer.  Then around December they try to catch up, all in vain.

5. If you have a garden you understand how much work weeds demand from you.

6. How about your lawn?  I enjoy push mowing.  However, if I allow the grass to get too tall, I must mow at a much slower rate.  And that raises my frustration level.  That leads me to talk to myself while mowing and asking, "Why did I wait this long?"

In fact, we ask why a lot.

Why did I wait so long before I weeded my garden?

Why did I make that big purchase on an impulse?

Why did I get so upset with my spouse?

All of those whys remind us that negatives are hard to overcome.  However, it is possible.  On the other hand, it sure would be nice to avoid all those regrets by focusing on the positive on the front end.  Life would be so much different.

Christmas and More

Christmas is a great time of year for many.  It's a fun time to give and receive gifts and spend time with our families.  However, somewhere along the way Christmas has turned into the Holiday of More.  I am not against having more, but getting more can get us into problems.  Rarely do we think more will cause more headaches for us. 

For the last few weeks we have been bombarded with advertisements, sales, and extra store hours so that we can pursue more.  Now I am all for whiter teeth, closer shaves, cleaner laundry, and discounted prices.

But do we really need more?  Lucifer thought he needed more and it led him to rebel against God.  Adam and Eve went after more when they ate from the tree.  Israel constantly wanted more.  Dissatisfaction ultimately led a downfall.

Yet how many of us contemplate the negatives of getting and striving for more and more.

In fact, one of the fascinating things about the holiday season is that right after Christmas we once again slam the stores in search of more sales.  The chase continues as we pursue even more.

More gets us into trouble.  The two biggest examples are debt and obesity. 

While things and stuff and toys and gadgets get all the attention there are at least three things we could use more of.

Family-It's fun to reconnect, share old stories, open presents, and sit around the dinner table.  Personally I'll miss seeing Rachel this year during the holidays.  When you have five kids schedules do not always work out, especially with her living in Pittsburgh.  Last Christmas she was in South Korea. 

Friends-This is popular time of year for parties and get togethers.  These can be extremely uplifting for those from broken homes. 

Faith-December is a good time to set aside extra time for prayer and reflection on Jesus, His birth and the Christmas Story, and the New Year, 2012. 

So this holiday season it's fine to buy and exchange gifts.  Yes, that will result in you having more.  But hopefully it will be more as the result of love and not covetousness.

 

 

Financial Planning

This past week I suggested that in financial planning you really only need to remember three numbers.  Those three number are 10/10/80.

The first 10 represents giving 10% systematically to God.

The second represents paying oneself 10%.  With all the debt in America, especially credit card debt, very few are currently putting money away for the future.  Simply put, everyone needs to set aside 10% in savings on a regular basis.

The third number 80 is for actually living on.  This includes taxes, mortgages, insurance, food, etc.  In essence this means we should be living on 80% of our total income.

At this point let me suggest perhaps another number.  Changing the 80 to 70 may be a more prudent way to go.  Of course, to live on just 70% on one's income would likely prove difficult initially.

However, with an element of uncertainty continually in the air regarding the American economy, and long term health care becoming an issue due to longer life spans, there are some sound reasons to living on 70%.

First of all, this would allow a family or an individual much more freedom.  Let's use an example of a $50,000 annual salary.  This means $5,000 would be available annually for an unplanned vacation, higher inflation, or other personal plans.

A second option for the extra money would be investing for the future.  Once again, few have put aside an adequate amount for their latter years. 

Thirdly, a portion of the extra 10% could be used for spontaneous giving.  How many of us have wanted to give or get involved in a project but we lacked the funds to do so?

Few give thought to the value of saving regulary and getting started early.  However, if you wait until you are 26 and set aside $2,000 a year at 6% interest you can still have $973,704 by age 65. 

But before you get too excited, if you had started at age 18 and only put aside $600 a year, you could accumulate over $400,000 by age 65.  And guess what?  That assumes that you saved for only the first 11 years!  After all, life got hectic and out of control and you quit saving. That's the secret of compound interest.  Tha's when your money is actually working for you. 

Finances have been neglected by individuals, families, and our government.  But then, no one should take their cues from the government.

Take note of the three numbers, work out a plan, and stick with it for life.  Once you get used to the 10/10/80 or 10/10/10/70 plan your life will run much smoother and with a lot less stress.

 

It's Truly a Global Economy

Current events in the Middle East are having an impact around the world.  That's the way life often operates.  That's why the Bible says we must be careful about making sure-fire plans about tomorrow.

¹ Do not boast about tomorrow,
   for you do not know what a day may bring.(Proverbs 27:1).

One of the biggest ramifications of unrest in Libya is oil prices.  It just goes to show that we can have our own house in order, but someone eles's house messes with our house.  Libya is not a nation simply unto itself.  What happens there matters worldwide, especially with oil prices spiking due to the unrest.

Another current event revolves around all the food being imported by China.  That is causing higher food prices here in the US.  Beef is going up, corn has doubled in price, and pork is up. 

When the year began you perhaps set up your own personal budget.  Then along comes unexpected unrest in the Middle East and Africa, and an unexpected rise in imports in China.  Now when you go to the store you feel the effects.  And so do your finances and budget. 

Call it the ripple effect.  A foreign country makes a decision, then you and I must adjust to the consequences.  Maybe less trips to town, fewer steaks on the grill, and heaven forbid, cut back on bacon!

Our own personal finances are affected by world events. So in your planning don't overlook the fact that our own economy goes beyond our own borders.

Keep Hope Alive

Hope is powerful and is the fuel that will carry you through the new year.  The Bible says in Proverbs 13:12, "Hope deferred makes the heart sick..." so expect Satan to go after your hope.

As a nation we have come through and are still going through tough, depressing economic times.  Many are unhappy because life is not as it ought to be.  Without hope you will believe that your situation will never change. 

People have purchased a gym membership hoping to get into shape.

Women have gone to Barnes and Noble and bought books that promise to make them more beautiful. 

Business people attend seminars looking for the magic bullet that will transform their company.

Couples seek out counseling in hopes of restoring their marriage.

The truth is everywhere you look people are looking for hope.  When hope dies, dreams die, and despair sets in.  So how do you keep hope alive?

Now let me add that hope has two sides.  For instance, one side of hope may say, "I hope I can lose 35 pounds this year."  You actually have some control over that.  You have to develop a strategy and come up with some atcions that will help you acheive your goal of 35 pounds.

That means in order to keep hope alive you must stick with your strategy.  When June rolls around you may begin to wonder if you can attain your goal.  Sometimes we lose hope and almost let it destroy us for no reason.  What if you end the year having lost only 28 pounds.  Not bad.  Sure, you did not reach your goal, but because you set a stretch goal you should not become overly disappointed with the 28.

The other side of hope is when you have no control.  In Romans 4:18 the Bible says, "In hope against hope he (Abraham) believed, in order that he might become the father of many nations..."  He essentially believed it because God said it.  Abraham had no control and was in a hopeless situation unless God showed up.  Most of us would rather avoid those kind of situations.  We hate not being in control.  But so much of life is beyond our control.

In January 1983 I was in Kenya, but my dream was to ask Carol to marry me and hear her say 'yes.'  I came home early in the year and dropped the question in June, only to get a 'no.'  Essentially it was out of my control.  However, I was determined to keep hope alive.  She was willing to keep going out, and so we dated all summer.  Hope was still alive. 

Finally, in August my hope became a reality when she said she would marry me.  In December we got married. 

So for me 1983 started with a dream, a goal.  The year was full of stressful times as she said no on more that one occasion.  No matter what your dream is it will likely not come easy.

As the year went on I continued to work my strategy: keep seeing her, continue to develop our relationship, and pray.  Yes, my prayer life hit an all-time high at that point.  I needed some divine intervention.  Hopefully, whatever your dream is for this year you do too.

In December when we got married, I realized that perseverance pays off.  So that's how I want to wrap this up.  Persevere.  Anyone can do that.  You don't need a special talent to hang in there.  Yes, there will be the down times and the setbacks, but persevere and keep hope alive.

Debt is Deadly

Why is it that no one wants to die, but just about everyone loves to take on debt.  And debt is deadly.  It can kill a marriage, a project, an idea, and a vacation plan.  Well, maybe love is the wrong word, but debt sure is popular.

Governments take on debt, businesses take on debt, marriages are mired in debt, and individuals get in over their head.

My hunch is that you want to do more and have more in 2011.  Nothing wrong with that, except debt will not be the ticket.  It however, may be the destroyer of your dreams. 

So how can you breathe more life into your life?  Eliminate debt.  Sounds easy, but you will have to make a few commitments.

1.  Give to God first so He can bless the rest (Proverbs 3:9-10).  Question:  Would you rather have 100% of your paycheck without God's blessing, or 90% with God's blessing?

2.  Do not take on any new debt (Hebrews 13:5).  Question:  How has that debt been working out for you?

3.  Pay your current debt down systematically (Proverbs 21:5).  Question:  You got into a financial mess without a system, doesn't it make sense to create a system to get out of debt now?

4.  Save money at the same time (Proverbs 21:20).  Question:  If you had set some money aside beforehand would you have had to take on more debt?

5.  Sell something if you no longer need it or it is killing you (as in high monthly payments on a car).

Debt will take the life right out of you, your marriage, and your future.  Debt is deadly.  Don't let it kill you.  Start taking action today.

 

Spending Money "Feels" Good

This is a good time of year for retailers and not so good for the consumer.  Yes, there will be deals for the consumer, but sometimes we buy just because it feels good, not because we need something.

Recently on a trip to Harris Teeter Carol happened to make the comment,"It feels good to spend money."  Of course it does, if it didn't, no one would ever go into debt from over spending. 

With the advent of the internet spending has become even easier.  Plus online retailers have moved from the Cyber Monday following Thanksgiving to Black Friday to showcase incredible deals.  Add in free shipping and more consumers are happy.  And if they are happy they will probably spend more.

One of the upsides is the economy seems to be recovering and consumer confidence is better than it was last year.  Hopefully, people will not break out and do lots of unnecessary spending just because it feels good.  Deal-driven consumers will probably face more temptation than normal.  Retailers seem to be pulling out all the stops to increase sales.

It's at this point that we must realize most decisions are based on emotions and not facts or logical thinking.  I admit I rarely get into buying Christmas gifts.  After all, aren't we buying throughout the year anyway.  Sounds like a retail conspiracy to me.  Carol does a much better job at it than me. 

Thirty days from now the good feelings of spending will turn into feelings of remorse for many shoppers.  So buyer beware.  Just because it feels good to spend money doesn't mean you should do it.  You may enjoy the New Year much more if you spend less now.  Just a thought.

 

People are More Important than Money

Recently I ran into someone who had not been to New Hope in several weeks.  When I ran into him I made a comment about his absence, not in a condescending way, as it was summer time and many are gone for multiple weeks.

But I was glad when he responded, "So you have been counting?"  Just 24 hours earlier I was engaged in conversation with another guy who said due to his work schedule he had not been in church all year.  Of course, the first thought to go through my mind was, "I wonder if anyone noticed?"

At New Hope we count the money that comes in and have a bookkeeper who does a great job managing the finances.  But people are more important than money.

So if we are careful about tracking every dollar, surely we feel the need to count and care for the people God has entrusted us with.

In Luke 15 Jesus told a story about a lost sheep.  Out of one hundred sheep one wandered off.  And the shepherd noticed.  And at New Hope if you miss we will notice, because people are more important than money.

Communism, Commitment and Online Giving

 
Communism has much in common with Christianity.  Both make big 'asks.'  They expect much from their followers.  While reading Douglas Hyde's book on "Dedication and Leadership" he speaks of the many similarities as well as what can be learned from communism.

In his book he talks about how he and his colleagues gave faithfully to the cause in which they believed.  Christians too have been known for their generosity.

Hyde himself was a former communist and converted to Christianity.  While a member of the Communist Party in England he worked as the news editor of the London Daily Worker.

When he went to work there he took what he calls a "ludicrously small wage."  However, upon receiving his pay packet along with his coworkers they would all immediately give eight fourteenths back to the Communist Party.  Proverbs 3:9-10 challenges Christians to also give off the very top, otherwise God simply gets the leftovers.  In our society it has been common practice for the government to get their share through taxation.  In other words, you never see the money.  It comes right off the top and goes straight to Uncle Sam.

Well, today believers can give right off the top by using online giving.

Even Hyde admits after a while they decided to not receive the money but simply give it directly to the party.  Surely Christ-followers believe their cause is more worthy.  Surely they would love to find an easier way to give right off the top.

Which brings me to online giving.  Prior to the advent of current technology the normal way to give to one's church was simply write a check and place it in the offering plate on Sunday mornings.  However, today believers can give directly to the church and avoid the hassle of writing a check.

At New Hope our own people can simply go to our website,www.newhopecville.org click on Online Giving and set up their own personal giving.  Simple, quick, and direct.  Seems like the communists had some sort of direct giving decades ago.  OK, so we are late to the game.  

It's a great way to give and it will give you one less thing to worry about.  And it you have a Visa, Master Card, or Discover where you earn points, then all the better for you. 

Online giving, a great way to give.