KNS Financial

Personal Finance From a Biblical Perspective

Why You Need to Diversify Your Income Sources

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Yesterday I ran into a friend I hadn’t seen in a few months; we only had a few seconds to talk but he let me know that he had lost his job a couple of months ago. Another buddy of mine was given word that his job would be gone by the end of this year. For what it’s worth, both men have families to support.

We hear stories of people losing their jobs all the time, so these episodes are hardly unique. But what is interesting is that both men were what you might call “well employed” – that is, each had a well-paying position with a large, well-known company that they had worked at for many years.

Why You Need to Diversify Your Income Sources

Jobs Are No Longer Secure

The moral of the story is that there are no safe jobs anymore. Anyone in nearly any job can be replaced either by some form of new technology, or by less expensive workers outsourced from overseas. This is happening with technical and managerial positions as well as clerical and factory jobs.

There are different ways to deal with employment instability and no matter how secure your job seems to be at the moment, you should consider investigating your options. And the time to do that is now, before you’re forced into it by a job loss.

Diversify Your Income Protect Finances

Savings Will Last Only So Long

Many people concentrate on building up their savings as a safety net in case of a job loss. That’s a good idea, however it’s not nearly as effective as it once was.

In an economy where it can take months or even a year or more to find a new job, a two or three months savings cushion just won’t be enough. Unless you can save enough money to cover your living expenses for a year or more, savings will do little more than give you a little bit of breathing room. Not that that’s a bad thing, but it will prove to be inadequate if the job loss turns into a long-term process.

What about unemployment insurance? There are two limitations with this, the first is that for most people, the amount of your benefit won’t come close to covering your living expenses. The second is that unemployment benefits only run for a few months. Like savings, they’ll help at the beginning but sooner or later, they will run out too.

Build up your savings in case of a job loss – but be ready with additional income sources. Savings will cover you in the months immediately following your job loss, but your additional income sources will be your long-term safety net.

How To Diversify Your Income Sources:

Using A Part-Time Job To Apprentice For A Back-Up Career

One of the best ways to be prepared for the loss of your job is to have another one ready. You may be able to do that with a part-time job. I’m not talking on a job pumping gas or serving lattes, but something more substantial.

Ask yourself the question, “If I didn’t have my current job what other kind of work would I do?” The answer to this question can provide you with the insight that will lead to the type of part-time job you should get. What you’re looking for here is a part-time job that will lead you into the career of your choice, or at least into one that could be a reasonable back-up career. .

By taking such a job on a part-time basis your accomplish at least two things: 1) you get the training and experience that you need to enter that field, and 2) you pre-position yourself in a job before you actually need one. The goal will be to convert the part-time job into a full-time one if you can’t find a replacement job in your primary career.

One of the problems with job losses is that they usually occur across an industry or even an entire career field. That makes finding a replacement job very difficult because not only are there a small number of jobs available, but there are also a lot of candidates applying for those jobs. Many people are having to change fields following a layoff.

With a serious kind of part-time job, you already have a replacement career waiting in the wings. The transition is shorter, smoother and easier because of your advanced efforts.

Diversify Your Income By Starting A Business

A similar alternative could be starting your own business. Choose a business that you would like to enter and/or one you have an aptitude for. You can begin it as a side venture and develop it at your own speed. The idea is to build up gradually so that if you do lose your job, you’ll be able to quickly convert the business into a full-time occupation.

Whether it’s a part-time job or a part-time business, not only will you be building a second career for yourself, but you’ll also be providing an extra income that you can put into savings. The combination of higher savings and a backup income source will leave you well prepared for whatever happens after losing your primary job.

Retraining

Retraining is another option. Even though some fields are in decline, there are others that are going strong or are in growth phases. Sometimes all you need to enter them is some formal training. This could be a degree program, technical training or just some courses that you might be able use as a springboard into another career field.

Check with the course offerings at your local community college. They often offer training in career fields that are what you might call “closer to the ground”. This might include fields that are more hands-on in nature, such as those in the medical and computer fields, as well as some of the trades. Those are the type of occupations that tend to do well no matter what else is going on in the economy.

Whether you decide to use a part-time job, part-time business, or some form of retraining, seize the opportunity now to prepare for a job loss that may come later. If the job loss never happens, you’ll have yourself a solid second income. But if it does happen, you’ll be ready for it.

photo credit: freedigitalphotos.net

Six Money Saving Tips for a First Time Home Buyer

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Up until about 2006, buying a home was a relatively low risk proposition, even for first-time homebuyers. But now that mortgage underwriting guidelines are more difficult, and property values are bouncing up and down like a yo-yo, you need to be more informed before making a purchase.

Here are six money-saving tips that will make the process easier, and remove at least some of the risk involved in purchasing a home as a first-time home buyer.

6 Money Saving Tips For The First Time Home Buyer

First Time Home Buyer

1. Buy Beneath Your Means

This first tip is one where you will have to push back against your real estate agent. The conventional wisdom – which will be strongly advanced by members of the real estate community – is that you should buy the most expensive house you can afford. The idea is that you will be able to more easily afford it as the years pass and your financial situation improves. There may be merit to this, but it’s bad advice for a first time home buyer, especially in today’s market.

It will be better for you to buy at least a little below your financial means. This will leave more room in your budget to pay for everything else in your life. When you buy above your means, you’re flirting with being house poor. No matter how much you love the house, being house poor gets old fast.

2. Buy Below Market

To the best of your ability, try to buy house at a price that is below the going market price. You should aim to buy a house at least 5% to 10% below the prevailing market value. If the house is reasonably worth $200,000, you should try for a settlement price of between $180,000 and $190,000.

This will give you some extra equity upon closing on the house. More important, it will provide some insulation in the event property values should fall.

It’s easier to do this in some markets than others, but you should always try. You never know how anxious seller is to make a deal. Those are the kind of properties that you want to buy – the ones you can get at least a bit of a deal on.

3. Get A Home Inspection

Many times a first time home buyer will resist this idea, because it means coming up with an extra $300 or so before closing. But this can be the very best money you can spend in the entire transaction.

A home inspection can provide the following benefits:

  • It can alert you about needed repairs; if you know about these upfront, you can have the seller fix them before closing, saving you a major headache later.
  • You can use repairs and other deficiencies to negotiate a still lower price on the property. A home inspection often provides you with a list of bargaining chips.
  • It can reveal that the property is a complete disaster, allowing you to get out of the deal before closing.

Spend the extra money for the home inspection, you’ll be glad you did.

4. Use A Real Estate Agent

Property sellers sometimes like to work without real estate agents, so that they can avoid having to pay the real estate commission. As a buyer, there’s no real advantage to not having the services of real estate agent.

The agent acts as a third-party negotiator between you and the seller, and that tends to be more effective than face-to-face negotiations. This is especially true if there are significant issues that develop along the way to the closing table. The agent acts as both a go-between and a shock absorber, helping to work out mutually agreed upon terms.

In addition, since real estate agents work in the business all the time, they know how the process works. They can present a written offer, handle negotiations, schedule the closing and home inspection, and even help you select the mortgage lender and closing agent. If you are a first-time home buyer, you will have enough on your plate without having to worry about all of that.

5. Save Up More Than The Minimum Down Payment

It’s natural for first-time home buyers to want to buy with as little money as possible, but that’s not how the real estate business works these days. The minimum down payment with an FHA mortgage is 3 ½% of the purchase price. If you are using conventional financing, the new normal will be more like 10%, or even 20%.

[What is private mortgage insurance, and is it really necessary?]

You should have your down payment saved in advance, but that’s not all. You should have at least a few thousand dollars saved up in excess of your down payment requirement. There are at least three reasons for doing this:

  1. On conventional mortgages, lenders require that you have “reserves” in excess of the down payment, equal to anywhere from 3 to 6 months of the new house payment.
  2. The extra money will come in handy with incidental and unexpected expenses related to the purchase, such as moving, establishing utilities, making minor repairs, and last-minute purchases.
  3. It’s never a good idea to be broke immediately after purchasing a new home. Save some extra money to give yourself some breathing room after the closing.

6. Clean Up Your Credit Before Applying For A Mortgage

Some first-time home buyers don’t bother reviewing their credit before applying for a mortgage, but it’s to your advantage if you do. If you wait and let the mortgage lender run your credit, and there are credit problems, your loan could be declined. But if you obtain a copy of your credit report in advance, and fix any issues that show up, your credit report will be “clean” by the time the lender pulls it. That will improve your chances of getting a mortgage approval.

[See why a 15yr mortgage may not be the best choice for you!]

The underwriting guidelines for mortgage loans are still quite a bit tougher than they were a few years ago. You will need to enter the process in the best financial shape possible. Determining the quality of your credit is something you can and should do in advance.

Follow these steps, and not only will buying your first home be easier, but you’ll find the entire transaction – and subsequent ownership – to be a much more pleasant experience.

What kind of problems did you encounter as a first time home buyer?

Is It a Sin to be Rich? Find Out What The Bible Says

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Is it a sin to be rich? This is a tough question if you’re a Christian. Our faith tells us that God is to be our first love, that He provides for our needs and we’re to trust Him in all that we do. The world tells us that we need to strive to be the best that we can be in all that we do, and that includes finances.

When it comes to money, the world tells us that more is better—the more money we have the better protected we’ll be, the more opportunities we’ll have and even that the more we have the more we’ll have to share with others.

Truth be told, it’s hard to argue against the worldly compulsion to have money, and plenty of it. In fact the entire financial realm is based on the idea that money is something to be nurtured and grown. Look at all the articles and advertisements for retirement planning; they promise us millions of dollars for a secure retirement. I know all about the inflation thing, but from where I sit, having millions of dollars sitting in a retirement account looks a lot like being rich.

The pursuit of financial security itself seems more like a money chase than anything else.

Is It a Sin to be Rich

So here are the relevant questions: if we need a certain amount of money to achieve some level of security in life, how much money will be enough? Is it possible to carry the pursuit of financial security too far? Can the pursuit of “financial security” turn into—or mask—the quest for riches? And finally, is it a sin to be rich?

Is It a Sin to be Rich? Biblical Positions Against Riches

Most of us can easily cite passages that warn against wealth and its potential for sin. Proverbs deals a good bit on wealth and has a lot to say on the subject, both good and bad. Among the bad ones,

Riches do not profit in the day of wrath, but righteousness delivers from death.—Proverbs 11:4

He who trusts in his riches shall fall; but the righteous shall blossom like a branch.—Proverbs 11:28

From Jesus we have one of the most famous Biblical rebukes of wealth in Matthew 19:24:

”…it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”

Perhaps scripture contains so many verses warning against riches precisely because we’ll be drawn to it—our sin nature virtually guarantees it.

Biblical Positions Favoring Riches

Less well known however is the fact that there are times where the Bible portrays wealth as a virtue, such as in Proverbs 10:15:

The rich man’s wealth is his strong city; the ruin of the poor is their poverty.

I could be interpreting this verse incorrectly, but it seems as if Solomon is according wealth to be the rich man’s reward—the very insulation we see money to be today.

Another example from Proverbs 19:4:

Wealth makes many friends; but the poor is separated from his neighbor.

Once again, Solomon seems to pointing out a benefit of wealth, that is “makes many friends”. This too appears like a reward for being rich.

Finally, in Matthew 27:57-60 we have the story of Joseph of Arimethea:

”As evening approached, there came a rich man from Arimathea, named Joseph, who had himself become a disciple of Jesus. Going to Pilate, he asked for Jesus’ body, and Pilate ordered that it be given to him. Joseph took the body, wrapped it in a clean linen cloth, and placed it in his own new tomb that he had cut out of the rock. He rolled a big stone in front of the entrance to the tomb and went away.”

Like many figures in the Bible, we know very little about Joseph of Arimethea—in fact, we know nothing about him other than that he was “a rich man” and he was from Arimethea. Yet this rich man did something that will exalt him forever—he provided for Jesus’ burial at a time when even his closest disciples had abandoned him for fear of their own lives.

Clearly not all rich people are outside of God’s love and there’s a message in there us all.

The Christian Conflict On Riches

There’s a notion in some quarters of the faith that we’re to swear off earthly riches and maybe even to live a life comparable to monks in monasteries. There is merit to this: if we aren’t participating in the pursuit of earthly riches we won’t be corrupted by them. But for the majority of us who feel that we need to be out in the mainstream of life to be the “salt and light” that Jesus called us to be, money IS a factor.

We do need a certain amount of money just to function in the world, and beyond that there is also the question of providing for our loved ones. Since the vast majority of us no longer grow our own food and barter hardly exists, we must earn money in order to survive in the world. But beyond basic necessities, we also need to educate our children, provide for our old age so we don’t become a burden to others, and to leave sufficient assets to our loved ones that they’ll have a fighting chance when we’re no longer around to take care of them.

Just exactly how much each of us needs depends on our individual circumstances, but there is a need for a certain amount of money—of riches—in order to accomplish those goals. To that extent, riches aren’t necessarily bad; they’re how we handle our responsibilities.

This Is A Complicated Subject—What Are Your Thoughts?

I don’t think there’s a right answer to the question, is it a sin to be rich. But the question is hardly irrelevant. There’s a line we can cross that can turn being rich into a sin, yet there is a certain level of wealth that we need just to get by in the world.

What do you think?

Is being rich a sin? Or is it only when we cross a line?

If so, where is that line? Is it being rich, or is it something about the pursuit of being rich?

Or is there a better question that I haven’t asked?

photo by pasotraspaso

Why You Need Life Insurance Before Investing

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When people begin to invest money, they’re usually hungry for early results. They may approach investing with the conviction of a recent convert, saving and investing as much money as they can, even to the point of neglecting other needs, such as putting life insurance before investing. This is understandable, and quite natural, particularly if you are either young or relatively new to investing.

In spite of your enthusiasm, it is important to make sure that you have a few basics covered before you begin investing. One of those basics is life insurance.

You’re Not Ready To Invest Unless You’ve Covered The Contingencies

Investment advisers and financial planners commonly recommend that before you begin investing you should have a well-stocked emergency fund. That can include anywhere from 3 to 6 months of living expenses. The purpose of the fund is to make sure that you are protected from any income disruptions or large expenses that might force you to tap your investment portfolio ahead of schedule.

The fund enables you to carry on with the business of life, while keeping your investment portfolio protected from early withdrawals.

In essence, what an emergency fund does is cover a contingency – a temporary loss of income, or the unexpected arrival of a big expense or two. A life insurance policy functions similarly as a contingency plan. It creates a basic survival plan for your family or any other dependents that you have in the event of your death. This is a fundamental need, which means you should have adequate life insurance before investing.

Life Insurance Before Investing

Future Wealth Won’t Take Care Of Your Family If You Die Before You Get Rich

There is sometimes a thought that you don’t need life insurance, since your investment portfolio will eventually grow to the point where you will be effectively self-insured. This notion is especially popular among the young, since the prospect of their own death seems so remote.

The problem with this thinking is that it may be many years before you reach the point of being anything close to being self-insured through your investment portfolio. Let’s say that right now you have $10,000 to invest, but you fully expect it to grow to over $100,000 within the next 10 years. Maybe at that point you will be something close to self-insured, but what happens if something happens to you between now and then? What happens if you die when you only have $20,000 in investments?

Future wealth will not protect your family if something were to happen to you today. That’s the whole purpose of life insurance – as a contingency to take care of your family’s financial needs before you have the money that a large portfolio will provide.

The Cost-Benefit Of Life Insurance Is Much Higher Than An Equivalent Investment

One of the biggest advantages of life insurance is that you can quite literally buy six figures in coverage for just a few hundred dollars per year. This is especially true if you are in your 20s or early 30s. You may be able to buy $250,000 in life insurance for just a few hundred dollars per year.

If you are just starting out as an investor, it will take you many years – even decades – to accumulate that much money.

There may sometimes be the thought to keep your expenses as low as possible in order to maximize the amount of money that you have available to invest. If a large life insurance policy is only going to cost you $500 or $1,000 per year, it won’t be taking much away from your investment efforts.

And the benefit that you will have as a result of paying the relatively small premium will be enormous for your family.

Life Insurance Before Investing – Just In Case Your Investment Plans Don’t Quite Turn Out

It’s natural to be optimistic when it comes to investing. In fact, optimism is virtually essential to a new investor. But it is a sad fact that investment plans don’t always turn out the way we want them to, despite our best efforts.

Stock markets crash, individual investments blowup, and sometimes we need to tap investment portfolios early for unexpected reasons. The point is, investing is never a guarantee.

And just in case it doesn’t turn out as well as you hope, your life insurance policy can back you up with a plan to cover your family in the event of your death.

Life Insurance Should Be Seen As A Form Of Investment Diversification

You’re probably well acquainted with the idea of investment diversification. But not all diversification efforts are neatly contained within an individual portfolio. Some of the best forms of diversification you can have will be outside your portfolio. This can include an emergency fund, fixed income investments (like bank assets), and real estate.

But insurance can also be a form of diversification. As discussed above, it is a fail-safe against your death, at least until the time arrives that you have enough money saved and invested that you no longer need to maintain the policy.

If you can think of life insurance as a financial instrument that complements your investment portfolio, having it will seem more logical. And not having it can seem like an exercise in being penny wise, and pound foolish.

If you are an investor, especially a new one, do you have a credible life insurance policy – just in case? If not, then you need to make sure you pick up some life insurance before investing another cent!

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Garage Sales – Clean Out Your Junk and Make Some Money

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Garage sales have a double benefit – cleaning out your junk and making some money. You should want to do both. And there are few casual endeavors you can participate in in life that will provide two such advantages. For this reason, you should start thinking of having periodic garage sales as a regular part of your annual activities.

Making Extra Money

When it comes to having garage sales, making money is probably the primary motivation. And when you think about it, it’s easy money – you’re collecting cash from strangers in exchange for stuff that you already have but no longer want. There’s no inventory to buy, no employees to manage, and you hardly have to leave your home.

But the income potential of garage sales can make them worth doing, even two or three times each year. We average about $150 per garage sale – at least that’s been the result over the past few years. The last one fetched us over $200. Even using the $150 figure, two garage sales would bring in $300 per year, three would bring in about $450.

Make Money Garage Sale

Cleaning Out Your Junk

There is a secondary benefit to garage sales that’s almost as important, and that’s cleaning out your junk. Most of us have more stuff around the house than we even realize. If we’re not using it, then it’s just taking up space for no purpose.

But collections of junk also have financial costs. Consider some of the following:

  • Junk takes up space in your home, giving you the impression that you “need” a larger home than you really do. That larger home costs more across the board.
  • Money sitting in stuff is money that is not in your pocket, not being applied to pay down debt, and not being put into productive investments.
  • Money sitting in stuff is just collecting dust – just like the stuff itself.
  • Too much stuff creates clutter, and that interferes with clear thinking. An absence of clear thinking can cause you to make bad decisions – financial and otherwise. It can also interfere with your ability to earn a living (clutter is the enemy of creativity and organization).
  • Too much stuff can create a fire hazard in your home, which could cause you to lose everything. Sure, you may have home insurance, but not everything can be replaced by money. It can’t replace family photos, treasured home videos, heir looms, and business databases.

Junk isn’t just junk – it can end up costing you money. Are you motivated to make garage sales an annual event in your life?

Making Your Garage Sale Work

Though garage sales seem simple on the surface, there’s actually a series of techniques that can improve your results.

Make your stuff look presentable. Nothing turns off garage sale shopper’s more than unorganized piles of stuff in your garage or driveway. In the week before your sale, organize your merchandise, clean it up, make sure it works (if it doesn’t, just throw it away), and make sure everything is properly and clearly priced.

Advertise the sale on Craigslist. About a week before your sale, place an add on Craigslist under “garage sales“ – it‘s free. Give as much detail as possible, and include photos of any significant items – people love photos! Include the dates, times, your address, and a contact phone number or email address. People may want to contact you in advance of the sale to make offers on specific items. You may get more for those items if they do.

Place plenty of signs out the night before. You should prepare simple, clean garage sale signs. They should include nothing more than your address, and the dates and times of the sale. Don’t clutter up your signs otherwise no one will be able to read them. Remember, you’re aiming them at people in passing cars – small print and too much detail will be ignored.

Place the signs up to half a mile away from your home on busy roads and intersections. The number of signs should increase closer to home, and include one in front of your house- with balloons if necessary.

Have family and friends at your sale – crowds attract crowds. Two things that will draw people to a garage sale are the amount of stuff for sale, and the number of people at the sale. If either is too low, people generally just drive by and assume it’s not worth checking out. Ask some friends and family members to come and hang out if they have nothing else to do.

Potential shoppers won’t know that these are family and friends – they’ll just assume that you have a popular garage sale, one they’ll want to check out.

Have plenty of cash on hand, especially singles. Garage sales are cash-and-carry affairs, so you need to have plenty on hand. You should have at least $100 in cash, with at least half of it in singles, since you will need to make change. And stay with cash only – the passing of fraudulent checks is not unusual at garage sales.

And never, ever accept a check that someone writes in excess of the sale price of an item, wanting cash back. That kind of payment arrangement is almost certainly fraudulent (the issuer will get the item and the cash, and you will get a bad check and a bank charge – with little legal recourse. Be forewarned!)

Everything should be negotiable. When people come to garage sales, they expect to find bargains. Understand that nothing that you have is worth any more than what someone else is willing to pay for it. Never fall in love with your prices – always be prepared to negotiate.

If you don’t, you’ll just find yourself loading all of your stuff back in the house after the sale is over.

Watch the weather! Like baseball and backyard barbecues, garage sales are strictly fair weather events. A little bit of rain, or too much cold or wind, will keep shoppers away. Even if you have scheduled your sale, cancel it if it looks like the weather will be threatening.

Garage sales are pretty easy, especially once you know how to make them work. Once you do, you can make extra money and get rid of your junk. That’s a double win if ever there was one.

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