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Personal Finance From a Biblical Perspective

Handle Yourself as a Business for True Personal Finance Success

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This is a guest post by Eric Rosenberg, a full-time freelancer and blogger at Personal Profitability. Eric writes about personal finance and entrepreneurship at InvestmentZen, his own blog, and other sites around the web.

If you have trouble managing your money, you are not alone. Millions of people struggle every single day with paying the bills, keeping their accounts straight, and having enough leftover to save for an emergency, let alone retirement.

handle yourself as business

If this sounds like you, why not take a step back and look at your finances through a different lens. If you treat your finances like a business, and yourself like a financial analyst, you may be able to better identify your financial strengths, weaknesses, and put together a plan to enjoy financial success for years to come.

Create Personal Financial Statements

Every business tracks its financial health using financial statements. If you search for your favorite large company’s annual report on Google, you can find its financial statements posted online. To get an idea of what these look like, stop in and check out Google’s latest annual 10-K report here.

Of course, we don’t need to put together a 100+ page detailed report, just a simple one will do. The three primary financial statements you’ll want to look at are the Balance Sheet, Income Statement, and Statement of Cash Flow.

  • Balance Sheet – The balance sheet is a snapshot of everything you have and everything you owe in one place. Subtracting your debts from your assets, you can find your net worth.
  • Income Statement – The income statement shows how much you earned and spent over a specific period of time.
  • Statement of Cash Flow – The statement of cash flow shows how much money came in and where your money went in terms of spending and investing.

If you want to learn more about personal financial statements, check out my guides here.

Diversify Your Revenue

If a company earns a significant portion of its revenue from a single customer, that is called “revenue concentration risk.” It is a risk because a problem with that one customer can completely bankrupt a company or destroy a product line.

For example, GT Advanced Technologies went bankrupt after losing its biggest customer in 2014. GT Advanced Technologies was a primary supplier to Apple for iPhone glass screens. When Apple changed suppliers, it destroyed the entire company’s business.

What would happen if you lost your primary income source tomorrow? For most people, that is a full-time job and losing it would mean a serious hardship. By diversifying your income and investing your time in side hustles, you are in much better shape to withstand a sudden change in income.

Maximize Profits

The root of business is earning a profit. Earning a profit requires earning more than you spend. Businesses and individuals can both utilize a budget to help plan for this goal. A budget isn’t something to restrict your spending, it is about planning and understanding your spending.

It is important to focus on both revenue and expense when budgeting. Don’t look at your income as a fixed number, look at it as something you can grow through hard work and focus. If you do well at your job, you can get a raise. If you do well with a side hustle, you can earn more. That is key to growing your wealth.

On the other side, do focus on big wins for your budget. Saving a few cents here and there is great, but finding recurring costs to cut and major expenses to avoid will have the most meaningful impact on your finances.

Be Your Own CFO

If you can stay focused and treat your finances like a business, you are essentially acting as your own Chief Financial Officer. Mastering your bank accounts, credit and loan accounts, and taking an active role in growing your income while cutting expenses will be hugely helpful in the long-term.

Even if things seem too tough to handle today, creating your personal financial statements will show you where you need to focus to live the life you want. Whether you want to travel more, save for retirement, or just want to feel more confident when dealing with your money, treating your finances like a business is the way to go.

Ignorance of Financial Realities Is a Major Concern

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They say there are two certainties in life; death and taxes.  Whether the word certainty applies is a moot point but there are some realities in the USA today that appear to be unavoidable, and miserable retirement for many is on the list.

A recent study of 1,000 people over the age of 18 identified almost 60% happy at their ability to enjoy a comfortable retirement because of their ability to save sufficiently. With life expectancy rising, many can expect to live twenty years or more after retirement, so it is a challenge to have a large enough fund to do that. A common way to calculate how big a fund you will need is to take 4% per year of your fund’s total as your potential annual spending.

These 60% are arguably far too optimist when average savings in society today are analysed further. Only half actually knew how much they would have in their fund when they retired. While Social Security benefits help support retirement they are far from sufficient for a comfortable retirement; no, very far!!

Statistics reveal that the average annual spending of a couple who has retired is around $45,000 with benefits paying up to half of that depending on the couple’s working history. It means that a couple need around $500,000 in their fund if the 4% rule is applied.

Too few Americans have anything like this and many of them are of an age where it would be impossible to accumulate that amount, simply because of time. With the chances of hitting the jackpot one in many millions the reality in the USA is extremely disturbing. It is not helped by other facts that have been revealed by further questioning in TIAA’s Lifetime Income Survey:

  • Of the 1,000 people surveyed around 400 stated that they were saving only 10%, often less, of what they earned each year towards retirement. That 10% is only the starting point on widely-acknowledged advice that recommends rising up to 15 and then 20% in later years.
  • Almost 30% admitted they were not saving anything at all. Surprisingly half of them said they had no worries about retirement so there is a clear issue here.
  • 500 or so said that their first financial goal was to create a monthly income for the years of retirement yet almost as many did not appear to have any idea or plan about how this could be achieved.
  • There was a feeling that spending would drop by a quarter once they retired. There are some obvious savings on commuting as an example but what about increased medical bills that many face as they get older? There is a counter argument to spending. When people have more time on their hands it is likely they actually will spend more as they do on holiday during their working lives.

Those Americans that understand the conflicting evidence within this survey can act to improve their futures but time is a constraint. The number of Americans keeping a proper budget is just in excess of 30% if a Gallup poll of 2013 is to be believed. It is an essential part of good financial management.

Debts need to be reduced, especially expensive debt such as that on credit card balances. Personal loans are a cheaper way to organize your finances and can be used to pay off card balances by regular instalments which can be entered within the budget.

Living to a budget takes self-discipline though not necessarily sacrifice. You have to be realistic or you will be discouraged when preparing your budget. There is the chance of savings on utilities, insurance and telephone with comparative websites doing much of the research for you.

The aim behind living to a budget is saving each month towards the future. You will know how you stand at any one time and that clearly helps you make good decisions about every aspect of your life. There is nothing wrong in getting expert advice as well.

The good news if there is any is that the younger generation appear to understand the limitations of the Social Security System and are prepared to do something about it. The bad news is that older people don’t and time is not on their side.

Budgeting is Hard, But Here Are 8 Tips to Make It Easy!

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[The following post has been brought to you in conjunction with Credit Sesame.]

Sticking to a specific budget is not always easy. From holiday spending to emergencies to everyday purchases, the household budget can easily fall to the wayside. If this sounds familiar, you’re not alone. Simply relying on willpower and discipline for your budgeting is hard.

What really works is automating what you can and getting smart about where you spend your money. Here are 8 tips you can try to help yourself stay on track.

8 Easy Budgeting Tips You Can Use TODAY

8 Easy Budgeting Tips

Use an App to Track Spending

If you already have your phone in hand, why not download an app to track all of your spending? Many banks offer free budgeting tools, based on debit card transactions. Log in to your account and take a look.

Free apps like Mint can also show you exactly where your money goes, separating transactions by category in easy to understand tables and graphs. You can visually see where you spend too much and make adjustments.

Auto-Pay Your Bills

It can be tempting to pay a bill late in order to buy something else. However, putting bills first by auto paying them can eliminate that temptation and keep you on track. Even if you normally pay your bills on time, it is easy for one to slip through the cracks. Then you might think you have more money than you do, and you could get hit with late fees and service interruptions.

Schedule an auto-payment date that works for you and sign up for electronic receipts (a notification or an email that the transaction occurred).

Automate Savings

Set up your direct deposit so that a portion of each paycheck goes straight to savings before you even see it. You can do this through your employer’s payroll service, or through your bank.  If you manually deposit your pay, it’s up to you to put the allotted amount into savings each time.

Save on Entertainment

Do you have expensive cable service but you rarely have time to sit and watch anything? I used to spend around $100 per month on cable but switched to Netflix for $10 per month.  You can also pick up movies, magazines and books at the local library for free rather than buying or renting them.

Also, check your local newspaper, the coupons that arrive in your mailbox and online deal sites for free or low-cost concerts, movies, and other events. A little bit of effort can lead to huge savings and an easier time budgeting.

Plan Meals

Food is often one of the most frequent, necessary, and expensive items in the budget. The temptation to swing through the drive-through can be strong. If you’ve already got a delicious dinner planned at home, the temptation is easier to resist. You can, of course, eat out sometimes. But it should be the exception, not the rule.

Google recipes. Start on your favorite recipe site or by typing in the ingredients you’ve got on hand, followed by the word “recipe.” (If you’re on a tight budget or new to cooking, we love this free cookbook.) Buy staples in bulk (olive oil, butter) to save money. Shop according to a list, not whim. Another word of advice: don’t shop when you are hungry or stressed. The key is to experiment so that you find recipes you and your family like.

Save on Gas

Gas is another expense you can cut down on by planning ahead. First, get the cheapest gas in town by downloading an app like GasBuddy that lets you search the city you live in for the best prices. Then think out all the errands you need to run and how you can do them most efficiently during the week.

When you know where you need to go, use Waze to find out about any problems on the road so you don’t find yourself stuck in traffic or taking a detour. Don’t forget about carpooling with friends when it makes sense. There’s even an app for managing your carpool schedule!

Negotiate Services

Are you paying monthly fees for your phone, car insurance, credit card interest, and bank accounts? In our competitive market, companies frequently change their offers and run promotions. They want to keep existing customers, which gives you leverage.

When paying my monthly phone bill, I asked about getting a discount on my services and learned they offered 15% off for AAA members. Just by asking I cut over $20 from my monthly bill.

Also, check your credit report to find out if you have improved, as better credit can help you get better rates, especially for products like insurance and credit cards. Credit Sesame is a great resource for getting free credit report cards.

Create Goal-Oriented Savings Accounts

Lastly, if you have a specific goal you want to save for like a vacation, the down payment on a house or an emergency fund, you can make that goal more tangible with a goal-oriented savings account. Put a name on the account and separate it from your other savings. Goal accounts can be strong motivators.

Sticking to a budget, repaying debt, and saving money can be hard, especially if you have never done it successfully before. Don’t get down on yourself about it. Instead, take action using tips like these to support your efforts and relieve some responsibility from your willpower.

5 Simple Ways To Take Advantage Of Low Interest Rates

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Many people are disappointed because of the low interest rates available today. They look at the fact that their bank accounts are paying pennies per year in interest, and conclude that they cannot get ahead financially. However, there are things that you can do to take advantage of low interest rates.

Refinance Your Mortgage With Low Interest Rates

This is one of the most common ways to take advantage of low interest rates. This is because most mortgages involve hundreds of thousands of dollars and span across multiple decades. Even a small change in the interest rate of your loan can have drastic effects on your monthly payments.

The best time to refinance your mortgage is when you owe at least 20% less than the appraised value of your home. This way, you won’t have to worry about private mortgage insurance when you refinance.

Low Interest Rates

If you do decide to refinance, make sure you perform an analysis to see if the expected savings outweigh the points, fees, and other expenses associated with the refinance to make sure it is actually going to save you money.

A great way to pay off your mortgage early is to refinance at a lower rate, secure a lower monthly payment, but continue to pay the higher amount. This way you will be able to pay a few hundred dollars extra on your mortgage each month, without having to change your current budget. Just make sure that your additional payments are applied to the principle of your loan.

Negotiate Lower Rates

When you notice that interest rates are going lower, that should be a signal to you that it’s time to negotiate lower rates with your creditors. Give your credit card companies a call and ask them to lower your interest rate.

If you have an excellent payment history with that company and you have good credit, you should be able to get them to lower your interest rate. In fact, even if we aren’t in a low-interest-rate environment, you should be able to secure a lower rate if you have those credentials!

Consolidate High-Interest Debt

If your individual credit card companies and banks aren’t willing to give you a lower interest rate, a consolidation may be in order. Actually, depending on my situation, I may try to consolidate my debt first!

When dealing with high-interest credit cards, there are typically two ways in which you can consolidate your debt. First, you can apply for a consolidation loan. This is usually an unsecured, personal loan that you use to pay off all of your debt. The main benefit here is – hopefully – a lower interest rate, and only having to worry about making one payment each month.

The second way to consolidate your debt is to move all of your debt onto a single credit card. If you can find a card that has a balance transfer offer – such as 0% for the next year – then this can be a great move. Usually, you will have to pay a fee in order to process a balance transfer – just make sure that this fee is less than the money you plan to save by the reduced interest rate.

Refinance Your Car Loan

Many people only think of refinancing a mortgage when faced with low interest rates. However, with the price of a new car easily exceeding $30,000, you can save thousands of dollars by refinancing your car loan!

I would make the same recommendation to pay it off early. Refinance the loan in order to have a lower mandatory monthly payment, but continue to pay the same amount that you are paying today. If this amount is going directly toward the principle of the loan, you will finish paying it off much faster!

Make Prepayments To Secure A Lower Purchase Price

There are a number of financial agreements which we enter into, that will allow us to pay a reduced price if we pay the bill in full up front. The most common charge that I can think of which fits this description is car insurance. Most companies charge a fee for breaking your premium up into monthly payments; thus giving you a discount for paying the full charge up front.

Sometimes landlords will be willing to give you a discount on your rent if you pay up front. The discount may increase as you add more months to your initial payment. Paying your rent a year in advance can lead to real savings.

The same is true for many other arrangements where there is an option to pay over a long period of time versus paying the entire amount due in the beginning of the agreement.

You may be thinking to yourself, “I can make prepayments at any time! This has nothing to do with interest rates”. However, the reason why this is tied to low interest rates is because you have less incentive to put out $15 – $20,000 all at once, if rates are high.

If you can earn a high interest rate by putting your cash in a savings account or CD, then you will not be inclined to pay your rent a year in advance, unless the savings in rent are more than what you would earn in interest. Therefore, low interest rates make it financially feasible to make prepayments in order to secure a reduction in your purchase price!

photo by jscreationzs

A Few Questions About Low Interest Rates

  1. Do you take advantage of low interest rates to reduce your debt payments?
  2. Have you ever taken out a consolidation loan?
  3. Do you feel more justified in living above your means (borrowing money to pay for expenses) in a low interest rate environment?

 

8 Things You Can Do With Your Tax Refund

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Many people will be receiving (or have already received) a tax refund in the near future. Most people that I know plan to blow it on something that will not provide a benefit for their lives. Instead of wasting your refund and regretting your decision, try one of these 8 tips!

Tax Refund

What To Do With Your Tax Refund

Start An Emergency Fund

Probably the most common characteristic of a financially stable household (besides the idea of living within their means) is an emergency fund. The point of this emergency fund so you can have money stashed away when something unexpected comes up.

If you are not financially prepared for emergencies, then you may be forced to rely on high-interest credit cards, or tap into your retirement savings in order to get by.

Pay Down Debt

Another great use of your tax refund is to pay off debt. This may seem like a boring option (especially when compared to how most people use their tax refund), but it will automatically earn a rate of return that is equal to the interest rate on your debt.

For instance, if you pay off a credit card that had an interest rate of 20%, then that is equivalent to earning 20% on an investment!

If you use it to pay off/down an installment loan (such as a mortgage or car loan), then you may have to specify that your extra payment should be applied to the principal.

Consider Paying Infrequent Expenses

Many times it can be difficult to remember those expenses which only come once or twice each year. Instead of being taken by surprise and sent scrambling for extra cash at the last minute, either pay or put aside money for these expenses using your tax refund.

Some of these can include your car insurance premium, a maintenance fee on a timeshare (don’t get me started on this one) or other property, roadside assistance fee, and any other types of subscriptions.

Save For Retirement

You can easily fund a retirement account, such as an IRA with your tax refund. If you have more than the current IRA contribution limits, then you can fully fund your account while taking advantage of one of these other options.

If for some reason you are not reaching the 401k contribution limits at work, you can use this extra money as a way to increase what you currently contribute. Of course, you can’t add outside money into a 401k; however, if you fall short of the contribution limit due to other expenses, you can use your tax refund to pay those other expenses and increase the amount that goes into your 401k!

Save For A Large Purchase

If you are looking to purchase a car (learn how to save money on car costs), new laptop, vacation, or any other large purchase, this may be your chance. Instead of going into debt to buy the item, you can use your tax refund.

Even if the amount of your refund isn’t enough for you to purchase the item outright, it can greatly reduce the time it will take to save up for it. You can also pad the account with bonuses, raises, and future tax refunds.

Give

Giving is a very important part of any financial plan – especially for a Christian (we are commanded to give). I know many people who have a strong desire to give, but are not able because things are too tight for them financially.

If you are in a situation like this, a large tax refund can provide you with the perfect opportunity to give. There are plenty of organizations that are looking for donations in order to fulfill their mission such as, your local church, a missionary, food banks and homeless shelters, and any other charity that is fighting for a worthy (to you) cause, and has proven to be reliable!

 

Start A “Blessing Fund”

One of the things that my wife and I want to do (once we are out of debt) is to establish a savings account that will only be for the purpose of providing financial blessings to others. By having a separate account for this, we never have to worry about depleting our emergency fund or any other “dedicated” savings when we come across someone in need.

If you have a desire to help people out at various times, but don’t always have the means when these times come up, use your tax refund to start a “blessing fund”.

Spend Your Tax Refund

I’ve talked before about celebrating small victories during your financial journey.  Use some or all of your tax refund and do something that you have wanted to do, but couldn’t. Maybe go out to a fancy restaurant, or buy a New iPad or some clothes!

No matter what you choose to buy, use all or a part of your tax refund to treat yourself. Then take the rest and put it toward your highest financial priority. This way, you can celebrate achieving a financial milestone, without diverting funds away from your current plan.

Reader Questions

  1. Did you receive a tax refund this year? If so, how did you spend/save it?
  2. Do you purposely have excess taxes withheld during the year so you can have a large refund?
  3. Do you regret how you’ve spent a previous tax refund, bonus, or other “windfall”?

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