Tuesday, November 8, 2011

What's In Your Wallet?

Here is my sermon from Sunday. The passage was Matthew 25:1-13:

Today we continue with the second part of our sermon series on finances which is based roughly on a series created by Dave Ramsey entitled Faith, Hope and Money. Last week we talked about the need to save. But, even though I told you why saving is important, I didn’t really talk about how we are supposed to do it, and so this week we are going to talk about goal setting, budgeting and how we find money to save. Now I know that this sermon series is very different than what you’ve ever heard, because I am getting a lot more concrete than most sermons about money ever do, and there is a reason for that. Quite simply, many people don’t know what they should be doing or what the implications are if they don’t do these things, so I want to make this as practical as possible. I think this is one of the areas in which the church has failed because our finances are important. They drive just about everything we do and don’t do, and the scriptures have a lot to say about these things, remember Jesus talked more about money than he did about almost anything else, and if I can change just one of your financial lives for the better then I will have accomplished something.

In my first real job out of high school I was making $6 an hour, for an amazing $12,000 a year. I had never made so much money. Two years later I was in management for the same company, and instead of $12,000, I was now making nearly $35,000 a year. What happened with me, and what happens with most people, is that this change in my income level only meant that I had a lot more now to spend. I did not put any of this into savings or into retirement instead my standard of living simply increased in order to match my new economic reality. Well, long story short, I did not listen to the advice I gave last week about saving and the power of compound interest, because I did not know that information, nor did anyone tell me what I should be doing with my money, instead it went in and then quickly went back out again, and to be honest I can’t say where it went. I did end up with a very nice CD and video collection, which I ended up selling in garage sales for a dollar a piece, but it was not $23,000 worth of those things.

Not happy with what I was doing, I accepted a new job in Santa Fe, where I cut my pay almost in half while simultaneously doubling my cost of living expenses, and I quickly racked up $10,000 on my credit cards. I began working a second job to help pay the bills, but instead of getting ahead, I just kept getting further and further behind. So, wanting to try and end the cycle, I went to my credit union and took out a loan to pay off my credit cards, because it was better to be paying 7% on the loan than the 14%+ I was paying on the credit cards.

Now, if I had been smart when I did that I would have cut up my credit cards, but I didn’t. Nor did I make any other changes to my behavior, instead I kept living the same way as I was before, and this time accumulated about $14,000 in credit card debt. And now not only did I have this debt but I still had the loan that I was paying on which paid off my first credit card debt as well. I decided that I had had enough, and so I stopped using my credit cards and with a recommendation from my credit union I contacted a credit counseling service and entered into a debt repayment plan. One of the great myths we tell ourselves is that we would be okay if only we made more money, but it’s not true because without behavior changes to how we are spending money more money will only make the problem worse. 80% of people who win major lottery prizes declare bankruptcy within five years. More money will not solve our problems, instead we need to control the money we have right now.

I am telling you my story this because I know that some of you have also been where I have been, and maybe some of you are there now. I also want you to know that I am not up here as some financial genius who has it all figured out, nor am I here to blame or shame you for where you are financially. More than 70% of people live paycheck to paycheck and a significant portion of these also carry credit card debt. The average household has $15,799 in credit card debt, and the average APR is 14.89%. In total, the US owes 793.1 billion dollars in unsecured debt, 98% of which is credit card, and 2.43 trillion in total debt, which includes mortgages and car loans. The average family with credit card debt paid 21% of their income to servicing their debt. The economic situation of the government is not something unique; instead it mirrors what is going on in our own personal lives. We cannot expect Washington to be good stewards of their resources, to have it all together, when we are not also being good stewards.

I’m sure that most of us have heard this line from proverbs, “train children in the right way, and when old, they will not stray.” But for some reason we don’t continue. The next line should be one of the keys to understanding our finances and what it means to be a good steward, “the rich rule over the poor, and the borrower is the slave of the lender.” Other passages in the Bible also stress the problem with debt, and in particular with the extreme difficulty of getting out of debt once you are there. In passages in Leviticus, Deuteronomy and Nehemiah, we are instructed that every seven years that all debts are to be forgiven, and every forty-nine years, which is the year of jubilee, that everyone who has sold their land, presumably because of financial problems, are to be given their land back. The scriptures are very concerned with debt and the negative consequences that come from going into debt.

And while debt is bad, it is really the interest and fees that are killing us. In 2007, which is the last year I could find numbers for, American paid 116 billion in interest charges, and an additional 20.5 billion in penalty fees. If you were to pay the minimum payment on that average balance of $15,977 at 14.89 %, it would take you 37 years to pay off, and you would pay $24,760 in interest. The average American household will pay more than $600,000 in interest over their lifetime, but most Americans cannot tell you what their current interest rates are. Ignorance is not bliss. “The borrower is slave of the lender.”

Proverbs tells us to “know well the condition of your flocks, and give attention to your herds; for riches do not last forever….” In order to be good stewards we must deal honestly and realistically with our finances. As we discussed last week, for most of us, our money just goes straight into our accounts and then right back out again, and most of us don’t know where most of it goes. So, the first step to getting our financial house in order is to be able to account for every penny that we take in and for every penny that we send out again.

The median household income in America is just slightly over $50,000. So if you are at the median how much money will you earn in a ten year period? That’s right, $500,000. So over twenty years how much money will you earn? That’s right, $1 million. And if you continue making the median over forty years you will see $2 million dollars. Now if you owned a business that saw $2 million in sales and you went to the manager and asked to see the budget or how they were tracking income versus expenses, and you were told that the manager wasn’t doing any of those things, let me ask you, would you fire that manager? Of course you would. I have yet to work for any business, even non-profits, that did not create a budget and track it every single month and every single year. Even businesses that have failed tracked their income and expenses and, and yet only 40% of Americans say that they track their expenditures and have a budget. That means that 60% of people are running their finances in a manner that would get them fired from managing any business they worked for. We deserve better.

This is incredibly important for everyone to do, but it is even more important if your finances are tight or you feel like your financial ship is sinking because the only way to stop the water from continuing to pour in is to find the holes in your boat and plug them, and the simple fact is we all have holes in our boat.
So the first task I want you to do, and I’m guessing none of you have ever had homework from your worship service, but I want you to use the quick cash flow register which you will find on a table at the back of the sanctuary sometime this week I want you to write down what you take in and what you spend on a monthly basis. Do not consult your check book or quicken or anything else you might use to track your spending, instead I want you to do it off of the top of your head. If you are married this is the only time I am going to tell you to do this separately. I want each of you to sit down and write it down so that you can understand as a couple where your communication about your finances is breaking down, because in the vast majority of couples one person is responsible for the finances and the other spouse just goes along with what they are told. This will probably be the most eye-opening exercise you will do because most people, regardless of how much they make, usually underestimate their expenses by between $1000 and $1500 dollars, and often people are off by even more. So first, do an estimate of how much you are spending against income.

Your second task for you to do is to track all of your expenditures for one week, accounting for every single penny. I’d like you to do it for more than one week, but we’ll start with that. There is a form on the back table called the Latte Factor which was created by David Bach, and for those of you who are like me and don’t drink coffee, don’t let the name put you off. The purpose is to see where all your money is going. Do not change your behavior so that you look better on the sheet, because if you do that it will not be effective for you. The purpose of these forms is to help you better understand where your money is going and what you might be able to eliminate in order to get better control of your finances. In order to make this effective, you need to be as specific as possible. For example, don’t just write groceries because that might hide a lot of things. Instead itemize or categorize things so you may decide if it’s really important or not, and only you can decide that. We cannot begin to control our spending or increase our saving until we understand our where our money is going, until we are in control of our money then our money will control us.

In proverbs we are told “Where there is no vision, the people will perish.” And so your third form is a goal brainstorming sheet, which will help you do some planning for saving. I want you and your spouse if you are married, to brainstorm your ideas for things you would like to do that require money. Do not be concerned of whether you can afford it or not, do not be concerned if you think it’s a waste of money, that is not what this process is about. Instead, if you’ve thought about doing it then write it down. Then, once you have written all your goals down, go through and mark whether the funding for them is immediate, short-range or long-range. This can be a little confusing, so just remember it’s when you want to be setting money aside, so retirement savings is an immediate goal even though for many it is a long-range plan. Then once you have listed funding ranges, then select three from each category and move them to the back of the sheet. You have now begun to set financial goals which will help you enormously not only in your financial planning but also in making your dreams a reality. If you don’t have a goal in mind then anywhere you end up will be okay, but once you have a target then you know where you are going and what you need to do to get there, and if you are married then maybe for the first time you will be on the same page financially and moving in the same direction.

Now there are some financial planners who say that budgeting is not necessary because they say that people don’t have the time to budget. To me that is, to put it quite bluntly, just plain foolish. In Hebrews we are told, “Now, discipline always seems painful rather than pleasant at the time, but later it yields the peaceful fruit of righteousness to those who have been trained by it.” (12:11) It is your money and you work hard to earn it, so you should be working hard to keep it as well, although once you get started it won’t be as hard. Now what other financial planners will tell you is that the reason budgets don’t work for most people is the same reason that diets don’t work because they work on the basis of deprivation, and with that I would agree. The purpose is not to deprive you of anything, but instead to allow you to make decisions about what is important, and what isn’t, and to allocate your resources the way you want to reach your goals. Rather than depriving yourself instead you are working towards something.

But, to make budgeting a little less threatening, some financial planners instead will say you should create a personal spending and savings plan, which sounds nice and also emphasizes the savings part, others will call it a cash flow plan, which also sounds less threatening. You can call your budget plan Steve or Suzie or even your Hawaii fund, call it whatever you want, but you need to start doing it, and to get you started, you will find a quickie budget form. As you work on budgeting it will need to become a little more complex, but not a lot. Don’t make it so difficult that it doesn’t work. And you will need to do a new budget every single month because you will have different expenses every single month, but the more you do it, the more effective it will be for you. So to conclude today’s message, let me give you an illustration which builds in all of today’s lessons.

Jeff Savile is a hair dresser who lives in Seattle. Following a financial planning class he decided that he wanted to keep thing simple and so he came up with two financials goals. “I wanted to go to Hawaii or someplace else where it’s sunny once every year, and I wanted a red Mazda Miata,” he said. Even though he didn’t know how he was going to be able to afford those things when he started, within three months he had his trip paid for and had the down payment for his car. When he was asked how he could have saved so much so quickly, he said, “Listen, I counted up how many lattes I consumed during the day. Six! Six lattes with tips is $12 a day. I spend an average of $5 a day on snacks. I go out for lunch every day and spend about $8 every time. So far, that’s $25 a day. I work six days a week. That adds up to $600 a month. Cutting a few dinners eating out, I ended up saving $2,000 over a three-month period. My trip to Hawaii will cost me $1100, and the remaining $900 was enough for the down-payment on the car.”

Then he added, “But here’s the thing. If you had asked me at the last session how many lattes I drank a day, I would have said six. And if you had told me I was wasting a lot of money, that I was spending too much… I would have told you that I couldn’t have gotten through my job… without all those lattes. I would have told you not to tell me how many lattes I can drink during the day. And I would have told you that I don’t have the time to make my lunch every day. I barely make it to work on time, work long hours, and go home dead at the end of the day. That’s what I would have said to you. Instead, when I saw for myself that the lattes and lunches were costing me $600 a month, I realized I can more than adequately make a car payment and have plenty left over to go someplace sunny and warm every year. I instantly stopped drinking lattes…and I’m getting up early each day to make my lunch. It’s like once I realized that I could actually have these things, nothing could stop me!”

I cannot tell you what you should or should not be spending your money on, only you can make that decision, but in order to be good stewards of our resources we need to understand our spending, we need to do what we can in order to get out of debt, we need to be budgeting, we need to be saving and we need to be giving, which we will get into next week. Proverbs says “the plans of the diligent lead surely to abundance, but everyone who is hasty comes only to want.” We are taking the first steps of diligence, to financial diligence. Dave Ramsey always concludes his radio program by saying “There is ultimately only one way to financial peace, and that is to walk daily with the Price of Peace, Christ Jesus.” May it be so. Amen.

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