Setting Your Personal Financial House in Order

1
Chapter 9

• Setting Your Personal Financial House in Order

2
Learning Objectives

• After reading and studying the chapter, you
  should be able to
• Define gross income taxes net spendable income
  and the tithe.
• Describe a budget and identify rough percentages
  to be spent on housing, food, automobile and
  insurance.
• Describe some cautions in the use of credit
  cards.
• Define and demonstrate the ability to calculate
  present value.
• Describe the major types of insurance and the
  purpose for each.
• Describe and differentiate between Social
  Security, 401K plans, IRAs and mutual funds.
• Define Check 21 and how it governs check floating
  and kiting.

3
Budgeting

• In preparing a budget, a person should consider
  their gross income, tithing and tax obligations
  to obtain what Larry Burkett referred to as Net
  Spendable Income.
• Gross Income The amount of money that you
  earnthe total of your salary or wages.
• Tax The obligation you have to pay taxes on your
  income keeping with the principle to render unto
  Caesar what is Caesars. Most states have income
  taxes and federal income taxes are collected for
  the purpose of supporting a national defense and
  other federally funded programs including Social
  Security.
• Net Spendable Income (NSI) Defined by Larry
  Burkett and Crown Financial Ministries, NSI
  refers to the amount of income you have after you
  have tithed and paid your taxes. This is the
  amount Crown recommends using in determining a
  budget.

4
Budgeting

• Tithe Derived from the Hebrew, asair, meaning
  to give the tenth part (Strong's Exhaustive
  Concordance) it is a principle introduced in the
  Old Testament involving setting aside a tenth of
  the first fruitsthe bestof a persons income,
  for the purpose of giving to the Lord.
• The first recorded instance of the tithe was from
  Abraham to King Melchizedek of Salem (Genesis
  1420).
• Eventually the tithe was codified in Mosaic Law,
  examples including Deuteronomy 1422-23,
  Numbers 1821, Deuteronomy 1428-29, Deuteronomy
  2612, and Malachi 310.
• Tithing is not a requirement restated in the New
  Testament but the principle of giving is. See
  Acts 244-45 Acts 432-37 Romans 137 1
  Corinthians 161-2 2 Corinthians 97 2
  Corinthians 812
• There is no set percentage of income demanded,
  except for the principle that 100 of all the
  Believer has been given to steward belongs to the
  Lord.

5
BudgetingCrown Ministries Budget Worksheet

• Gross Income 88,000.00
• Tithe 8,800.00
• Tax 14,500.00
• Budget Category Suggested Percentage Annual
  Amount Monthly Amount
• Net Spendable 64,700.00 5,391.67
• Housing 30  19,410.00 1,617.50
• Food 11  7,117.00 593.08
• Auto 13  8,411.00 700.92
• Insurance 5  3,235.00 269.58
• Debt 5  3,235.00 269.58
• Ent/ Rec 7  4,529.00 377.42
• Clothing 7  4,529.00 377.42
• Savings 5  3,235.00 269.58
• Med/Dental 4  2,588.00 215.67
• Misc 8  5,176.00 431.33
• School/Childcare 5  3,235.00
  269.58
• Investments 5  3,235.00 269.58

6
Crowns Four Minimum Standards

• Crown Financial Ministries teaches four minimum
  standards in personal finances for couples.
• God owns everything. We are simply stewards of
  that which we own.
• Think ahead and avoid problems. Plan ahead and
  establish a budget.
• Keep good records. Write down and track your
  spending. Know how much you owe.
• Get educated. Learn how borrowing and interest
  work

7
Loans and Interest

• There are different types of loans and different
  types of interest rates.
• Loans An agreement to borrow a set amount of
  money and to repay the principal with interest.
  Loans may be for homes (mortgages), or for
  personal purchases including everything from cars
  (usually made through banks or credit unions) to
  household supplies or even musical instruments
  (too often, unfortunately, made on credit cards).
  
• Interest The amount of money a person pays on a
  loan which is in addition to the principal amount
  borrowed. Two common types of interest charged on
  loans include variable and fixed.
• Variable interest rates go up or down throughout
  the term of the loan depending on market
  conditions.
• Fixed interest is set at a specific rate for the
  term of the loan.

8
Comparison of Payment Plans

• Consider a 2,000 credit card balance with an
  interest rate 13 and making only the minimum
  monthly payment.
• Minimum payment Option
• The first five months minimum payments will be
  44.00 month 1 43.51 month 2 43.02 month 3
  42.54 month 4 42.07 month 5
• In addition to the 5 payments listed, another 190
  payments will be required to pay off the debt.
  After all 195 payments have been made, you will
  have paid 1,674.11 in interest, plus the
  original balance of 2,000.00 (a total of
  3,674.11 ). 
• A Better Option Make the same payment of
  44.00 until the debt is paid in full. The
  payment schedule will be
• 44.00 month 1 44.00 month 2 44.00 month 3
  ... 44.00 month 62
• You pay 756.37 in interest (versus 1,674.11
  above). You pay off your debt completely in 62
  months (versus 195 months above) and save 917.74
  in interest.1
• 1 Source To view Crown Financial Ministrys
  credit card payment calculator, go to
  http//www.crown.org/Tools/creditcard.asp

9
Applying Present Value

• Present Value Current value of an amount of
  money to be received in the future, or the
  current value of a future cash flow. Helps
  address questions of investing. The basic
  calculation for present value is PVFV/(1i)n. An
  alternative expression is PS/(1rt).
• Suppose you needed 25,000 in four years. Using
  present value, determine how much you need to
  invest now to attain that amount assuming a
  simple interest rate of 5.
• Divide 25,000 by (1 0.05)4 to get 21,370 for
  our initial investment
• PVFV/(1i)n or P S / (1rt)
• 25,000 / (1 .05)4
• 25,000 / 1.1699 21,370
• So, if you had 21,370 to invest today, in four
  years you would have accumulated the target of
  25,000 youve calculated present value.

10
Insurance Fact Sheet

• Having insurance is critical. Following are
  basic facts in planning appropriately.
• Health Insurance Some employers provide health
  insurance coverage that offer group rates. Two
  common types of health plans include HMOs, Health
  Maintenance organizations and PPOs, a Preferred
  Provider Organization.
• HMO Prepaid health care plan in which you use
  doctors who are members of the HMO. In an HMO,
  the physician is paid a flat fee every month for
  each of the patients on his list, whether the
  doctor actually sees the patient that month or
  not.
• PPO Hospitals and doctors agree to provide
  clients with health services at a discounted
  rate. Insurance company pays doctors a discounted
  rate each time they provide services to a patient.

11
Insurance Fact Sheet

• Life Insurance Life insurance needs depend on
  your obligations to others and the risk you are
  willing to assume. As couples marry and have
  children they have a greater need for providing
  money to sustain survivors. Two of the most
  common types include term and whole life.
• Term life insurance is a no-frills policy with no
  savings element. Relatively inexpensive,
  premiums typically increase as you get older.
  Term life is a policy that is bought for a
  specific term or period of time.
• Whole life insurance has a cash value that
  accumulates over the years it is held. If you
  cancel the policy, you receive a lump sum. It
  combines a death benefit with cash value
  accumulations and so is used by some as a savings
  plan or investment plan.

12
Insurance Fact Sheet

• How much life insurance do you need?
• Consider the following replacement income table
• CurrentAnnualIncome Years Until You Retire
  
• 10 15 20 25 30 40 60
• 10,000 92,000 132,000 168,000 201,000 231,
  000 283,000 361,000
• 20,000 184,000 263,000 336,000 402,000 461
  ,000 565,000 722,000
• 30,000 276,000 395,000 504,000 602,000 692
  ,000 848,000 1,083,000
• 40,000 368,000 527,000 672,000 803,000 923
  ,000 1,130,000 1,444,000
• 50,000 460,000 659,000 840,000 1,004,000 1
  ,154,000 1,413,000 1,805,000
• 60,000 552,000 790,000 1,007,000 1,205,000
  1,384,000 1,696,000 2,166,000
• 70,000 643,000 922,000 1,175,000 1,406,000
  1,615,000 1,978,000 2,527,000
• 80,000 735,000 1,054,000 1,343,000 1,606,00
  0 1,846,000 2,261,000 2,888,000
• 90,000 827,000 1,185,000 1,511,000 1,807,00
  0 2,076,000 2,544,000 3,249,000
• 100,000 919,000 1,317,000 1,679,000 2,008,0
  00 2,307,000 2,826,000 3,610,000
• 110,000 1,011,0 001,449,000 1,847,000 2,209
  ,000 2,538,000 3,109,000 3,971,000
• 120,000 1,103,0 001,581,000 2,015,000 2,410
  ,000 2,768,000 3,391,000 4,332,000
• 130,000 1,195,0 001,712,000 2,183,000 2,610
  ,000 2,999,000 3,674,000 4,693,000
• 140,000 1,287,0 001,844,000 2,351,000 2,811
  ,000 3,230,000 3,957,000 5,054,000

13
Insurance Fact Sheet

• Disability Insurance Some people rely solely on
  Social Securitys disability insurance, but this
  does not protect all of a persons income.
  Disability insurance is designed to replace
  anywhere from 45-60 of income should a worker
  suffer an injury or illness that prevents him or
  her from working and earning an income.

14
Insurance Fact Sheet

• Property and Casualty Insurance A person should
  consider holding policies that provide 100
  percent of the replacement cost of a home and
  belongings if the insured owns a home.
• Renters should insure belongings through renters
  insurance.
• It is advisable to inventory and even videotape
  the contents of ones home.
• Common types of losses often covered include
  fire, tornado and natural disaster, and burglary.
  
• Flood insurance is not available through private
  insurers but may be obtained through the federal
  governments national flood insurance program.

15
Insurance Fact Sheet

• Automobile Insurance Insuring against losses
  related to driving and your vehicle.
• Liability States require drivers to carry
  liability insurance on their automobiles. This
  type of insurance covers damages the owners
  vehicle causes to others.
• Collision Insurance against damages that result
  from an accident, even if its the policy
  holders own fault, is called collision
  insurance.
• Comprehensive Similar to collision insurance,
  comprehensive insurance provides coverage against
  damage caused by an unknown party or an Act of
  God. Vandalism, theft or fire damages are
  examples of potential losses covered by
  comprehensive insurance plans.

16
Personal FinanceRetirement Planning

• Bear Market a trend in the stock market in which
  prices are falling over several months investors
  who make decisions based on a belief that the
  market is going to continue downward are called
  bears or are said to be bearish on the
  market.
• Bull Market a trend in the stock market in which
  prices are rising over several months investors
  who make decisions on a belief that the market is
  trending upward are called bulls or are said to
  be bullish on the market.

17
Retirement Planning Fact Sheet

• Many estimate that a person should plan on
  utilizing about 80 percent of their
  pre-retirement income in order to live in a
  manner to which theyve grown accustomed.
  Following are some basic means of planning for
  retirement years.
• Social Security June 8, 1934, President
  Franklin D. Roosevelt, announced his intention to
  provide a program for a social insurance plan
  similar to those that began in Europe in the 19th
  century and first adopted in Germany in 1889
  under the leadership of Chancellor Otto von
  Bismarck.
• Under Roosevelts plan, the U.S. began social
  security payments of monthly benefits in January
  1940, authorized for aged male retired workers,
  their aged wives or widows, any children under
  age 18 and surviving aged parents.
• Since then, Disability, Medicare, and
  Supplemental Security Income (SSI) programs have
  been added to the entitlements offered through
  the Social Security Administration. 1
• Social Security is an unfunded pension plan, paid
  for with cash flows from individuals currently
  taxed to cover the payments to those receiving
  benefits. Social Security Benefits Calculators
  To calculate your own Social Security benefits,
  access the Social Security Online Benefits
  Calculators at http//www.ssa.gov/planners/calcul
  ators.htm
• 1 For more information, see the Social
  Security Administrations website at
  http//www.ssa.gov/history/briefhistory3.html

18
Retirement Planning Fact Sheet

• 401K Plans Employer-sponsored retirement plans
  in which employees defer a portion of their
  salary into an investment choice, usually
  selecting from several options. Employers often
  contribute to the employees 401k by matching a
  portion of the investment.
• For example if an individual invests 5 of his or
  her income, the employer may also match that up
  to 5. If the person put in 10 of his or her
  income into a 401K plan, his or her initial
  investment would actually be a 15 contribution
  with the 5 match.
• Investment options may include stocks (including
  the companys stock), bonds and money market
  funds.
• All of the funds in the 401k are allowed to
  increase tax-free and may be withdrawn when the
  employee reaches age 59 ½. When withdrawn, income
  tax must be paid on the funds.
• For nonprofit organizations, such plans are
  referred to as 403B Plans.

19
Retirement Planning Fact Sheet

• Individual Retirement Account (IRA) There are
  two predominant types of individual retirement
  accounts, the Traditional IRA and the Roth IRA.
• Traditional IRA a tax deductible optionthat
  is, the contribution you make is not taxed as
  income until you withdraw funds.
• Roth IRA named for Senator William V. Roth, Jr.
  of Delaware, became effective in 1998. A Roth
  IRA is one in which your contributions are made
  after the taxes on it are already paid. Money
  earned on it is tax free, meaning that no taxes
  are due on the funds withdrawn from it as long as
  the IRA has been open five years or longer and
  the holder is at least 59 ½ years old.

20
Retirement Planning Fact Sheet

• Mutual Funds There are an estimated 12,000 or
  more different mutual funds in which an
  individual may invest for retirement. Mutual
  funds allow a group of investors to pool their
  money which is managed by a fund manager who
  invests in specific securities, usually stocks or
  bonds.
• Investing in a mutual fund is actually purchasing
  shares or units of the mutual fund.
• Pooling money in a mutual fund allows an investor
  to diversify money across several types of
  investments, providing greater protection against
  loss should a single companys stock plunge.
• Mutual funds allow buyers to purchase stocks or
  bonds at lower trading costs than buying and
  trading individually.

21
Personal Finance Check 21

• Check Floating the practice of issuing a check
  before the funds are actually deposited in the
  account individuals who float their checks, do
  so believing they will be able to make the needed
  deposit before the check clears.
• Check Kiting a type of fraud in which money is
  drawn from a bank account that does not have
  sufficient funds and to cover it, a second check
  is drawn from another checking account. In some
  cases, there is no money in the second account
  either but the scheme operates in hope that the
  lag allows them to draw on the account before
  the check is cleared.
• Check 21 Check 21 is a federal law, passed on
  October 28, 2004. Designed to speed up the check
  clearing process, it allows banks to discard the
  paper check and substitute an electronic check.
  This allows the bank to debit your account for
  the amount within minutes of them receiving your
  check. 

22
Personal FinanceUsury and Interest A Christian
Perspective

• Psalm 15 outlines principles which should
  characterize the believer. One of the
  prohibitions given is the charging of usury.
  Some translations simply refer to interest. Usury
  is charging exorbitant interest rates above what
  is customary or reasonable.
• Deuteronomy 2319 states Do not charge your
  brother interest on money, food, or anything that
  can earn interest. Nehemiah was particularly
  incensed when it was discovered that the Jews
  were not abiding by this prohibition (See
  Nehemiah 57-11). In addition to Psalm 154-6
  and the passages from Deuteronomy and Nehemiah,
  other references to this prohibition include
  Exodus 2225 Leviticus 2537 Ezekiel 187-9
  Esekiel 1812-14 and Ezekial 2212.
• Prohibition against interest does not seem to
  hold when dealing with those outside the family
  of faith however. Deuteronomy 2320 states
  You may charge a foreigner interest, but you
  must not charge your brother interest, so that
  the LORD your God may bless you in everything you
  do in the land you are entering to possess.
• Usury is always prohibited. For example, "You
  must not exploit a foreign resident or oppress
  him, since you were foreigners in the land of
  Egypt (Exodus 22 21). Even in dealing with
  strangers or foreigners, the Jews were
  commanded to be fair in charging interest on
  loans.
• The New Testament refers to the collection of
  interest on money deposited with a bank or
  lender. But are the parables in which this is
  mentioned meant to condone the practice? After
  all, the parables were not about interest or
  usury. In Matthew 542, Jesus urges His
  followers to lend to whoever asks for a loan.
  Should the Christian refrain from charging
  interest?

23
Personal FinanceUsury and Interest A Christian
Perspective

• General Guidelines
• Neither lending nor borrowing is specifically
  condemned in the Bible. Jesus taught His
  followers (Matthew 542) Give to the one who
  asks you, and don't turn away from the one who
  wants to borrow from you. Christians may lend to
  anyone as in Luke 634-35 And if you lend to
  those from whom you expect to receive, what
  credit is that to you? Even sinners lend to
  sinners to be repaid in full. But love your
  enemies, do what is good, and lend, expecting
  nothing in return. Then your reward will be
  great, and you will be sons of the Most High.
  For He is gracious to the ungrateful and evil.

24
Personal FinanceUsury and Interest A Christian
Perspective

• In making a loan, Christians should not charge
  interest on loans made to other Christians. This
  would keep with the general teaching of Scripture
  and is consistent with teachings in both the Old
  and New Testament.

25
Personal FinanceUsury and Interest A Christian
Perspective

• In the practice of lending, it can be argued that
  charging interest on a loan made to a
  non-believer is permissible, but that under no
  circumstance should the interest be outside of
  normal, accepted rates. Usury is prohibited in
  the practice of lending in all situations.

26
Personal FinanceUsury and Interest A Christian
Perspective

• These principles are intended primarily for
  individual believers in their personal decision
  making. They may not directly apply to an
  institution such as a bank or mortgage company in
  which a person is employed and made responsible
  for granting loans. In such a case, the
  Christian is not making decisions to lend from
  his or her personal supply, but on behalf of a
  corporation they are investing the money of
  others. There appears to be no prohibition for a
  Christian working at a bank to make a loan
  consistent with the rules and regulations set
  forth by their employer, state and professional
  codes of conduct, and as long as the employer is
  not using unethical practices or charging usury.

27
Setting Your Personal Financial House in Order
Discussion Questions

• What is the difference between gross income and
  NSI?
• Describe and differentiate between the four
  retirement planning options outlined in the
  chapter.
• Define check kiting check floating and Check
  21.
• Describe the major types of insurance discussed
  in the chapter.
• Briefly describe why the practice of making the
  minimum monthly payment on a credit card debt is
  poor stewardship.

28
Setting Your Personal Financial House in Order
Activities

• Construct a personal budget for you or your
  family. Check it against the budget guideline in
  the text. Point out any significant changes in
  your percentages and in one to two sentences
  describe your reasoning for each line item.
• Use the formula for present value to calculate
  the amount of money you need to invest right now
  in order to have 50,000 in ten years. Assume a
  six percent interest rate.
• Use the Replacement Income Table from Motley Fool
  to identify the recommended insurance needs for
  the following individuals (assume a retirement
  age of 65)
• a. a 25 year-old who makes 30,000 per year
• b. a 40 year-old who makes 85,000 per year
• c. a 50 year-old who makes 120,000 per year.

29
Setting Your Personal Financial House in Order
Integrating Faith and Discipline

• Read the short chapter notes on usury and
  interest. In your opinion, should a Christian
  charge another Christian interest on a loan?
  What about charging a non-Christian? Relative to
  deciding whether to charge a non-Christian
  interest, what are some guidelines to consider?
• Explore the website of Crown Financial Ministries
  (www.crown.org). Select an article about
  personal financial planning and write a one-page
  summary of the article in a memorandum format.