Financial Literacy: Biblical Principles

Ep. 10 – Principle #1: Spend Less than you Earn

The month of April has been deemed “Financial Literacy Month” by the US government. With this focus on financial literacy, we decided to get back to the basics for our April content. This is a great time to revisit the foundation of a solid financial plan. The first Biblical principle of finance is simple – spend less than you earn.

While this sounds easy, we all know that it can be very difficult in practice. We live in a society that is constantly bombarded with discontentment, often causing us to always want more and be instantly gratified. This can make it very difficult to focus on the things that are truly important. When managing cash flow, it’s okay to have some trial and error. Nobody is an expert right away. Below are some tips that can help you to spend less than you earn:

– Have an accountability partner. If you’re married, discuss your spending with your spouse on a regular basis. If you’re single, talk about your cash flow with a trusted friend or family member.

– Give and save first, and then live on the rest. It’s important to pay God and pay yourself before you pay others. Our culture teaches us to live and spend first, and then to give and save what’s left over. The problem with this approach is that there’s nothing left over! If you’re able to automate your giving and saving, that’s even better. Remove the barriers to your success.

– Increase your earnings capacity. If your income is in a place where it’s very difficult to find margin, you may need to sharpen your skills (or even learn new skills) to be able to earn a higher income. While a higher income doesn’t translate to happiness, it does provide more flexibility to give, save, and build your financial future.

Ep. 11 – Principle #2: Be Wise with Debt

During the month of April (Financial Literacy Month), we are focusing on the foundations of a solid financial plan. The second Biblical principal of finance is to be wise with debt. This has become a major issue in the US – the Federal Reserve stated that household credit card debt was over $1.1 trillion at the end of 2023. When households are saddled with debt, it can cause immense emotional and financial strain.

With this in mind, how can we approach debt with a Biblical mindset? In order for debt to make sense, here are some important factors to consider:

– The economic benefit of the debt must be greater than the cost (interest paid). An example is a mortgage. Over time, the value of a home typically rises, therefore creating more economic value than the interest paid on the home. It’s important to avoid debt on items that don’t meet this criteria.

– Have a guaranteed way to repay the loan. It’s wise to not be reliant on just your income to repay a loan – there’s no guarantee that your job will last forever. Let’s revisit the mortgage example. In a worst-case scenario, you can sell your home to pay off the debt. For other types of debt (credit cards, for example) this is not an option.

– If you’re married, is your spouse in complete agreement? If one of you is uneasy or uncomfortable about taking on the debt, it’s unwise to move forward with that decision. If you’re single, it’s often a good idea to discuss the decision with a trusted friend or advisor.

If you have debt that you’re actively trying to pay off, try implementing the snowball method to help expedite the payoff of those loans.

Ep. 12 – Principle #3: Build Margin for the Unexpected

As we progress through Financial Literacy Month, we’re focusing on the foundations of a strong financial plan. The third Biblical financial principle is to build margin for the unexpected. The only guarantee in finances is that unexpected events occur. It’s critical that we prepare!

In order to expect the unexpected, it’s important to have a few different things in place. The first item is an emergency fund. A typical emergency fund should cover 3-6 months of your household’s average monthly expenses. Therefore, a household that spends $5,000/month should keep $15,000-$30,000 in an emergency fund. This certainly isn’t achieved overnight. Just like the other principles that we’ve discussed, small, incremental increases go a long way. Build a consistent process to add to your emergency savings until it reaches a level that you’re comfortable with.

Beyond your emergency fund, it’s also important to be properly insured. Insurance protects us against major (unexpected) events. In order to be protected, most households need health insurance, life insurance, disability insurance, and property & casualty insurance. Make sure to review these policies annually with a trusted advisor to ensure that your coverage limits are appropriate for your situation.

Ep. 13 – Principle 4: Have a Long-Term Plan

As we’ve noted in previous posts, April is Financial Literacy Month. This month, we’re focusing on the basics of a sound financial plan. The fourth Biblical financial principle is to have a long-term plan. Our culture is very focused on instant gratification. The advertising and consumerism culture that we live in can make it very difficult to focus on long-term goals. What can we do?

– Set a goal to invest 10-15% of your gross income. Be patient! It’s not feasible to go from 0% to 10% at one time. It’s important to simply get started. From there, you can increase your savings rate by 1% per year.

– Consider making Roth contributions if eligible. If your income allows you to contribute to a Roth IRA, consider doing so. Many employer-sponsored plans (such as a 401(k) or 403(b)) also allow Roth contributions. Roth money is incredibly powerful in retirement due to its tax-free nature. Having a bucket of Roth assets provides flexibility in the future, which is always a good thing for your finances.

– Maintain a long-term and eternal perspective. When investing, it’s easy to get caught up in the emotions of short-term market movements (both good and bad). The simple fact is that these cycles occur…a lot! The wise approach is to focus on the long-term goal. Stick with the plan and continue taking the amount of risk that’s appropriate for your situation.

– Review your situation with a trusted friend, family member, or advisor. Having an accountability partner can go a long way to ensuring you stay on track with your saving and investing goals.

Ep. 14 – Principle #5: Give Generously

As we wrap up Financial Literacy Month, our focus is on the final Biblical principle of finance – give generously. When managing our finances, it’s important to remember that we are simply serving as stewards of God’s resources. He gave us these resources, and He can take them at any time. God is the ultimate giver, and we can’t outgive God. By living with an open hand and giving generously, we are opening our heart to become more like the heart of the Lord. Below are some tips to consider as you travel along your generosity journey:

– Start with prayer!

– It’s okay to start small – just start somewhere! You can approach your giving like you do your savings or debt payoff. Consistent, incremental increases can make a HUGE difference over time.

– Giving isn’t just a nice thing to do, it breaks the power that money holds over us.

– Work towards automating your giving. Remove the barriers that prevent you from giving consistently.

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Miranda Power