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Uh Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it. Proverbs 21, 20. I am Rob West. God's word couldn't be any plainer on the need to live below one's means and to be able to save for the future. To do that, you need a budget.
Chad Clark is here to share some interesting facts about budgeting, and then it's on to your calls at 800-525-7000. This is Faith in Finance, biblical wisdom for your financial decisions. Hey, it's always a pleasure to have Chad Clark with us on the program as Faith Phi's chief technology officer. He brings valuable insight into how we use digital tools to reach God's people with the message of biblical stewardship. Chad, great to have you back with us.
Thanks for having me. Chad, one of your many duties here at Faith Phi is keeping tabs on our app, leading our app development team. And we'll talk a bit more about that in a minute. But first, you've actually been doing some research on budgeting in general. Share that with us.
Yeah, there's some new numbers that came out in a survey from NerdWallet that found a lot more people budget than you might originally think. In fact, the poll of 2,000 Americans ages 18 and up, three quarters of them say they have a monthly budget. All right. That's good news, right? Yeah.
That's good until you hear the next stat, which shows that 84% of those respondents sometimes exceed their monthly budget.
So it doesn't seem like the budget's doing a very good job of helping them out. No.
So, of those who do overspend, 44% cover that difference using credit cards, which we can then assume 56% are using their savings in order to overspend their budget. Yeah, it's really scary, but it makes sense because we always tell people that if you aren't living on a budget, you'll eventually go into debt once you use up any savings you have.
So, why do you suppose some people don't budget at all?
Well, I've been doing this for quite some time, Rob, and I've heard a lot of different excuses and reasons.
Some of the common ones I hear a lot are it takes too much time, it's too difficult, and people don't like doing math. One that I hear a lot is that people just don't seem to stick to it. It seems like a diet to them, and they just aren't able to be successful at being consistent. I often hear people say, Just, I don't need a budget, I'm doing fine. Um, and so that's that's one that we want to obviously unpack a little bit.
Um, and others I often hear say it limits me. Um, so those are some of the common excuses I hear. Why people don't have a budget. Yeah, and as I think through each of those that you just mentioned, it seems like a lot of those excuses are based on misconceptions, right? Yeah, absolutely.
There's plenty of misconceptions. And let's unpack just a few here and see if we can dispel some of these. One is a budget is about cutting expenses. It's not really about that. It's about prioritizing your spending.
It's about making good financial decisions. That's really what the budget is. It's a decision-making tool. It's not just about cutting things out. The other common misconception we hear is a budget is too rigid.
And the truth is, a budget is only as rigid as you make it.
So you can make as many adjustments as frequently as you need to to allow the budget to, again, help you make good decisions. One we just talked about previously was that I don't need a budget. And often people say I don't need a budget because I make enough money to not need a budget. And again, there's a little bit of pride that sometimes comes in that that doesn't recognize that, again, a budget is a decision-making tool and it's there to equip you to be wise and faithful with what God has entrusted to you.
So everybody needs a budget to help them make those good decisions. That's really helpful, Chad. And to push that idea even further, if multi-billion dollar companies operate on a budget, then I make enough really isn't a valid excuse for skipping one.
Now, we've mentioned the FaithFy app a couple of times and we've got about a minute left. How can the FaithFi app help someone who wants to start a budget and actually stick with it in the new year, maybe even for the very first time? Yeah, again, I think with the FaithFy app, we've designed it to be a tool that is there to assist you. It's there as your assistant. It's there to help you stay organized and be intentional with every dollar you have.
But there's a few. Unique elements of the FaithFi app that I want to highlight here with just a few seconds left. It's designed to meet your needs. There are three different ways you can manage money in the app to fit your unique money management style. The next point is that it's designed to establish rhythms that work for you.
Whether that's daily check-ins or weekly reviews, the app will help you develop good money management habits. And finally, it's about more than the money. The content and community elements of the FaithFi app are designed to help you grow in your relationship with the Lord and help you to be a good and faithful steward for His glory. Folks, you need to download this app. Julie and I use it to manage our money.
It is that decision-making tool that Chad mentioned. It's better than ever. And when you blend the content and the money management tools and the rhythms, it'll be a game changer for you. Chad, thanks for stopping by. Thank you.
Again, just head to our website, faithfy.com, and click app. We'll be right back. What if managing your money could actually draw you closer to God? What would happen if we began to see God as our ultimate treasure? The Faith Buy app helps you do more than budget.
It helps you integrate your faith and financial decisions for the glory of God. With easy-to-use envelope futures, top biblical financial content, and a supportive in-app community, you'll learn to steward God's resources wisely and grow in generosity. Download the Faith Buy app today from your app store or visit FaithBuy.com and click A. Wondering who Faith and Finance recommends as a banking partner that aligns with Christian values? It's Christian Community Credit Union.
When you open a high-yield checking, savings, or visa cash back card, you'll help advance the gospel when making everyday transactions. Visit faithfy.com/slash banking and use code FaithFi when you sign up. That's faithfy.com/slash banking with code FAITH FI. Membership eligibility required. Each account is insured up to $250,000.
This institution is not federally insured. Mm. Yeah. Great to have you with us today on Faith and Financed. All right, the lines are open.
I'm ready for your calls and questions today. Let's talk managing God's money: 800-525-7,000. That's 800-525-7,000. Let's head out to Idaho. Kara, go ahead.
Yes, hi, thanks Rob for taking my call. First time doing this. Oh, that's great. I do try to listen to your show regularly, so I really appreciate all your great advice and just your biblical perspective here.
So, question. When using a loan, and we did get a HELOC at roughly 7%, and we do have some credit cards that are that we need to take care of.
So it's roughly about 80K. And so I guess I'm wondering Do you does it make sense to switch To the lower rate and use the loan. We do have some house projects as well.
Okay.
So I'm just wondering what makes sense here. Yeah, it's a good question. And I can see how it might look attractive because at face value, we say, well, wait a minute, why would I not swap 24% or whatever that credit card interest rate is for 7%? And maybe it's falling because as rates come down, that HELOC probably has a variable rate. The problem is really twofold.
Number one, you're making unsecured debt secured. And so now your home is on the line.
So I realize we might say, well, I don't plan on defaulting. I mean, I'm going to keep this thing current. And I would say, well, that's great. But what if the unknown, the unexpected comes, there's a disruption in income, a loss of a job?
Now all of a sudden, instead of risking a judgment against you for an unsecured debt, you're putting your home at risk.
So that's the first issue. The second issue is, you know, often when we come in and wipe out the credit card debt, and I don't know what led to the debt in your situation, maybe it was a single event or a medical issue. But if it was like most people and it was just lifestyle spending beyond your means, and I'm not pointing fingers, it's easy to do. We've all been there. Often, when we come in and wipe it out, and we take that pressure off, and we take the deep breath, and you know, we know we got that interest rate down, we just kind of take our foot off the gas a little bit in terms of our being diligent around dialing back spending, living within our means, being content with what we have in terms of income and trying to make the hard choices to balance the budget so that you not only can get through the month, but also have something a little surplus left at the end of the month.
And so, my preferred approach rather than a HELOC for credit card debt is to leave it right where it is and slide it into a credit counseling program with our friends at ChristianCreditCounselors.org. When you do that, the interest rates will drop. It depends on the creditor, but usually somewhere between zero and 10%. And you'll have a level monthly payment, let's say 3% of the balance, except as the balance is coming down, especially with that lower interest rate, that level payment means you're sending a higher and higher percentage of the balance every month. The combination of those two things will help you pay it off 80% faster.
And then the goal is to continue to do the hard work to dial back spending so that once the debt is paid off, We don't ever go back there again.
So, that would be my preferred approach. And then use the HELOC only for those things that are truly going to add value to the home, you know, which is, I think, a proper use for a home equity line of credit. But give me your thoughts on that. Mm-hmm. Yeah, no, I agree with all of that for sure.
I do kind of have a second part that's a little bit unrelated to the first question, but I definitely agree that just swapping the loans just for the interest rate is definitely risky, but it is attractive because obviously with the rate being so much lower.
So like I said, a little bit unrelated, but for our retirement, we basically have a couple rentals. One of them is not making any Um, you know, any gains for us. We're just kind of just, it's just a wash. Um And so I'm wondering, and we each, my husband and I, we each have You know, a little, a small little nest egg in an IRA, you know, one hundred. K and then a two hundred K.
But I and but I've always kind of thought, well, our rentals will be kind of really for our retirement, but we don't have an emergency fund So I guess I'm wondering is the best thing to do would be to like say sell it this spring, sell the one that's not making us any money. And then invest that money in, say, like mutual funds? Or what would be the best approach to get us set up a little better? Uh for retirement. Yeah, it's a good question.
And, you know, the emergency fund is really something that we wouldn't invest. I mean, that's for the unexpected.
So that would be liquid savings personally of three to six months expenses. And then I would say if you're going to be a landlord and you already are, you would want three to six months of rental expenses in addition to that. And so I would say, you know, that would be your primary goal.
So if you did end up selling one, and even though it's not generating any income right now, I mean, if at the very least, it's covering all the expenses, the debt service, the, you know, the insurance, the taxes, the maintenance, the marketing, you know, improvements. I mean, at least you're building wealth by way of, you know, they're helping you pay the mortgage, and it's hopefully appreciating such that you're going to have an asset either to liquidate and invest in retirement to generate income or just to hold and throw off cash. Cash flow that could supplement Social Security and investments.
So I like that. And obviously, there's expenses involved in selling it. But I think the key is, to your point, if you don't have an emergency fund, starting with that personal emergency fund, we are in a bit of a risky situation where, especially with the existing credit card debt, if something comes out of left field, you know, you don't have the ability to handle it apart from adding to the credit card debt.
So in that case, it may make sense to go ahead and sell the one that's not throwing off any income. But if you did that, I would shore up the three to six months of emergency expenses, not in the market, but in a high-yield savings account, and then, you know, maybe fully fund your rental emergency fund. And then at that point, we're looking at: okay, do we start saving for the purchase of another property or do we just start piling any surplus, especially once the credit card debt's gone into further investable assets in like a A stock and bond retirement account. Does that make sense? Yeah, but do you think it's pressing to kind of get on this, like, you know, in the next?
whatever, six months to to actually 'cause In my mind, I'm thinking, yeah, you're correct. It doesn't feel like we're in a very good situation if anything were to happen, either to our renters or whatnot. It's gonna, you know. Yeah, B, we're gonna get hit really hard.
So if we sell it. you know, we have approximately two hundred K equity in there.
So we could use that to pay off That's And um yeah, and and do an emergency fund. And I I guess um Yeah. I guess we're just Well, I think that would be good because you could pay off the debt. Again, as long as you're committed to getting that budget in place and not taking any more debt on, because I wouldn't want you to pay it off. You take a deep breath and you call me six months later and say, guess what, Rob?
The debt's back. I'd want you to really have a plan that gives you confidence you're not going to go back there. You could shore up the emergency fund, but you'd obviously have some left over, quite a bit.
So then at that point, we'd want to evaluate, okay. Do we have retirement plans we could put that into, or do we want to put it right back into a future real estate fund? Let's talk about that after the break. Stay right there, Kara. We'll be right back.
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That's goodinvestor.com. Great to have you with us today on Faith and Finance. In our final segment today, we'll get to as many calls as we can. Before the break, we were talking to Kara in Ohio. Yeah.
That was a combination of Idaho and Ohio. Kara in Idaho, and she has several rentals. They don't have an emergency fund. One of the rentals, they are not really generating any income on. It's basically just breaking even.
And she's wondering, with some credit card debt and the fact that they don't have an emergency fund, should they sell that particular property among their various rentals and shore up the emergency fund, pay off the debt, and then perhaps what is the best thing to do with what remains?
So, Kara, just go back over the access to retirement accounts that you have. What retirement vehicles do you have already in place? Uh we each have an IRA Roth.
Okay.
And what is your age? Uh we're both in our fifties.
Okay, so you could each put $8,000 into the Roth this year. Are you on track to fully fund that currently? Yeah. Okay.
You have until you file your 2025 return to contribute for 2025.
So you could go all the way to April of 26 and still be contributing to 2025. Let's say you were to sell that home. And I'm not saying you necessarily should. I'm just saying if you did, you'd have the ability to do that. Do you have access to any other retirement accounts?
Do you or your husband have one at work or anything like that? Yeah. No, we don't. We just We pretty much depleted the savings and bought the rentals. Got it.
And are you all W-2 employees, or either of you, or are you self-employed? Uh my husband is self-employed. I work just a little bit part-time W-2.
Okay.
Yeah, but you don't have access to a 401k. No.
Okay.
Well, with him being self-employed and with you all being landlords and being in the rental business, you could open what's called a SEP IRA that would allow you to put away up to 25% of compensation.
So you could put away quite a bit more if you wanted to start investing. You know, you've already got the real estate, and let's say you were to sell one, pay off the debt, shore up the emergency fund, and say, to diversify ourselves, we're going to fully fund the two Roths and then we're going to start contributing to a SEP IRA.
So that way we've got the stock and bond portfolios, the three accounts growing, and then we have the real estate growing. And the combination of all of it, you know, is what's ultimately going to be available for retirement. The other option is we pay, we sell the home, we shore up the emergency fund, we pay off the debt, we take whatever's left, put it in a high-yield savings account, and then keep adding to it, and then look to buy another rental property. But now we're in a much stronger position in terms of the process. Of your financial foundation.
Does that make sense? Yeah, yeah.
Okay.
All right. Thanks for your call, Carol. We covered a lot of ground today. Glad you called, though. Call anytime.
Let's go out to Oklahoma. Stan, go ahead. Yes, I was just wondering I've got My 401k, I put 10% pre-tax, 5% post-tax, the 5% is maxed out. But I was wondering with the way that they've changed the laws for the overtime, you know, being tax-free up to $25,000. I was just wondering.
Does it actually benefit me one way or the other, you know, to keep it five percent or should I take in just Roll it over. and put instead of ten percent, fifteen percent. Yeah. Okay, so the is this a 401k that you're putting the money into? Yeah.
Okay.
Yeah, I mean, there was a study done on this where they looked at literally thousands. And basically, tried to determine what is the optimal strategy. Because keep in mind, we've got some unknowns here. And in particular, the main unknown is what are the tax laws going to look like, the various tax brackets during retirement in the future for you? And we just that's that's an unknown.
And so we have to balance the benefit of the pre-tax contribution today, where you get the deduction, with the after-tax contribution where you don't get the deduction today, and potentially during your peak earning years. But you get tax-free withdrawals later and perhaps at a higher tax bracket. Just because not necessarily you're earning a lot because you'd be in retirement at that point, but because there's a new administration and a new Congress and they're raising rates on taxes, and that is a likely outcome in the future.
So they studied thousands of retirement accounts and basically determined that, at least based on the ones they evaluated, the optimal formula was you take your age, you add 20 to it, and that's how much you put in pre-tax, and then you put the balance in the after-tax.
So, if you're 50, you'd put 70% in the pre-tax and you'd put 30% in the after-tax. It doesn't mean that's foolproof, but at least based on their studies, that was what produced the most optimal outcomes. Does that make sense? Okay.
So, you know, you may want to look at your percentages and just see, based on the total dollars going in, how much of that is going into a pre-tax environment, how much is going to an after-tax environment. And if you wanted to apply this age plus 20 into pre-tax, then you could evaluate whether you need to bump that up or down accordingly.
Okay.
Okay.
I appreciate it. I was just wondering I wasn't sure. If necessary with them changing the laws for the overtime, if that would actually really affect Anything Um Because I do go for the twenty five thousand with the overtime and I haven't actually maxed out my 401k per year. But I'm right there at the cusp of maxing it out. Yeah.
Yeah, I mean, the overtime law changes really don't affect whether you would use pretext or Roth. I mean, that really is. Dependent upon taxes, and whether you get more benefit now from the deduction. at a higher earning. Yep.
period Versus you know, getting the tax-free growth later and paying the taxes now. Um Uh you know, I don't really see any necessarily any connection The overtime changes that would affect that one way or the other. It's really just. You know, given the unknowns and given where you're at in terms of what you're earning right now. just trying to find that optimal mix between The pre-tax and the Roth.
I like you having both buckets growing for the future because then you could choose down the road when you're ready to start taking withdrawals to supplement your income, which bucket is more effective given the environment that we're in at that point, which we don't know today.
So I think going back to that percentage, or at least that formula of your age plus 20 and the pre-tax is about as good as you're gonna find in terms of where you go from here. Hopefully that helps. We appreciate your call today. Lord bless you. That's going to do it for us today, folks.
Thanks to my team, Devin, Jim, Robert, couldn't do it without them. Hey, check us out online at faithfi.com. While you're there, perhaps support the ministry by clicking give. Thanks in advance for that. I hope you'll come back and join us again next time for another edition of Faith and Finance.
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