Monthly Archives: April 2012

Monday AM Launch, Fear and Love of Money

This week’s financial devotional verse is Hebrews 13:5-9

Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.” So we say with confidence, “The Lord is my helper; I will not be afraid. What can mere mortals do to me?” Remember your leaders, who spoke the word of God to you. Consider the outcome of their way of life and imitate their faith. Jesus Christ is the same yesterday and today and forever. Do not be carried away by all kinds of strange teachings.

Fear and the love of money seem to be juxtaposed in these verses, making the reader wonder.

  • Free from the love of money: when we love something, we have a passion for it, for in our heart we are drawn to it, tied to it, and can’t live without it. We want more of the things we love, because of how it makes us feel, and sense that more is only better. Some even fear they won’t have enough money to satisfy them.
  • Be content with what you have: this is a foreign concept for the American diet of be all you can be, going for the gusto and the constant stream of the latest models coming to market daily, as evidenced by the public’s appetite for the latest and greatest iPhone.  When we aren’t content, we fear what life will be like in the void.
  • Never will I leave you;  never will I forsake you: God indicates that he is enough for us, that his presence in our lives satisfies us more than money or anything that we hope would bring us safety and contentment.
  • The Lord is my helper; I will not be afraid: Sometimes it is easier to have faith in the things we can see, like money or our careers- tangible things. It is difficult to let go, and walk in faith. I can do so, without being afraid because I know he is my helper.
  • What can mere mortals do to me? Remember your leaders, who spoke the word of God to you. Consider the outcome of their way of life: Millions of men and women of excellent faith have come before me, they walked the same walk of faith and contentment, and the outcome of their life, either in this life or the next was glorious. That is the evidence and promise I have, and he and his promises don’t change: Jesus Christ is the same yesterday and today and forever. 
  • Do not be carried away by all kinds of strange teachings. In the course of life we will encounter wonderfully sounding financial teachings, either in seminars, books or on the internet. We must be careful to stay on the path, not to let fear creep in when things don’t seem to be happening quickly enough, and not carried away by something that makes it sound like there is a better easier way.

Uptick in Jobless Claims

Source: Wall Street Journal 4/27/12 and http://ycharts.com/

The past several weeks has shown some slight increase of those making claims for unemployment benefits, from 375,500 from 2 weeks ago to 381,750 last week. This is a 4 week rolling average that peaked at over 600,000 in 2009. In 2010 we saw a decrease from nearly 500,000 early in the year to the low 400,000’s, in 2011 the claims were in the low to mid 400,000’s but since October of 2011 they have been below 400,000. This uptick since the end of March may illustrate slow economic growth, but probably not a double-dip recession like we saw hit the United Kingdom this month.  To put this into historical perspective, the lowest we have seen this rate in 10 years is 282,000 in January of 2006, and the earlier part of the last decade we saw the average similar to what we are seeing now.

Social Security Will Go Broke in 21 years

Source: Wall Street Journal 4/24/12

Reported yesterday that earlier estimates were 24 years, but now 21 years. If reserves for disability benefits were combined with retirement, reserves would be exhausted by 2033. Social Security and Medicare account for 1/3 of the federal budget. If the trust funds are not replenished, then benefits would be reduced by 25%.

Everyone should be concerned about this, even those that are already retired, since people are living much longer these days. 

Year of birth Full retirement age (FRA) Your Age this Year Years to retirement FRA Year of Retirement Age Soc Sec Reserves Exhausted (2033) & benefits could be reduced
1941 65 71 0 2006 92
1942 65 70 0 2007 91
1943 66 69 0 2009 90
1944 66 68 0 2010 89
1945 66 67 0 2011 88
1946 66 66 0 2012 87
1947 66 65 1 2013 86
1948 66 64 2 2014 85
1949 66 63 3 2015 84
1950 66 62 4 2016 83
1951 66 61 5 2017 82
1952 66 60 6 2018 81
1953 66 59 7 2019 80
1954 66 58 8 2020 79
1955 66 & 2 m 57 9 2021 78
1956 66 & 4 56 10 2022 77
1957 66 & 6 m 55 11 2023 76
1958 66 & 8 m 54 12 2024 75
1959 66 & 10 m 53 13 2025 74
1960 67 52 15 2027 73
1961 67 51 16 2028 72
    MoneyEducate.com

A lot of people wonder if Social Security will actually go broke, and not be able to provide them with benefits. I am doubtful this will happen, given that seniors represent the largest voting block, so politicians are always very concerned about their votes. We will have to see either rapid growth in GDP or most likely  increased taxes, reduced benefits, lower or no the inflation increases and older Full Retirement Ages for younger workers, to secure these benefits. Due to the recession, declined stock portfolios, many people have much lower retirement savings and will be depending upon Social Security for a major part of their retirement. This issue is going to continue to be a hot one.

Monday AM Launch: Giving

For this morning’s devotional, I am using an excerpt from The NIV Stewardship Study Bible:

“God created both soul and body, and the resurrection of Jesus shows that he is going to redeem both the spiritual and the material. Therefore God is concerned not only for the salvation of souls but also for the relief of poverty, hunger and injustice. The gospel opens our eyes to the fact that all our wealth (even wealth for which we worked hard) is an unmerited gift from God. Therefore the person who does not generously give away his or her wealth to others is not merely lacking in compassion, but is unjust. Christ wins our salvation through losing, achieves power through weakness and service and comes to wealth through giving it all away. Those who achieve his salvation are not the strong and accomplished but those who admit they are weak and lost. We cannot look at the poor and the oppressed and callously call them to pull themselves out of their own difficulty. Jesus did not treat us that way.The gospel replaces superiority toward the poor with mercy and compassion… Indifference to the poor and disadvantaged means there has not been a true grasp of our salvation and grace.” (NIV Stewardship Study Bible. Grand Rapids, MI: Zondervan, 2009. p 635.) 

I think that this describes the heart of giving so well, giving emulates Christs model of behavior, giving redirects the focus of wealth from our selfishness, giving extends love and salvation to the poor and disadvantaged, and last but not least giving is in response to the grace we have been given, hope we have in and love for Christ.

I know that my redeemer lives, and that in the end he will stand on the earth. And after my skin has been destroyed, yet in my flesh I will see God; I myself will see him with my own eyes—I, and not another.  How my heart yearns within me! Job 19:25-27

God, I want to buy _______, is it okay?

Is there something you want to buy for yourself?  Now that the weather is nice, would you like to buy something that you don’t need, but is a pure want?  How about a convertible or a motorcycle to enjoy the fresh air and sunshine. Wouldn’t a new Ping driver be nice to tee off with at Saturday morning’s golf outing. I would love a fancy new mountain bicycle to hit the trails with tomorrow morning at day break, or a boat or jet ski to hit to lake with.

Christians are afraid to ask God if it is okay to take the money out of savings to purchase the item, what if God says no, we don’t want to hear that. I friend of mine said a good question to ask ourselves; where are we resisting the Spirit?  We often do it by turning a deaf ear to him, when we don’t allow him in to our financial decisions.

What would be some good questions to ask yourself prior to buying a new shiny want:

  • Are we tithing on all of our income?
  • Will we go into debt if we purchase it?
  • Have we paid off the debt from the last purchases, in other words are we carrying a balance on our credit cards or have outstanding car loans?
  • Have we looked at our cash flow plan for the month and year, and have we overspent in any areas beyond our limits?
  • If we purchase this item and use savings, will it deplete them under safe levels?
  • Are there things my family needs instead like food and clothing?
  • If married have I talked and prayed about it with my spouse?
  • What is our motivation for the purchase, is it practical or emotional?

You may be asking yourself; why all the deliberation, if I have the money why shouldn’t I just be able to go out and buy it?  Are we approaching the purchase as stewards or consumers, do we believe that:

Okay, lets say we passed those two rounds of questions or scriptures, the next few questions can be thought provocative:

  • Have we asked the Master, what He wants us to do with the Master’s money?
  • Will the item we want to purchase contribute to the Kingdom?
  • Will it be another thing for us to maintain?
  • Will owning this thing provide the opportunity to draw us closer to Christ, or to others he wants us to be in relationship with?
  • Is there danger associated with the item, and are we being a good steward of our holy temple by purchasing it?
  • Have we shopped around and found the very best deal?

Howard Dayton of Compass Ministries has listed extensive Bible verses about our role with money, I find them very convicting to read when considering this subject. What do you do when you want to purchase something that you don’t need, but really want it?- I would love to know your experiences.

Benchmarking Asset Allocation Investment Performance Results Using Indices

My article entitled The Asset Allocation Style of Investing, highlighted this method of investing made popular from the study by Garry P. Brinson, Brian D. Singer, and Gilbert L. Beebower that found that over 91% of long-term portfolio performance is derived from the decisions made regarding asset allocation, and not market timing or security selection.

In that article I compared 5 fictitious model portfolios to help demonstrate different risk levels: very conservative ‘Volvo portfolio’, conservative ‘Lexus portfolio’, moderate ‘Acura portfolio’, aggressive ‘BMW portfolio’, and lastly the very aggressive ‘Porsche’ model portfolios – each investing in a different mixture of cash, bonds and stock, as well as different allocations of large, mid and small cap stock and foreign stocks.

Benchmarking
The chart below provides historical rates of return for each asset allocation model from the article, based upon the respective indices. Investors should take into consideration expenses and timing and have a healthy historical perspective.

The Expense Factor

The table below compares the GROSS rates of return that you would have earned in any of these portfolios if you invested in index funds that held investments identical to the index. Gross rates of return are before any expenses, such as:
* Mutual fund management fees and expenses
* Taxes
* Commissions
* Transaction costs
* Financial planner’s management fee

Timing

In order to have earned these rates of return, you would have had to invest at the same precise time of the time period represented. Fluctuations in the market can make a drastic difference in your actual rate of return, so if you invested a lump sum of money on a day that the market was down or up, or you invested each month (perhaps using dollar-cost-averaging), you may and will experience quite a bit different results than illustrated here.

Historical Perspective of Indexing

Index fund investing (passive) has been popular because people hear in the media frequently that a majority of actively managed mutual funds do not consistently beat their respective index.

Actively managed mutual funds usually have higher expenses, thus making it more challenging for them to out perform their passive brethren. However, investors may want to consider looking for mutual funds that beat the indexes (net of expenses), they might even find some that have a lower risk (volatility) than their index.

The preference to invest in index funds is a fairly recent phenomenon. Now you can even invest in ETFs or exchange traded funds, a hybrid of index investing that has emerged in the last several years. The charts below illustrate returns all the way back to 30 years, however index funds and ETF’s didn’t exist for each of the indexes used to make these calculations back that far.

Past Performance an Indication of Future Performance?

Anyone who as ever glanced at any financial product advertising or literature will see “Past results are not an indication of future performance” pasted all over the place. This sentence is required by the security industry’s regulating authorities and it is very true. However in order to make intelligent decisions, historical information is very useful for comparison purposes, in addition to a lot of other financial information including your own personal financial plan.

The Indexes

The indexes used to compile the historical rates of return are below. Keep in mind there are dozens of different indices. These ones many feel most closely represent the benchmark for each category. There is some differing of opinion in the investment community as to the best indices that should be used for benchmarking.
* Cash – Money Market (3-month CD
* Intermediate Long Bond – Lehman Bros Aggregate Bond
* Large Cap Value — S&P 500
* Mid Cap — Russell Mid-Cap Index
* Small Cap – Russell 2000
* International Equity – MSCI EAFE Equity Index.

Historical Rates of Return as of 2/29/2012
Portfolio Model ‘Volvo’ ‘Lexus’ ‘Acura’ ‘BMW’ ‘Porsche’
Model Type Very Conservative Conservative Moderate Aggressive Very Aggressive
1 year 4.97 4.18 2.75 2.29 1.44
3 year 14.40 16.86 18.53 21.38 24.00
5 year 3.78 3.14 2.09 1.66 1.05
10 year 5.26 5.31 5.13 5.30 5.46
20 year 6.97 7.11 7.05 7.46 7.74
30 year 9.48 9.81 9.86 10.32 10.68

If you do your own investing – active or passive or hire someone to invest for you, it is prudent to make sure that you are doing as good as the benchmark. The benchmark is a minimum expectation of rate-of-return that you should be achieving. It is a way to hold yourself or your investment advisor accountable. It is important that you know why your investments are either not doing as well or much better than the benchmark. Either could be cause of concern: it could be merely a timing issue or it could be because your advisor made a mistake or is not doing their job. It is important that you are in the know and asking the right questions, and getting the right answers.

Asset allocation investors do not just invest in funds similar to the S&P 500 or the DOW (the most common benchmarks), therefore they should compare their results to aggregated benchmarks that include indices that closely match their allocations.

The Asset Allocation Style of Investing

There are four ways to invest money, and the most boring way works best for most people: Asset Allocation.

The other three ways to invest: strategic asset allocation, market timing or picking stocks are more sexy. Next time investing comes up at a cocktail party you will be sure to hear someone touting their get rich quick hot stock. When interest rates soar, or stocks drop you may even hear someone brag about how they got in or out at just the right time, or used some type of ‘option’ strategy and made a bundle. You will see people interested in these types of conversations, because many people’s investment portfolios have not performed well.

Most people are not good at picking stocks, even with the internet and greater access to information than ever, there are too many stocks and too little information about each one – and it gets outdated quickly. People are emotional. Even if they pick good ones, they often sell them at the wrong time, because their fears overtake their ability to objectively make decisions.

Market timing always becomes popular when the stock market drops, and people see their account values dropping as they are now. No one has consistently shown the ability to predict markets or securities. To win you have to have 60% accuracy just to cover the losses caused by mistakes of the other 40% – because of transaction fees and taxes. You have to be correct in all four decisions: what/when to buy and when/what to sell.

In the last decade of poor stocked market returns, some investment advisers have questioned the validity of asset allocation, and have come out with hybrids of it, or some kind of strategic approach using various computer driven modeling tracking numerous factors. Some of these approaches look promising, and they should be looked at, but they don’t yet have long term track records.

You are sure to put a damper on a party conversation by mentioning ‘asset allocation.’

What is asset allocation? It is the method of investing based on the study by Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower in 1991. They found that over 91% of long-term portfolio performance is derived from the decisions made regarding asset allocation, and not market timing or security selection. This traditional buy and hold method is boring – but it works.

When you asset allocate you invest a portion of your money into each of the major asset classes: Cash, Bonds, and Stocks. When it comes to your stock portion you split or allocate it into Large Cap, Mid Cap, Small Cap and Foreign Stock.

If you are conservative you allocate a greater percentage into cash and bonds and large cap stock. If you are aggressive your allocation has less cash and bond and more mid, small and foreign stock. Aggressive allocations will probably have a better rate of return over time than going conservative, but will be the most volatile, meaning your values will fluctuate up and down more. You can pick a model like the ones below or take a quiz utilizing software to help identify your tolerance for handling risk.

I have designed 5 fictitious model portfolios to help demonstrate different risk levels. I call the most conservative the ‘Volvo portfolio’. The ‘Volvo portfolio’ fits you because you want something solid (good rate of return) and protection from market risk. The ‘Lexus portfolio’ is for those you are conservative but want more speed (little better rate of return), but you still like a smooth ride. The ‘Acura portfolio’ fits those who want a little more sport (higher rate of return), and are willing to encounter a little more risk. Riskier investors may choose the ‘BMW portfolio’, to get great performance (higher rate of return), and because they can tolerate tricky roads (a lot of market fluctuation). Lastly, the ‘Porsche is for those who want maximum performance, and whose nerves can tolerate the riskiest of roads. This fictitious demonstration was done with premium cars, because investing with asset allocation over the very long term will hopefully position you to be able to eventually afford one. In conclusion, neither of these asset allocation models would be considered at the upper end of the high risk continuum. As you progress from conservative to aggressive asset allocation models, you increase your probability for volatility and rate of return, but not by wide margins over the long term.

Monday Launch: The Hunger Games

Scripture Verse: Colossians 3:23-24 Whatever you do, do your work heartily, as for the Lord rather than for men, knowing that from the Lord you will receive the reward of the inheritance. It is the Lord Christ whom you serve.

I’ve now seen the movie the Hunger Games, having read the book last year. Pretty entertaining reading and watching, mainly because it is much more creative and different from most formula novels, and a unique intertwining of science fiction and fantasy during a post-apocalyptic world. The movie was a little difficult for me to watch due to many close up shots, choppy editing, and the moving camera style of movie making- I got a headache. After about a half hour either I got used to it, or it was toned down. Children on children violence is always hard to take. I sometimes recall Todd Rundgren’s lyrics from The Wheel “if kids were left to their own devices would they ever come up with a thing like war? Having been around many small children, I have little doubt that they would: Cain killed Abel so many years ago. True just hard to watch.

Without giving anything away, one of the central themes is a war like contest, and the winner becomes rich. The majority of people are living in squalor where food is scarce. Lately it has been on mind who we work for when we go to work each day, week, month, year and decade. I worked in private industry either self-employed or for a company most of the last 30 years, only lately in a full-time ministry capacity. Whatever you do I think it is always a great question to ask yourself: who or what do you work for? In the Hunger Games, they either had laborious tasks like mining, or they were literally fighting for food. Do you work for your boss or your company? Do you work for money for what it brings? If you are self-employed do you work for yourself or your company? We must serve our company and clients well, or we will lose our job, or our company will eventually go out of business, but is there more?

Sometimes retirement is that day we look forward to being free of employment, when the tension of time clocks, deadlines, and satisfying corporations and bosses is gone. We yearn for that day, but we don’t have to, thinking of Colossians 3:23-24 Whatever you do, do your work heartily, as for the Lord rather than for men, knowing that from the Lord you will receive the reward of the inheritance. It is the Lord Christ whom you serve. Whatever we do, we are to do in service to the Lord. The first thing that comes to mind, is that it is even harder serving God then working at my job, for God seems to be a real task master, but that couldn’t be more wrong: Take My yoke upon you and learn from Me, for I am gentle and humble in heart, and you will find rest for your souls. For  My yoke is easy and My burden is light.” Matthew 11:29-30

Lord help me to walk with you today and serve you joyously, for you are gentle, humble and love me. Let my life be a blessing to you.

Ohio Unemployment Compensation New Guideline

The Ohio Department of Jobs and Family Services (ODJFS) is notifying current and past recipients of unemployment compensation, the regular requirement to apply for 2 jobs per week is staying the same, except that recipients of unemployment compensation must keep a written record of actions taken including employer’s name and address, method of applying for work, type of work sought, dates of contact and the outcome of each contact. When they file each week for their weekly check, there will be new fields on the weekly claim form requiring entry of weekly job contact information. The Agency is informing unemployment compensation recipients that they are now conducting more frequent audits, and the written records you are required to keep may have to be submitted.

Austerity- Rarely Used, but Great Word

Merriam-Webster named Austerity as the word of the year in 2010, but these days it isn’t a word we use often. Dictionary.com defines it as 1. austere quality; severity of manner, life, etc.; sternness. 2. Usually, austerities.  ascetic practices: austerities of monastery life. 3. strict economy. I like the definition of Financial Austerity from Wikipedia: is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.

JesusMoney.com’s definition:

Family austerity: change in fiscal policy of a family to substantially reduce spending in response to: 1. deficit spending (spending more than one earns), 2. excessive debt, 3. unfortunate circumstances (e.g., job loss, investment reduction), 4. negative economic factors (increase costs of food and gasoline), in an effort to ultimately avoid bankruptcy, lower financial stress, re-pay all non-mortgage debt, build wealth and give. The non-financial consequences of austerity are enjoying less wants, but enjoying maturity, more quality time with good friends and family and spiritual growth.

Unscientific numerical and graphical result I imagine would look something like the following, the percentages could be adjusted according to severity of deficit and mathematical proximity of bankruptcy:

75% Reduction in expenses

  • Entertainment such as eating out, movies and spectator events
  • Vacations and travel
  • Extra children’s activities
  • Regular new clothing
  • Gifts

75% Increase in investments

  • Debt reduction
  • Possible mortgage or car loan reduction through downsize or refinance
  • Savings

100% time increase for activities

  • Budgeting and expense tracking
  • Spousal financial meetings
  • No/low-cost family activities
  • Prayer about personal finances
  • Taking financial courses and reading financial books
  • Receiving counsel

100% increase in personal growth

  • Maturity
  • Spiritual growth
  • More joy, happiness and contentment
  • Closer family relationships
  • Financial skills passed on to children

If you charted this on graph it might look something like:

Monday AM Launch: The Matrix

The Matrix was a movie that was released in 1999, and was quite controversial. Staring Keanu Reeves, it borrowed heavily from religion, philosophy and Lewis Carroll’s classic Adventures in Alice’s Adventures in Wonderland. If you like science fiction you would probably like it, and you know all about it, but if you don’t like that type of fiction the movie probably wouldn’t appeal to you. Some found the movie profound, some Christians didn’t like it all.

The essential theme of the first movie (there were two sequels), was that people lived in two systems, one that was real where truth was revealed aboard their ship the Nebuchadnezzar, and one that was made up and lived through a computer network called the Matrix where most people lived.

A Dave Ramsey Financial Peace University Class, break out discussion group member commented a few days ago, that living with wisdom in finances while being surrounded by friends and co-workers who were not, was kind of like living aboard the Nebuchadnezzar.

I think Dave Ramsey’s greatest quote of all time “Live like no one else, so that you can live like no one else,” has timeless profound truths.

You may have heard someone refer to a Bible verse something to the effect, “be in the world but not of the world.”  However this isn’t a direct quote of one particular verse, but combining the ideas of several verses; John 8:23, 15:19 and Romans 12:2.  Many have interpreted these verses and others to mean that Christians should live in some kind of quasi isolation, and look forward to the day when we can leave this corrupt world behind when we go to heaven. However Christ’s teachings are quite a bit different. In John 3:16 we know that God loves the world, and I pretty sure that means all of the good things that he created, and we are to look forward to the day he re-creates the new earth that we will inhabit.

The tension that we feel, the peace that often is hard find, may be a result that in our minds we ‘get it’, we understand to a degree of the life Christ wants us to live, yet we feel the pull and are surrounded by a culture that doesn’t have the mind of Christ. We try to have the best of both worlds. Some of us do a better job of managing both than others.  The main example of this is debt.  The world’s economies and personal finances are bound up tightly in debt. In part for some of us, it is because we can’t wait for what we want, so we borrow. When we live like no one else, we do without many wants, we give now not waiting for abundance.

And do not be conformed to this world, but be transformed by the renewing of your mind, that you may prove what is that good and acceptable and perfect will of God.”  Romans 12:2

In our finances, perhaps more than most other areas of life, we can practically try to live out the walk Christ intends for us. The one where we are stewards, givers, savers, and content instead of consumers, accumulators, borrowers, and being anxious for what we don’t have.  Lord transform and renew my mind and help me to live life the way you have intended.

Stock Act Signed Into Law, Finally!

The Stop Trading On Congressional Knowledge, or Stock act was signed into law yesterday April 4th, 2012 by President Obama, prohibiting members of congress from buying and selling stock based upon inside information. It is about time that this was passed, given the 6 years the bill has been worked on and the opportunity for corruption it created for decades. The bill definitely stalled, but was recently given new life when 60 minutes featured it.

The law preventing everyone from investing based upon inside information has existed for decades, but congressman strangely were conveniently exempt from the law. This was political hypocrisy at the highest level, when members of congress had exempted themselves from law that effected everyone else, just so that it would provide them the opportunity to obtain wealth.

Before this law many congressman and women became millionaires trading on information that only they and few others had knowledge of, sometimes because of private committees that they were a part of. Some of these congressman and women probably crafted law and based their votes on the law knowing that it would provide them the opportunity to profit directly in their own investment portfolios. The corruption went further, when you consider there have been reports that some of the inside information was leaked to hedge funds. Many hedge fund’s investment minimums are so large that only the wealthy can invest in them. These are examples of congressman, their hedge fund friends and clients, and businesses that benefited, colluding using their political power to become wealthy or to add to their wealth. The gulf between the rich and the poor has expanded in recent years, is it any wonder that it has when you consider the special advantages afforded to a select few. Hopefully this is not the end of the story, I would love to see a reporter with courage to dig into the corruption further to trace who benefited from insider trading; the truth would be embarrassing to both political parties.

How to Break the Pay-Day Loan Trap

A lot of people are stuck in a cycle of using Pay-Day and Checking Cashing stores, and they don’t know how to get out of them. First let’s understand how they work to both help people then trap them in an ever ending cycle of debt and pain.

  • Loan is given, equal to one or two paychecks, and is automatically deposited into checking account
  • Borrower uses those funds for things like food, utilities, rent and gasoline and there is no money left in checking account
  • Paycheck is deposited from the employer automatically into the employees/borrower’s checking account
  • A few days later the pay-day advance company is repaid back for a portion of the loan amount, through an automatic checking account draft, the amount re-paid sometimes equals the paycheck, plus a fee (very large fee when you compute it as interest) so the person is often left with no money for the next round of bills they owe
  •  The cycle repeats itself, the borrower is going to be short again, so they receive the loan, sometimes automatically, then repeat the above

Question:    I need the money to pay my bills, how can I stop the cycle?

Answer:       The keys are for your expenses to be less than your  income each month, and for you to have around $500 extra as a cushion for things that fluctuate a little bit like for food and gasoline, so that you are not bouncing any checks or tempted to go to the pay-day-loan store for an advance on your paycheck. Then you want to have at the minimum $1,000 emergency savings in your savings account that is only used for dire emergencies. Make sure that you look at your expenses and cut everything or substantially reduce all unnecessary expenses until your income exceeds your expenses. After you have your savings established, use all disposable income to ‘snow-ball’ debt until all non-mortgage debt is eliminated.

Once you don’t need the pay-day advance cancel it, and all automatic checking account deposits and drafts so that no more money flows to or from the check advance place.

 

Question:    I don’t make enough money, how can I break the cycle?

Answer:      Get second jobs, sell things- do whatever you can to pay the loans off.

 

Question:    I’ve done all of that and I can’t get ahead, what should I do?

Answer:      Cancel the automatic checking account draft, so that they can’t pull the money from your checking account. Sometimes they are uncooperative, and you have to get tough. Sometimes you need to give them a 10 day or so lag time.  If all else fails contact your bank and discuss with them cancelling the draft on the banks end before it hits.  Some people cancel the bank account, but you might be faced with bounced check and other service fees. Make sure you contact the lender to arrange a monthly payment plan that you can afford, until it is repaid

Diamonds the New Gold?

There is a commercial running now advertising investing in diamonds instead of gold, touting “diamonds the new gold.”. Many people have lost interest investing in gold, since the price has dropped to around $1,600 per ounce from a high of a $1,895 in September of 2011. Unlike gold, for the average consumer there isn’t a readily available market for pricing and selling diamonds. The pricing is set by a few large companies like De Beers. Jewelry grade are those that are finished and polished or rough stones, however they don’t have the attributes of other desirable investments, since they lack liquidity and fungibility. Fungibility is important, using gold for an example, gold of the same carat weight is gold, but with diamonds there will be great diversity of size, color, clarity and cut- no two diamonds are identical.  If you invested in diamonds and wanted to sell them quickly, you have to find a willing buyer, which is hard to do. Jewelers won’t buy them from you unless than can mark them up and make a profit, and the company that bought them from you may guarantee that they will buy them back, but will not guarantee the price. Investors should stay away from direct investments in diamonds, but if they have an interest may want to investigate companies that mine or supply them.

Monday AM Launch: Faith and Finances

Today I wondered what role does having daily faith in God play in managing finances?

You are either struggling to have solid finances or your finances are pretty solid. If you are struggling and fighting back you may be challenged with life: job loss or cut back in income, lost health insurance or just a much bigger deductible, increase in expenses because gasoline and grocery prices have gone through the roof. A lot of people in financial difficulty are really committed to getting out of debt and living on a budget.

When we began the journey back to financial health, we cried out to God for help. When difficulty comes our way, we ask God for miracles. When we try to be Godly stewards, we pray for God to help us control spending and give us perseverance for stick-to-itiveness to the important daily personal finance habits.

What happens? Life happens: things break, we make a mistake and we get discouraged, then we go through a whole host of emotions of self and God doubt- our faith weakens. This is where long-term faith comes to play. This is where the proof is in the pudding: do we believe just at the beginning when we have new found faith and excitement or when the road gets rough. For most the road will have bumps in it, the key is to have a contingency plan when that happens. First of all, know at the outset that life will throw your curveballs and you will make mistakes; we are fallen human beings after all, the important part is that you know what to do when it happens, to get you out of your dump, or to lower the emotional toll so that the bump doesn’t put you in the dump, but you spring back and stick to your original plan.

You know how it feels when you buy something that you really wanted and find out later that you really didn’t need it or couldn’t afford it. I hate that feeling when the guy from the auto repair shop calls me to report that I need a $750 repair. I’ve worked hard to make improvements to my finances; I’ve saved money in my emergency fund, now I wonder whether if it was all worth it. My faith is weakening. I have a choice now to give up or continue believing.

Do you wonder if this is a test from God (maybe), punishment from God (this is extremely rare). We wonder where God is; why didn’t He prevent this from happening, can’t he see that we are being great stewards and trying really hard most of the time?

Here’s the deal, there are two sides to the faith and finances coin: spirit and obedience. The role of the Holy Spirit is seldom spoken about in Christian finance circles. Jesus promises us that he would send us a counselor (John 15:26), helper and guide before He was crucified. He wants us to get finances right and have them good most of the time, and He knows how hard it is and how much help we need. The Holy Spirit is there to lift us up, encourage us, and make it through difficulty. He is there to guide us through financial decisions, and be content when we don’t have everything or when we do. He helps us fight the Accuser (Revelation 12:10) when we are down.  All this and so much more, including the miraculous blessings that come our way sometimes. During difficulty and good times, we need to remember, have faith and call out to the Holy Spirit for help and comfort. While still faithfully obeying wise financial practices that God has laid out for us.

Spirit and obedience are intimately linked, but not the way most American’s in their performance mindset consider them to be. God is not formulaic; there is no prosperity formula in the Bible anywhere. There is no promise that good Christians won’t suffer, in fact there are several verses that say we will. So what do we do when bad things happen to us financially and we have done all of the right things? Do we doubt God, give up? No we rely on the Spirit to guide and comfort us during difficulty, and we ask for him to help us live lives of integrity regardless of our circumstances. We remain obedient to Him because we love Him, not because it will always lead to our present good outcome. God’s plan more often than not will put us in a good financial state, but our faith is not dependent on performance or outcome, although we are wired that way. For God has so much for us than that.  Philippians 2:13 is a good scripture to meditate on to help us get our bearing right; for it is God who is at work in you, both to will and to work for His good pleasure.

Lord help me to walk the walk of faith in finances and stewardship.