Making Money Work: A Christian Guide For
Personal Finance
Welcome
Debt Management
Copyright 2008 Willie Glenn Page, Inc.
Debt Management
“Live within your income even if you have to borrow
money to do it”—Josh Billings, Humorist 1818-1885 (Charles J. Givens,
Wealth Without Risk, Simon And Schuster, Copyright 1998 by Charles J. Givens, page 97).
Debt Management
While God does not prohibit borrowing, God does discourage it.
Proverbs 17:18—“A man void of understanding striketh hands,
[and] becometh surety in the presence of his friend” (KJV).
“Surety is simply taking on an obligation to pay later without a
certain way to pay it”—Larry Burkett, The Financial Guide For The Single
Parent, Copyright 1997 by Larry Burkett, Moody Press, Chicago, page 218.
Proverbs 22:7–“The rich ruleth over the poor, and the borrower [is]
servant to the lender” (KJV).
Copyright 2008 Willie Glenn Page, Inc.
The Associated Press Poll
Stresses Of Being Buried Under Debt
(1,002 adults, taken 3/24/08-04/03/08, +/or - 3.1% margin of error)
60%
51%
44%
50%
40%
31%
29%
Low Debt Stress
27%
30%
23%
High Debt Stress
15%
20%
8%
4%
10%
4%
3%
6%
0%
Muscle
Migraines
Severe
Ulcers
Severe
Tension
(Headaches)
Anxiety
(Digestive
Depression
(Back Pain)
Heart Attack
Problems)
Which of the following illnesses and other health problems, if any, have you had in the
past 12 months?
Copyright 2008 Willie Glenn Page, Inc.
Debt Management
Principal = borrowed money.
Interest = the amount you pay on principal (borrowed money).
Interest = Principal x Interest Rate x Time.
Copyright 2008 Willie Glenn Page, Inc.
Debt Management
Cardinal rules:
Borrow as little money possible at the lowest interest rate possible and for the
shortest timeframe possible.
Live within your means.
Establish an emergency fund to avoid debt—e.g. $1,000 then 3-6 months
expenses and then 6-9 months expenses.
Practice delayed gratification—save for items and pay cash.
Credit cards—pay the balance off in full each month or consider canceling the
cards in order to control your deficit spending.
Understand the difference between “Good Debt”—helps to build your future
net worth—and “Bad Debt”—diminishes your future net worth.
Avoid “impulse buying”—understand the difference between needs, wants and
desires.
Copyright 2008 Willie Glenn Page, Inc.
Differentiating Between Needs, Wants And Desires
Need
Want
Desire
To drink:
Water
Bottled Water
Cola
To tell time:
Use free available clocks An inexpensive watch-Timex
An expensive watch-Rolex
Transportation:
Use public
transportation
Used car
Copyright 2008 Willie Glenn Page, Inc.
New car—Rolls Royce
Can Drinking Tap Water Make You A Millionaire?
Copyright 2008 Willie Glenn Page, Inc.
Understanding “Opportunity Costs” For Needs, Wants And Desires
MayoClinic.com, The Institute of
Medicine
Recommended Oz.'s (1.057 quarts =
Men
Beverages/Day
3.0 liters
Women
2.2 liters
x
1 liter)
Total Oz.'s
33.824
3
101.472
33.824
2.2
74.4128
Average:
87.9424
Copyright 2008 Willie Glenn Page, Inc.
Understanding “Opportunity Costs” For Needs, Wants And Desires
Recommended
Oz.'s of
Gallons
Oz.'s (128 oz./gallon)
Cost
Cost/oz.
Beverages/Day Days/Year Years In Life
87.9424
365
76
Cost Per Day Cost Per Year Cost Per Lifetime
Household Water Bill--Includes Tap
8,000
Water
Local Grocery Store:
Per Case
1,024,000
Oz.'s
$91.03 $0.0000888965 $0.0078177702
Cost
Cost/oz.
$2.85
$216.86
Cost Per Day Cost Per Year Cost Per Lifetime
Bottled Water
24/9 oz.
216
$5.99 $0.0277314815
$2.44
$890.15
$67,651.56
Cola
12/12 oz.
144
$5.49 $0.0381250000
$3.35
$1,223.77
$93,006.78
Copyright 2008 Willie Glenn Page, Inc.
Understanding “Opportunity Costs” For Needs, Wants And Desires
Need
Want
Desire
To drink:
Tap Water
Bottled Water
Cola
Cost/year = $2.85
Cost/lifetime = $216.86
Cost/year = $890.15
Cost/year = $1,223.77
Cost/lifetime = $67,651.56 Cost/lifetime = $93,006.78
If savings is invested @
8% growth over 76 years:
$2.85 (Need Cost) $1,223.77 (Desire Cost) =
$1,220.92 at 8%/year for
76 years = $5,278,966.47
$890.15 (Want Cost) $1,223.77 (Desire Cost) =
$333.62 at 8%/year for 76
years = $3,848,795.99
Copyright 2008 Willie Glenn Page, Inc.
$0.00 (-$93,006.78 in
opportunity costs)
“Opportunity Costs” is the cost of passing up the next best choice
when making a decision.
Realistically, few people will go through life only drinking tap
water. Few people will be able to invest for 76 years during their
lifetime.
The purpose of this example is to point out how a shift from
“spending on wants and desires” to “spending on needs and then
saving and investing the difference” can have a profound impact
upon your finances.
Your values determine your perception of needs, wants and desires.
Everyone has different values.
Complete The SS44 Values And Spending Exercise (CD-RW).
Copyright 2008 Willie Glenn Page, Inc.
Calculating The “Opportunity Cost” For An Expensive Watch
Using The Rule of 72
Need
Want
Desire
To tell time:
Use free available clocks An inexpensive watch-Timex
An expensive watch-Rolex
e.g. $10,000
The Rule of 72:
At 10% interest, money doubles every 7.2 years.
If a person works 28.8 years, their money should double 4 times.
Copyright 2008 Willie Glenn Page, Inc.
Calculating The “Opportunity Cost” For An Expensive Watch
($10,000 Original Cost)
Using The Rule of 72
1st 7
years
2nd 7
years
3rd 7
years
4th 7
years
$20,000
$40,000
$80,000
$160,000
Copyright 2008 Willie Glenn Page, Inc.
“Compound Interest” Works As A Powerful Ally To Build
Wealth—It’s Antithesis “Bad Debt” Works To Destroy
Wealth.
Example Of Growth/or Decline
Compound Interest: +1 +2 +4 +6 +8 +16 +32 +64 +128 +256 +512
Bad Debt Interest: -1 -2 -4 -6 -8 -16 -32 -64 -128 -256 -512
Pay off all of your “bad debt” as soon as possible—you
will be happier, healthier and wealthier!
Copyright 2008 Willie Glenn Page, Inc.
4 C’s Of Credit (What Creditors Look At)
Collateral— “secured loan”—an asset of value the lender
can take from you if you fail to repay the loan.
Capital—items of value that could be sold to repay the
loan—e.g. investment accounts, your home (in some
states).
Capacity—ability to repay a loan. Income and
employment history.
Character—your credit record. Do you have a history or
paying bills on time.
Copyright 2008 Willie Glenn Page, Inc.
Credit Report—your credit history, a record of your personal financial
transactions. Tells lenders any credit you have, loan amounts, your credit card
balances and limits, history of paying bills. It covers the last 7 to 10 years. It
may be checked when you get a cell phone, buy a car, rent an apartment, apply
for a job, etc. You are entitled to a free credit report every year—correct any
mistakes.
Credit Score—based on the 4 C’s. It is a number that reflects your
creditworthiness at any point in time. The most popular credit score is the
FICO score which ranges from 300 to 850—a score of 680 or more is
considered good.
The 3 main credit reporting agencies: Equifax, Experian, and TransUnion.
Copyright 2008 Willie Glenn Page, Inc.
You may request one “free” annual copy of your credit
report at www.annualcreditreport.com or by calling 877322-8228—sponsored by Equifax, Transunion, and
Experian.
You may get free personal information from
www.Quizzle.com including your credit rating, home
value, budget information, and mortgage information.
Copyright 2008 Willie Glenn Page, Inc.
Order of expenditures per $100.00 of income earned:
1. Tithe (example: 10% to God)
$10.00
2. Savings (example: 10% to your 401K)
$10.00
3. Federal taxes (example: 25% Federal taxes)
$25.00
4. State Taxes (example: 7% to your state’s tax program)
5. FICA Taxes (e.g.: 6.2% Social Security + 1.45% Medicare Ins. = 7.65%;
or self employed 12.4% Social Security + 2.9% Medicare = 15.3%):
6. Balance to spend on other items--employed by others:
Self-employed:
Copyright 2008 Willie Glenn Page, Inc.
$7.00
$7.65
$15.30
$40.35
$32.70
Budgeting
Small children can start with 3 jars labeled “giving”, “saving”, and
“spending.” For each dollar, they put 10 cents in giving, 10 cents in
saving, and 80 cents in spending.
Teenagers might want to use an envelope system similar to the jar
system above for all of their expenditures.
Copyright 2008 Willie Glenn Page, Inc.
Basic Budgeting Beginning Steps
Step 1: List Financial Goals—
• Short-term Goals (one year goals)—e.g. immediately save $1,000 and then
3-6 months expenses and then 6 to 9 months expenses in a liquid emergency
fund account. Take full advantage of employer-matching funds up to the full
“matching limit.” Pay off all credit card debt. Pay off credit cards in full each
month.
• Mid-term Goals (2 to 5 years)—e.g. purchase a used car within 3 years.
Pay off all student loans. Save 20% for a down payment on a home purchase.
• Long-term Goals (over 5 years)—e.g. After maximizing savings up to the
full employer match in retirement savings accounts, invest in a Roth IRA.
Eliminate all debt—car payments, home mortgage, etc.
Copyright 2008 Willie Glenn Page, Inc.
Basic Budgeting Beginning Steps
Step 2: Conduct A Credit Card Debt Analysis
Suggestion: open up the “SS13.a Calculator—Debt Management.xls”
and click on the “Credit Card Analysis” sheet tab to prepare your own
credit card debt analysis.
Copyright 2008 Willie Glenn Page, Inc.
Basic Budgeting Beginning Steps
Step 3: Conduct A Cash Flow Analysis
• Analyze all income and expenditures. Use pay stubs, check books, billing
statements, and any other statements showing money flowing into and out of
your accounts.
• List all “fixed” expenses—e.g. those that have little or no flexibility such as
rent and insurance.
• List all “discretionary expenses”—e.g. those that can be easily changed such
as dining out, entertainment, vacations, hobbies, etc.
• “Total Income” – “Total Expenses” = a “cash surplus” (discretionary
income) or a “cash deficit.”
Suggestion: open up the “SS13.a Calculator—Debt Management.xls”
and click on the “Cash Flow Statement” sheet tab to prepare your own
cash flow analysis.
Copyright 2008 Willie Glenn Page, Inc.
Basic Budgeting Beginning Steps
Step 4: Determine Your Net Worth
• This is a listing of what you own and what you owe. The goal is to increase
your net worth each year.
• Compare your net worth statement each year to prior years.
• Adjust your spending/or saving habits as needed.
Suggestion: open up the “SS13.a Calculator—Debt Management.xls”
and click on the “Net Worth Statement” sheet tab to prepare your own
net worth analysis.
Copyright 2008 Willie Glenn Page, Inc.
Budget
If you are unable to live within your means—
you are deficit spending — you should prepare a very detailed budget.
Use the “Making Money Work SS13 Calculator-Budget.xls” worksheet
for a more detailed household budget (Making Money Work Book CD-ROM calculator).
Copyright 2008 Willie Glenn Page, Inc.
Budget Guidelines
Budget Category
Tithing/Giving
%
10% or >
Of Income
Income - Statutory Payroll Deductions:
Federal Income Tax, Medicare, Social
Security, State/Local Taxes, etc.
Of Income minus
Statutory Payroll
Savings
10% or >
Deductions
Of Income minus
Statutory Payroll
Total Housing Costs
< 30%
Deductions
Of Income minus
Statutory Payroll
Total Transportation Costs
< 18%
Deductions
Of Income minus
Statutory Payroll
All Other Expenses
< 18%
Deductions
Of Income minus
Statutory Payroll
All Other Debt
< 15%
Copyright 2008 Willie Glenn Page, Inc.
Deductions
Steps To Becoming Debt Free
Pray—when you work, you work. When you pray, God works.
Stop accumulating debt. Destroy credit cards if necessary and pay by cash,
check, or debit card. Practice “delayed gratification.” Be happy with what you
have. Do not spend “tomorrow’s money” today. Institute the 24-hour rule: before
buying anything over $50, wait a day to make sure your really need it.
List all of your assets and determine if any need to be sold and the proceeds
used to reduce/or eliminate debt.
List all of your liabilities—know where you stand financially.
Establish a written budget. Analyze spending habits to determine where you
can cut back or eliminate expenses.
Establish a debt-repayment plan. By looking at the debt amount and interest
rates charged, decide which debts you should pay back first. Typically, you save the
most money by paying off the highest interest rate charges first. As each credit card
is paid off, use the savings to pay off the next card(s) until all are paid in full.
Copyright 2008 Willie Glenn Page, Inc.
Steps To Becoming Debt Free
If you have a line of credit with a low rate, you might consider using it to pay
off higher interest rate debt such as credit cards—warning: only do this if you are
certain you can make the payments and do not put your home at risk.
Earn additional income to pay down debt—e.g. non-working spouse gets a job,
working spouse gets an additional part-time job.
Consider an extreme change in lifestyle—e.g. the elimination of non-wealth
producing activities such as luxury vehicles, boats, etc. Moving to a smaller house
with a lower mortgage payment.
Work hard at reducing your debt and never give up—the Lord said, “I am with
you always.”
Support groups such as Debtors Anonymous www.debtorsanonymous.org helps
correct spending habits and stop impulse buying.
The National Foundation for Consumer Credit www.nfcc.org 800-388-2227 offers
free or low cost credit counseling.
Copyright 2008 Willie Glenn Page, Inc.
SS12 Calculator-Liquid Assets Versus Current
Liabilities.xls (Making Money Work Book CD-ROM calculator):
The % of current liabilities to current assets should be less than 50%-for individuals and companies.
SS14 Calculator-Loan Payment.xls (Making Money Work Book
CD-ROM calculator):
Exercise:
Given the following:
You wish to purchase a car. It cost $5,000. You have a 20% down
payment. There are 12 payments per year at a 12% interest rate. Your
loan is for 36 months.
How much are your monthly payments?
What are your total payments over the life of the 36 month loan?
How much will you have to pay in interest charges over 36 months?
Copyright 2008 Willie Glenn Page, Inc.
Most lenders use scores calculated by Fair Isaac Corp.—uses a formula
with 22 pieces of data. Scores range from 300 to 850. They predict how
likely you are to pay bills on time.
www.myfico.com
Chance of defaulting within two years, by credit score
Credit Score
Chance of defaulting within
2 years
Credit Score up to 499
83%
500-549
70%
550-599
51%
600-649
31%
650-699
14%
700-749
5%
750-799
2%
800+
1%
Consumer Report: A person with a credit score of 720 and up would be eligible for a 5.55% interest rate on $150,000
30-year mortgage and a $856 monthly payment. Someone with a score of 620 to 674 could pay $1,034/month for the
same loan.
If you are in the 580 to 620 range, you will probably still qualify for a mortgage loan, but at a higher rate.
How Does Your Credit Score Impact You Financially?
Example Of Average Amounts People With Various Credit Scores Would Pay
For A 30-Year Fixed $200,000 Mortgage Loan
FICO Score
APR
Monthly Payment
Total Paid*
720-850
5.933%
$1,191
$428,580
700-719
6.059%
$1,207
$434,411
675-699
6.601%
$1,277
$459,882
620-674
7.760%
$1,434
$516,314
*Numbers do not include property taxes, insurance, or points--only interest paid + the
$200,000 borrowed. Example is based on 2008 APR averages.
Copyright 2008 Willie Glenn Page, Inc.
Luke 19:8-10—Zacchaeus said to Jesus “‘Here and now, sir, I
give half my possessions to charity; and if I have cheated anyone,
I am ready to repay him four times over,’ Jesus said to him,
‘Salvation has come to this house today!”’
Romans 13:7-8--“Discharge your obligations to all men; pay tax
and toll, reverence and respect, to those to whom they are due,
Leave no claim outstanding against you, except that of mutual
love.”
Debt is a burden affecting not only your living, but also your
giving.
Debt prevents you from being able to give everything God
intended for you to give!
Copyright 2008 Willie Glenn Page, Inc.
Please complete the “Chapter 4 Debt Management--Extra Learning
Module” (CD-RW).
Copyright 2008 Willie Glenn Page, Inc.