Budgeting and Debt Reduction

1. Budgeting and Debt Reduction Responsible Stewardship of God’s Great Gifts January, 2009. January, 2009.

2. Personal Finance Workshops Budgeting and Debt Reduction Saving and Investing Personal Financial Management Stewardship Charitable Giving

3. Our time today… Consumer Trends The debt crisis Causes of debt Budgeting Budgeting and debt reduction tips Let’s take a look at what we are going to cover today… Read the Agenda points… Let’s take a look at what we are going to cover today… Read the Agenda points…

4. Consumer Trends Today 10 years general prosperity up to Sept. 2008 70,000 full time jobs disappeared in Dec alone Canadians are awash in debt: Canadian household debt at all-time high at $1 trillion in 2006 Interest on debt: 1984 = $6 billion 2003 = $22 billion Average total household debt = 127% of household income Savings: 1980’s =20.2% at highest point; 2005 = 1.2% The Debt Cycle: The past 10 years or so has been a prosperous time. Housing prices have steadily increased; the economy has generally expanded; we have never had such a strong employment picture; Yes there have been closures and jobs lost but they have been more than replaced with lots of new jobs being created.   All this with a backdrop of low inflation (2-3% per year) and low cost of borrowing.   But how has this happened?  Our prosperity as an economy has been built on consumer spending.  The more people spend – the more goods are needed – the more jobs are created – the more spending that people have – and so it goes.   A virtual cycle.  The problem is that Canadians are not just spending what they make – but they are borrowing by generously using their credit cards and increasing their consumer debt.   In order for the good times to continue, we need to continue to spend – even if we do not have the money!  Marketers and advertising agents see it as their job to ensure that we confuse our needs with our wants and let our emotions and desires rule the day!    So what is the result: CANADA IS AWASH IN DEBT:  Consider these Stats:   We have all received frequent credit card offers in the mail, often more than one in a single day!   Why????? Because they know you will get “hooked” on debt – and they will make money 18% - 23%!!!!  Lenders together with consumer product marketers make it easy for you to spend  beyond your means. The result for many is overwhelming debt which may lead to bankruptcy.  Bankruptcies: 1989 = 29,000       2003 = 84,000 2006 = 85,974 (personal: 79,218; business: 6,756)The Debt Cycle: The past 10 years or so has been a prosperous time. Housing prices have steadily increased; the economy has generally expanded; we have never had such a strong employment picture; Yes there have been closures and jobs lost but they have been more than replaced with lots of new jobs being created.   All this with a backdrop of low inflation (2-3% per year) and low cost of borrowing.   But how has this happened?  Our prosperity as an economy has been built on consumer spending.  The more people spend – the more goods are needed – the more jobs are created – the more spending that people have – and so it goes.   A virtual cycle.  The problem is that Canadians are not just spending what they make – but they are borrowing by generously using their credit cards and increasing their consumer debt.   In order for the good times to continue, we need to continue to spend – even if we do not have the money!  Marketers and advertising agents see it as their job to ensure that we confuse our needs with our wants and let our emotions and desires rule the day!    So what is the result: CANADA IS AWASH IN DEBT:  Consider these Stats:   We have all received frequent credit card offers in the mail, often more than one in a single day!   Why????? Because they know you will get “hooked” on debt – and they will make money 18% - 23%!!!!  Lenders together with consumer product marketers make it easy for you to spend  beyond your means. The result for many is overwhelming debt which may lead to bankruptcy.  Bankruptcies: 1989 = 29,000       2003 = 84,000 2006 = 85,974 (personal: 79,218; business: 6,756)

5. How has Debt gotten so out of control? Basis of Going into Debt:  Confusion between our Needs and Wants are confused and we are driven by emotions.  Our society is full of status symbols that have nothing to do with our needs.   In a word it is about keeping up with the Jones’ and at its core it is based on greed. We want because others have; Influenced by marketers; We often deal with our emotional needs by buying something.   You feel down – well let’s go shopping for clothes, electronics, etc.    Your neighbor just got new living room furniture or put in hardwood floors – so why can’t you? You deserve it.  We want to have status and indulge ourselves.  We are the focus.   “No man can serve two masters.  For either he will hate the one and love the other or he will be loyal to one and despise the other.  You cannot serve God and money.” Matthew 6:24   Sometimes we are driven by Fear:    We want because we believe we will need it tomorrow;  We feel insecure; We believe we need to protect ourselves from future events; we want security and think we can achieve it with “stuff”.  We are the focus.   Read Luke 12:15-21   Generosity:  We give stuff away and want to show generosity, at times to our detriment.  eg: Charity Auction – You let your emotions go and your spouse says “how are you going to pay for this.”   Circumstances beyond our control:  Catastrophic life events - Divorce;  death;  illness; accident.Basis of Going into Debt:  Confusion between our Needs and Wants are confused and we are driven by emotions.  Our society is full of status symbols that have nothing to do with our needs.   In a word it is about keeping up with the Jones’ and at its core it is based on greed. We want because others have; Influenced by marketers; We often deal with our emotional needs by buying something.   You feel down – well let’s go shopping for clothes, electronics, etc.    Your neighbor just got new living room furniture or put in hardwood floors – so why can’t you? You deserve it.  We want to have status and indulge ourselves.  We are the focus.   “No man can serve two masters.  For either he will hate the one and love the other or he will be loyal to one and despise the other.  You cannot serve God and money.” Matthew 6:24   Sometimes we are driven by Fear:    We want because we believe we will need it tomorrow;  We feel insecure; We believe we need to protect ourselves from future events; we want security and think we can achieve it with “stuff”.  We are the focus.   Read Luke 12:15-21   Generosity:  We give stuff away and want to show generosity, at times to our detriment.  eg: Charity Auction – You let your emotions go and your spouse says “how are you going to pay for this.”   Circumstances beyond our control:  Catastrophic life events - Divorce;  death;  illness; accident.

6. Reversing the trend Recognize it is not how much you make Philosophy of “all is a gift from God” Trust in God that HE provides We can’t take it with us Good stewardship Recognize it is not how much you make; It is living within your means and being content.   Have a Philosophy of “all is a gift from God” – We are but stewards of His blessings.   1st Chronicles 29:  11 -12 Everything in Heaven and earth is yours O Lord and this is your kingdom. We adore you as being in control of everything. Riches and honour come from you alone and your are the ruler of all mankind.  Your hand controls power and might and it is at your discretion men are made great and given strength. When we believe this – then We have the trust that He will provide what we need.  (If he looks after the birds of the air, how much more will he care for you.) We can’t take it with us!  And we have a responsibility to leave the world in a better state than we found it.   Good Stewardship – using our gifts of time, talent and treasure as God wants us to.Recognize it is not how much you make; It is living within your means and being content.   Have a Philosophy of “all is a gift from God” – We are but stewards of His blessings.   1st Chronicles 29:  11 -12 Everything in Heaven and earth is yours O Lord and this is your kingdom. We adore you as being in control of everything. Riches and honour come from you alone and your are the ruler of all mankind.  Your hand controls power and might and it is at your discretion men are made great and given strength. When we believe this – then We have the trust that He will provide what we need.  (If he looks after the birds of the air, how much more will he care for you.) We can’t take it with us!  And we have a responsibility to leave the world in a better state than we found it.   Good Stewardship – using our gifts of time, talent and treasure as God wants us to.

7. Reversing the trend Live within our means – use debt wisely Prioritize our life decisions Limit borrowing to appreciating assets Understand risks Develop a financial plan and use a budget Live within our means and use debt selectively and wisely e.g. mortgage.  Keep a grip on your emotions and evaluate your purchases. Prioritize our life decisions: God, family, self and others; balance living for now and saving for later; ensure protection from catastrophic events. Limit borrowing to asset based, appreciating investments eg. Home Understand risks: borrowing to invest usually risky. Borrow to invest in a home – appreciating asset – but don’t get in above your head with too much house. Develop a financial plan and use a budget. Live within our means and use debt selectively and wisely e.g. mortgage.  Keep a grip on your emotions and evaluate your purchases. Prioritize our life decisions: God, family, self and others; balance living for now and saving for later; ensure protection from catastrophic events. Limit borrowing to asset based, appreciating investments eg. Home Understand risks: borrowing to invest usually risky. Borrow to invest in a home – appreciating asset – but don’t get in above your head with too much house. Develop a financial plan and use a budget.

8. What is a “Budget”? Budget = Spending plan It helps you: see where money comes from and where it goes communicate with loved ones set and achieve your goals take advantage of opportunities be a good steward of God’s great gifts #1: Many times we wonder “where did all my money go”? Just as with other aspects that we manage (diet, activities, schedules, meetings) we need to document what we are spending our money on. Ignorance might be blissful but it can also be expensive. I will give you some ideas how to do that, before our session is over. #2: Money is one of the key contributors to communication challenges in relationships. Having a budget is a key to family communication and to resolving personal differences and conflicts. This could be relationships with family/ spouse/ children. #3: Through some simple budgeting activities, you quickly identify activities that are diverting your money from your high priority goals. Setting common goals may be a good starting point with someone who avoids budgeting discussions. #4: Knowing the condition of, and being in control of your finances helps you recognize and take advantage of opportunities to give, save, spend or invest. # 5: As Christians, God’s word calls us to be the best possible stewards (or managers) of all that God places into our care (our health, family, time, skills, money, etc.). #1: Many times we wonder “where did all my money go”? Just as with other aspects that we manage (diet, activities, schedules, meetings) we need to document what we are spending our money on. Ignorance might be blissful but it can also be expensive. I will give you some ideas how to do that, before our session is over. #2: Money is one of the key contributors to communication challenges in relationships. Having a budget is a key to family communication and to resolving personal differences and conflicts. This could be relationships with family/ spouse/ children. #3: Through some simple budgeting activities, you quickly identify activities that are diverting your money from your high priority goals. Setting common goals may be a good starting point with someone who avoids budgeting discussions. #4: Knowing the condition of, and being in control of your finances helps you recognize and take advantage of opportunities to give, save, spend or invest. # 5: As Christians, God’s word calls us to be the best possible stewards (or managers) of all that God places into our care (our health, family, time, skills, money, etc.).

9. Budgeting Myths Budgeting is painful You only need to budget if you are in financial crisis Budgeting requires long hours and lots of paperwork Source: http://www.tuliptreepress.com/myths.htm The stewardship perspective is certainly not the prevailing context for approaching an activity like budgeting. I would be assured that when most of people think of budgeting they do not think that we are doing God’s work. In fact, there are probably many negative thoughts and feelings conjured up when we think about budgeting. Let’s use the stewardship perspective to dispel some of those budgeting myths. #1: While the process of budgeting, especially at the start, may be uncomfortable (any change is), if you stay focussed on the results, budgeting can be extremely rewarding. How good would it feel to know, without a doubt, you are moving closer to achieving your goals, creating some financial breathing room, regaining control. The Bible calls God’s stewards to “Know well the condition of your flocks, and give attention to your herds” (Proverbs 27:23). #2: With the Christian stewards perspective that God is the owner of all things, budgeting can be a stewardship tool for everyone. True, budgeting can help you recover from a crisis such as heavy debt. But it is also true that budgeting can lead you to even more organization, control, charity and wealth building if your current financial situation is on the upswing. “The plans of the diligent lead to profit as surely as haste leads to poverty. (Proverbs 27:23). # 3: How much time and energy do people currently waste worrying about financial priorities and decisions? By using some simple budgeting tools and sticking to them, all the negative time and energy turns into a positive routine experience and frees you to expend your energies in ways more inline with your Christian faith.The stewardship perspective is certainly not the prevailing context for approaching an activity like budgeting. I would be assured that when most of people think of budgeting they do not think that we are doing God’s work. In fact, there are probably many negative thoughts and feelings conjured up when we think about budgeting. Let’s use the stewardship perspective to dispel some of those budgeting myths. #1: While the process of budgeting, especially at the start, may be uncomfortable (any change is), if you stay focussed on the results, budgeting can be extremely rewarding. How good would it feel to know, without a doubt, you are moving closer to achieving your goals, creating some financial breathing room, regaining control. The Bible calls God’s stewards to “Know well the condition of your flocks, and give attention to your herds” (Proverbs 27:23). #2: With the Christian stewards perspective that God is the owner of all things, budgeting can be a stewardship tool for everyone. True, budgeting can help you recover from a crisis such as heavy debt. But it is also true that budgeting can lead you to even more organization, control, charity and wealth building if your current financial situation is on the upswing. “The plans of the diligent lead to profit as surely as haste leads to poverty. (Proverbs 27:23). # 3: How much time and energy do people currently waste worrying about financial priorities and decisions? By using some simple budgeting tools and sticking to them, all the negative time and energy turns into a positive routine experience and frees you to expend your energies in ways more inline with your Christian faith.

10. The Three Steps of Budgeting List available monthly income List monthly expenses Compare income vs expenses As mentioned, budgeting can seem challenging; however, we can help you through the 3 steps….which are: Gross or Net income? We find that most people prefer to use the Net Income figure. Then they don’t need to worry about deductions such as EI, CPP or income tax. Ideas: * carry a small log-book or diary or tracking sheet * use the envelope system (cash) * ask for receipts for everything and save them * balance your pocket cash daily, recording where you spent money * use online banking and transfer all transactions to a spreadsheet (or other program) * or any method that works for you. Group into categories and total at the end of each month (see “Tracking for the month of __________” handout). Add categories that fit your own situation. 3. Compare and now you are able to make informed decisions about adjustments. Positive cash flow: how to build on this success; reduce debt, save for the future, support the needy, etc. Negative cash flow: identify needed changes and take action.As mentioned, budgeting can seem challenging; however, we can help you through the 3 steps….which are: Gross or Net income? We find that most people prefer to use the Net Income figure. Then they don’t need to worry about deductions such as EI, CPP or income tax. Ideas: * carry a small log-book or diary or tracking sheet * use the envelope system (cash) * ask for receipts for everything and save them * balance your pocket cash daily, recording where you spent money * use online banking and transfer all transactions to a spreadsheet (or other program) * or any method that works for you. Group into categories and total at the end of each month (see “Tracking for the month of __________” handout). Add categories that fit your own situation. 3. Compare and now you are able to make informed decisions about adjustments. Positive cash flow: how to build on this success; reduce debt, save for the future, support the needy, etc. Negative cash flow: identify needed changes and take action.

11. Tracking is key Refer to hand-outsRefer to hand-outs

12. Budget Example Highlight savings, misc. and debts. Circle savings, then misc., then debts. This will lead to next slide on budgeting tips.Highlight savings, misc. and debts. Circle savings, then misc., then debts. This will lead to next slide on budgeting tips.

13. Some budgeting tips Jar principle Use credit cards with caution - freezer Pay mortgage bi-weekly and pay more towards the principal Car pool/eliminate 1 car Pack a lunch Start cooking/plan meals Buy bulk Monthly cash allowance vs. using the ATM or debit card Keep savings separate from chequing Buy used car and don’t lease (2 pages for Buying a Vehicle) Pray (especially for large purchases) Never pay full price (eg: buy clothing in off-season) Understanding your trigger points for spending Is your spending linked to how you feel? Monthly cash allowance vs. using the ATM or debit card Keep savings separate from chequing Buy used car and don’t lease (2 pages for Buying a Vehicle) Pray (especially for large purchases) Never pay full price (eg: buy clothing in off-season) Understanding your trigger points for spending Is your spending linked to how you feel?

14. An example of typical debt – excluding home mortgage. Refer to Debt Elimination Worksheet handout with minimum monthly payments. Total Debt: $21,050 Total Monthly Payment: $500An example of typical debt – excluding home mortgage. Refer to Debt Elimination Worksheet handout with minimum monthly payments. Total Debt: $21,050 Total Monthly Payment: $500

15. Debt Elimination Worksheet Snowball Effect Consider an alternative strategy to efficiently eliminate debt, called the Snowball Effect. Through our budgeting process, we have made available an additional $200 per month and are allocating it to eliminate our debt ASAP. 2 Options: choose debt with highest interest rate or choose debt with smallest outstanding balance. In our example here, we chose to eliminate the smallest debt first for the motivational “lift” that it provides. Have a small celebration after each success. The total monthly debt payment remains the same until ALL debts are paid. These people would be debt-free in 33 months using this strategy!!!!Consider an alternative strategy to efficiently eliminate debt, called the Snowball Effect. Through our budgeting process, we have made available an additional $200 per month and are allocating it to eliminate our debt ASAP. 2 Options: choose debt with highest interest rate or choose debt with smallest outstanding balance. In our example here, we chose to eliminate the smallest debt first for the motivational “lift” that it provides. Have a small celebration after each success. The total monthly debt payment remains the same until ALL debts are paid. These people would be debt-free in 33 months using this strategy!!!!

16. Make the Commitment To yourself, in God’s presence As a family – state your goals Consult a trusted advisor Create a plan – a commitment to action As with most things in life, you must be committed if you truly seek to make some changes in how you manage your budget and how you make financial decisions. #1 Your motivation for wanting to make these changes must come from within you. And with the help of God’s assistance you can succeed in these endeavours. #2: When the whole family acts together, with a focus on financial success, you are destined to achieve your goals. #3: It is a proven fact that people who seek professional advice in dealing with their finances are more successful at attaining their goals. The experienced, objective advice of a trusted advisor can make all the difference.As with most things in life, you must be committed if you truly seek to make some changes in how you manage your budget and how you make financial decisions. #1 Your motivation for wanting to make these changes must come from within you. And with the help of God’s assistance you can succeed in these endeavours. #2: When the whole family acts together, with a focus on financial success, you are destined to achieve your goals. #3: It is a proven fact that people who seek professional advice in dealing with their finances are more successful at attaining their goals. The experienced, objective advice of a trusted advisor can make all the difference.

17. What the Bible says about debt “The rich rule over the poor, the borrower is servant to the lender” Proverbs 22:7 It is not a sin to buy on time. It is usually necessary with something as large as a house. Those who refuse to borrow money for a house usually quote Paul in their defense: “Owe no man anything.” But Paul is simply saying that we should not continue to owe anybody money; that is, we should pay our debts. This does not prohibit buying on time. Before you buy anything on time, however, evaluate the whole situation before God. “Do I really need this now, or will I be a better steward of God’s money by waiting a little while and saving for it?” There are many things we can easily do without until we save enough to pay cash for them.It is not a sin to buy on time. It is usually necessary with something as large as a house. Those who refuse to borrow money for a house usually quote Paul in their defense: “Owe no man anything.” But Paul is simply saying that we should not continue to owe anybody money; that is, we should pay our debts. This does not prohibit buying on time. Before you buy anything on time, however, evaluate the whole situation before God. “Do I really need this now, or will I be a better steward of God’s money by waiting a little while and saving for it?” There are many things we can easily do without until we save enough to pay cash for them.

18. Questions? If you have any questions or want to start the process of getting your financial house in order – consider FaithLife Financial Want to know more…. www.faithlifefinancial.ca