Making Ends Meet: How to Live on a Denominational Salary

1. Making Ends Meet:  How to Live on a Denominational Salary Stephen Bauer School of Religion Departmental Assembly April 25, 2013

2. Working for the Church • Working for the Church is not the usual strategy to get rich • "sacrificial wage scale" • Depending on the region, you will likely be paid approx. $40,000-$55,000 per year

3. Our 1st "Budget" • I married in the Christmas break of my junior year of college. • My wife and are both frugal by nature and upbringing, which was very helpful for avoiding arguing over money. • For the first 10-12 years together, our budget was simply this:

4. Our 1st "Budget" • If we don't really, really, REALLY need it, don't buy it. • Tithe, housing, food and transportation were the first priorities (no church school issues yet) • Pay your bills when they come • Only use credit cards when you have the money in hand to cover the cost • Avoid debt like the plague

5. Our 1st "Budget" • The result: • Every month we were eking by, living always near the financial edge. • Certain parts of the year were tough • Winter heating season • We did try to bulk up the checking account in advance but there was no set system • We never seemed to have money for saving or fun

6. Our 1st "Budget" • Then, while in Seminary, our small group at church did an outreach project on teaching people how to make a home budget. • Led by fellow seminarian in group with good financial skills • The result changed our life and got rid of that "living on the edge" tension. • We learned to make a real budget and follow it

7. Budgets Manage Two Things • Income • Expenses • The object is to keep Income greater than Expenses

8. Two ways to help a budget: • Increase income • Problem is that by policy, full-time pastors cannot moonlight (unless writing a ministry related book/article) • Your spouse may already be working full time and be unable to expand his/her income generation • For most of us, increasing income is nearly impossible

9. Two ways to help a budget: • Cutting expenses • This can be done much more readily • Coupons • Sales • Doing without (no A/C in summer; no cable TV; use dumb phone, no house phone; no cable TV; have older car; 1 car; etc.) • Doing for yourself (basic car maintenance, basic home repairs, cooking – minimal eating out, etc.). • With infants: If you have your own laundry, cloth diapers save big $ over disposable if mom is not working outside full time. • For men: can your wife cut your hair (and feel comfortable doing it). • Buy program cars or used cars, never brand new. • Buy a basic car, not an expensive one • A Honda or Toyota will last just as long as a Volvo or Mercedes for less money in purchase and maintenance • Don’t lease (in most cases)

10. Budgeting Income: • Some conferences pay 2 times per month (24 paychecks per year) • Some pay every 2 weeks (26 paychecks per year)

11. Budgeting Income: • Example: • $42,000 per year after taxes: • 2 checks per month = $1,750 per check (42,000÷24=1750) • Every two weeks = $1,615.38 per check (42,000÷26=1615.38) • Net difference = $134.62 per check

12. Budgeting Income: • If you are receiving 26 checks per year: • 10 months you receive two checks per month • 2 months you get three checks in the month. • If you budget based on 2 per month for 12 months, you can bank the two extra checks (savings or investments) • = $3,230.76 per year towards savings or investments

13. Budgeting Income: • You can simulate this in a 24 check per year system by systematically putting $134.62 per check into savings or investments. • You must however, make your budget on take-home pay after taxes are withheld. In this example you will likely need to earn around or a bit over $48K in gross income to take home $42k/year (net income) after taxes. • $42K in gross income, plan on about $36K for take home income.

14. Budgeting Income • Newly-wed, no children: • Resist temptation to move into house, or bigger apartment • Try to live on one salary and bank/invest the other • It is even better if you can live on the smaller salary • If you bank/invest $30k/year in 5 years you can purchase a home with a mortgage smaller than your rent. • Or you can build an investment portfolio that will produce near one salary level of income so the wife can afford to be home as a mother

15. Budgeting Expenses • Predictable, constant monthly expenses like Rent, Mortgage, or Car payments can be divided by 2 checks per month • Example: • Rent = $1000 per month • You need to budget $500 per check

16. Budgeting Expenses • The most accurate means of budgeting variable items (heat, phones, etc.) is to take 12 months of a given expense and divide by the number of checks per year. • Quicken is a great program for tracking actual expenses by category • Example: Electric bill was $1800 per year Based on budgeting on 24 pay checks per year this is $75 per check you need to budget. (26 checks would be $70 per check [69.23 to be exact])

17. Budgeting Expenses • You will do better if you can figure out your own budget for utilities (gas, electric, etc.) instead of doing their budget plan. • On their plan they earn the interest on your excess money • You budget yourself and you get the interest

18. Types of Expenses to Budget • Tithe and Offerings • Housing (rent or mortgage) • Ideal =max 25%, absolutely not over 30% of income • Estimated Income Tax (pastors only) • Utilities (i.e. gas, oil, water, sewer, electric, garbage) • Phones • Car payments, maintenance, registration, and next car • Food • Hair cuts (for family of 4, this can easily be $700-$1000 per year pending how many females you pay for) • Insurance (car, renter's – homeowners is part of mortgage) • Clothes • Student loans • Church school tuition • Savings/Investments • Property taxes (if not part of mortgage; taxes on cars, etc.) • Etc.

19. Budget Priorities • The key is to 1st budget the essentials: • Tithe • Housing • Food • Loans • Insurances • Etc. • Then savings • Then discretionary items like golf, eating out, some clothes, Netflix, etc.

20. First, fill in your regular budget items as per your plan This budget has no categories for clothes, entertainment, etc. It is for conceptual purposes only.

21. Then, you can put the difference between your budget items and your check in Misc. This is your discretionary money.

22. Check your accuracy by calculating the sum of columns a given row. Column G does this. Compare Column G with F (master balance) in the same row and they should match.

23. 25% of MONTHY Income ($5550) is $1375, so $1105 is nicely under max allowable budget.

24. Minor tricks: • I use a cash column for Grocery, gas, and pocket money. We take out X amount per check to our wallet/pocketbook. • If you can budget an extra $2-5 per check in several categories, it helps build a small cushion for the whole budget.

25. Always be ready to adjust the Budget • Especially early, you may need to fine tune several times in the first 3-4 months to figure out what works. • Then you should be able to revise no more than each 6-12 months under normal circumstances. • A sudden change in circumstances (car accident, pregnancy, etc.) can cause an immediate need to adjust the budget.

26. When to Start • ASAP • A good time is in tax season: • Divide your tax refund by % of budget and seed each category (except for actual tithe) • If Utilities are 14% of your total budget, then put 14% of your refund into utilities. • This allows you to have some cushions from the start for making adjustments.

27. Bank Accounts • Run Budget in an interest bearing checking account • You will soon have balances that give you free checking at most banks, and you earn some interest (which covers a chunk of the cost of buying checks).

28. Do's and Don'ts • Do stick closely to your budget plan • Don't make impulsive purchases • Don't get so rigid with the budget that cannot adapt to changes as needed. • Your budget should be a firm guide to help you be disciplined, but it should not a strait-jacket

29. For Ministers • You can arrange to withhold your own taxes. • Use the IRS Estimated Tax forms to calculate your estimated tax • Save extra (I try for $500 extra, minimum) in case you underestimated. • Keep it in a separate savings account to keep the money from mixing into the family budget. • You will send in a quarterly payment to the IRS • When you do your taxes (or have them done) your Form 1040 will inform you if you sent in enough tax. If you did, then the extra in your account is an instant refund – move it to family savings. If not, adjust for next year.

30. For ministers: • Check your conference/NAD policy book. If they say ministers are required to pay tithe to set an example for the members (which is likely!), you can deduct the minister's tithe (not the spouse's) as a business expense on Schedule C instead of a charitable contribution on Schedule A. • You must write a separate check just for your tithe. Give offerings and spouses tithe through a separate check. • Don't try to double deduct your tithe on Schedule A and C in the same year.

31. For ministers: • On Sched. C, you put this in the "Other" section, which usually requires an explanation on the back side of the form. I put "Required charitable contributions". • The key is that Schedule C reduces your Schedule SE tax (your version of FICA if under Schedule C income), so $3000 tithe will save you about $450 in Schedule SE. • Schedule SE especially hurts because you must add your parsonage allowance that was deducted from your W-2 back into the income for Schedule SE (but not for Schedule C).

32. The Key: • Plan your budget and work your plan • Don't try to live too high a lifestyle • Avoid debt like it is a plague – if you can do without, do so to avoid debt. • Before kids, try to live on one salary and build a nest egg for house, etc., from the 2nd salary. • Plan your budget and work your plan!

33. www.southern.edu/Religion/sbauer This PowerPoint can be downloaded at: Scroll down

34. www.southern.edu/Religion/sbauer This PowerPoint can be downloaded at:

35. Live Demo Spreadsheet