Economics - Home Finances
The case for biblically-responsible investing
God calls his people to be good stewards of what He has entrusted to us, whether that’s our talents and time or the possessions we’ve been given. ...
Economics - Home Finances
Can you cut your grocery bill in half?
A summary review of Steve and Annette Economides' Cut your grocery bill in half with America’s cheapest family ***** Is it possible? The title of ...
Economics - Home Finances
“Honey I blew the budget!”
A FEW THOUGHTS ON GETTING BACK IN THE BLACK AFTER TAKING A PLUNGE IN THE RED “Honey I blew the budget!” Do those words sound familiar to you? Were you one of many Canadian couples that made a New Year’s resolution to build a budget and live according to it? And February 14th came along and you blew it? Or perhaps the budget was blown before you even started because your Christmas spending made the budget a non-event? Or perhaps it is a much less dramatic event that got you off to a bad start: you just can’t seem to stay within the amounts you had agreed on. How to start: prayer Let’s see if a frank discussion of some potential issues can benefit us all. Before we do that I believe that everyone should begin their budget process with prayer. Pray that God would grant you the courage you need to be honest with yourself and your spouse as you build the budget. Also pray that God will grant you a sense of satisfaction with the gifts He does grant. Pray that God remove the sense of covetousness from your heart. Pray that God would forgive your sense of entitlement if that is something you struggle with. A sense of entitlement? What do I mean with that last line? In my business I often hear the following excuse when a couple comes to me and they are having serious difficulty making ends meet. Often it is because one or both of them have what I call “a strong sense of entitlement.” They say things like, “We deserved that one-week vacation in Mexico because we both worked very hard these past three months.” Or, “I deserve that new dress or new suit, because I have not treated myself to anything new for a long time now.” Or perhaps you blew it on Valentines Day; you dropped in at the flower shop on your way home and purchased a dozen roses for your wife and then, when you got home, you told her, “Honey, I am taking you out for dinner tonight!” So you take her to that very special (read expensive) restaurant downtown. The dozen roses are $25 and the dinner was $100. But your entertainment budget for the month was $30. So what do we do now? Well, the temptation now is to reduce your contribution to the church for the month because the church, after all, has lots of other people that can pay. No easy way, but there is a way So, how can we deal with these kinds of blown budgets? Discipline. One word only. Discipline. There is no easy way to deal with this temptation. Once again, let me urge you to pray. In John 15 Jesus encourages his disciples to bear good fruit and He also says, “If you remain in me and my words remain in you, ask whatever you wish, and it will be done for you” (verse 7). You see! Jesus clearly says it. Of course we need to keep this in its context. Jesus is saying this in light of His other comments regarding the bearing of much fruit. I take this to mean that there is a relationship between what we are to ask for and bearing fruit. So, pray that God will help you in your struggle with covetousness. Or ask God to grant you His peace and satisfaction so that you are truly at peace with what He gives you and you don’t just use that Visa credit card that makes it so easy to grab “stuff” that God has not granted you. Looking at the grocery budget But let’s move on, because there may be other ways we can help you with your budget. Let’s take a hard look at your grocery budget. Do you really think $800 per month is what it takes to provide a family of five, two parents and three children, with all that is needed? Perhaps we can find a way to do this for $500. This is not always the most fun part of running a household but perhaps you can make it a little more enjoyable. First, it’s vitally important that you plan a menu for every day of the week. If you know that Monday you are going to have chicken and rice and a vegetable for dinner, then the two weeks before you can keep an eye on the flyers and purchase that chicken when it is on sale at one of the grocery stores. If you put together a planned menu for the entire month, you have a great weapon that you can use in your battle with the budget. If pork comes on sale this week and you know that there is pork planned for next Thursday’s dinner, buy it now when it is on sale, and freeze it. Or if your family regularly has oatmeal for breakfast, (I know, oatmeal is old school, but it’s healthy and it’s cheap) then find a store that sells oatmeal in bulk - leave the individual packages on the shelf and buy it in bulk. You will easily save 20 per cent. As I said earlier, grocery shopping is not always the most fun, but what you can also try is to band together with one or two of your friends. I know, for example, that here in Alberta one of the grocery outlets will give you a $25 gift card when you buy $250 dollars of groceries. So join forces. Go to the store with two or three of you. Make sure you all have a list - impulse buying is dynamite on grocery budgets (it blows them up!). When you go through the check-out, ask the cashier to sub-total at each person’s purchases. That saves you the hassle of having to total it up at home. And then share the gift card on your next trip. Try to purchase fruits and vegetables that are in season (when possible). In the summer and fall, find a farmer’s market and buy some extra beans and carrots and freeze them. Don’t improvise In my experience though, it is not the grocery dollars that destroy a budget; it is the impulse buying. It is the idea that I must have a new 40 or 50-inch television, even if that means it goes on a credit card. Or, it is the new stereo for the car or the new cellphone with all the latest technical stuff. Or even just the cellphone plan that we just have to have - the one with unlimited texting! - or the cable plan that has all those sports channels. or the new chesterfield and chair that we just have to have. The unexpected expenditure Some other things that can blow a budget are things like a hot water heater that bursts, or a furnace or a refrigerator that packs it in. Now these truly are valid items that need to be dealt with. But once again, a few tips may be beneficial. Check out the nearest used furniture and appliance outlet or go through the local free “buy and sell” magazine. You may be surprised at how often you can find a very good used furnace or a refrigerator (I have a used hot water heater stored away just in case). The wealthy in your town or city often will be replacing perfectly good mid-efficiency furnaces for a high-efficiency furnace and often you can buy their used one for as little as $200. Insurance There are some other areas in which we can save money as well. One of the areas I often look at with my clients is the cost of all their insurance. Call to a few other brokers and see if the premium you are paying to insure your home really is the best premium available. If you are not in BC or Manitoba, check the rate on your car insurance as well. Another high cost is the cost that many young people pay for life insurance. The life insurance industry will go to quite some lengths to show you why you need a million dollars of life insurance and a further $200,000 critical illness policy. But I would suggest that you look at that more carefully. Also look at the type of life insurance that you have. Ask the insurance salesman why he might be recommending whole life or universal life insurance when a 20-year-term policy at less than half the price may be all you really need. You won’t live like your parents Another mistake we often make is we compare what we have to what we had when we were still living with our parents. But remember, our parents have been working for 20 plus years and are often at the top of their pay scale while we are starting at the bottom of the pay scale. Once again, at risk of sounding repetitious, be satisfied with what God grants you. Greed and covetousness are sins that are spoken of in many places in God’s Word and these are sins that we need to fight against daily. So, if we go back to our initial statement, “I blew the budget,” don’t despair. Ask God to bless your attempt to start the process again. And do not be afraid to start a third or a fourth or even a tenth time. Living within a budget is a tough thing to do and it does require some determination. But when it works it works well....
Economics - Home Finances
Do we need to tell our mortgage banker about our school payments?
BEING CHRISTIAN AT THE BANK A reader recently sent in an interesting and somewhat difficult question about home purchases, school fees and tithes. Now most people in Canada don’t pay school fees, and don’t tithe to their church so the question I was asked was how these “obligations” might impact the affordability of a home and whether we, as Christians, have a duty to tell the banker about these “obligations” when we apply for a mortgage. Just to be sure that we all understand the question, let me rephrase it with a more concrete example. Joe and Mary Joe and Mary have 4 children, one of whom is beginning school in September. Joe earns $4,700 per month. Joe and Mary have been renting a duplex or what is also known as a side by side. They have managed to save $40,000 for a down payment for a home purchase and have found a house that they would like to buy. It is an older home but one that has been well maintained and appears to be well built. The house is for sale for $260,000. They have offered $240,000 and their conditional offer has been accepted. Now they will need to qualify for a $200,000 mortgage. Joe has done some research and knows that the banker will want to know what his total monthly debt payments are, or what could be called his “obligatory payments” and the banker will also want to know what the monthly costs to run his home will be. And of course he needs to be within the banks ratio in these two areas. Debt service ratios Now what are these bank ratios? There are two, known as the GDSR and the TDSR. The Gross Debt Service Ratio (GDSR) is the percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes, secondary financing, heating, and 50 per cent of condominium fees, if any). The GDSR should not exceed 32 per cent of gross annual income. The Total Debt Service Ratio (TDSR) is the percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as payments on a car loan. The TDSR should not exceed 40 per cent of gross income. So the important thing for us to remember is that the TDSR must be less then 40 per cent and the GDSR must be less then 32 per cent. If either of these two conditions is not met then Joe and Mary do not qualify for the $200,000 mortgage they require in order for them to be able to buy the home they have found. So let’s crunch some numbers and see what sort of situation our couple is facing. Joe earns $4,700. A $200,000 mortgage requires a payment of $1,190 per month (at 5.25% amortized over 25 years). The property taxes on the home they would like to buy worked out to $150 a month. The average heating bill was $150 per month. So $1,190 plus $150 plus $150 equals $1,490 for housing costs. His monthly housing costs of $1,490 divided by his income of $4,700 gives us a GDSR ratio of 31 per cent. So, he qualifies here. The TDSR is a different matter. According to the banks guidelines he needs to include all debts and obligations in his calculations including any car loans. Joe and Mary do not have a car loan. But we should add the church and the school into this total, right? Church and school add an additional $870 per month to the total. So $1,490 plus $870 equals $2,360. $2,360 divided by $4,700 is 50 per cent. Now here is where things become interesting. His application as it stands now will be rejected. However, does the banker consider the donation to church as an obligation or just a desire or a hope? What is our responsibility here? If we do not include the $470 to church the total becomes $1,490 plus $400 or $1,840. Divide that by $4,700 and the ratio becomes 39 per cent. Now we qualify. What should we do? The ethics of this question are one part of the equation. The other is, can Joe and Mary make ends meet if they were to qualify? If the banker grants the mortgage because he does not consider the donation to the church as anything more than a hope or a wish, where might this leave Joe and Mary? First the ethics. We might be tempted to hide the truth of the situation. Maybe we neglect to tell the banker that we consider the contribution to church as an obligation. I think we can all readily see and agree that this would put us outside of the Ninth Commandment. That's the one that deals with bearing false witness. So it should be obvious that we would tell the banker about the obligation to church. If the banker grants the mortgage anyway because he considers the payment to the church as a donation that has no legal obligation tied to it, what should Joe and Mary do? Bankers have years of experience that suggest that when the TDSR is more than 40 per cent homeowners often get into financial difficulty. So maybe Joe and Mary should decline the mortgage and save for a few more years so that they have a bigger down payment. Now before we go into all the argumentation about rising house prices, the effects of inflation and the fact that I may be asking the impossible here, let’s just go back to a few other principles that we have learned. In an earlier article (“Budgeting Basics: Everyone needs to budget” July/August 2009) I tried to make the case that we all should have a budget. We should not just have a budget but we should run our household within that budget. So, if Joe and Mary have been living within their budget and their budget has allowed them to save the $40,000 they needed for the down-payment, then I am sure that their budget (and the records they have kept which illustrate that they actually live within the budget) can easily be used to satisfy even the most conservative banker that they can make all their obligatory payments, because Joe and Mary also have learned to live prudently and economically. Mary is an avid “coupon collector.” She is known as the queen of collectors at the grocery store. She also has learned to dress her children very well, even though they are not always wearing the “name brand” items. Joe and Mary do not have cable television and they do not have a cell-phone either. They manage with one car. They enjoy reading and the entire family makes excellent use of the local library. The only two pieces of reading material that come into their home at a cost are the Clarion and the Reformed Perspective. Both Joe and Mary have the reputation of being hard workers and also of always being aware of the specials on anything they might need to be buying. So, I would conclude by saying that yes, we must honestly tell the banker about our obligations, also our obligations to the LORD, and we should also have lived prudently, within our budget, maintain good records of our prudent living and then trust that the God of Abraham, Isaac, and Jacob is the same yesterday, today and tomorrow, and He will continue to maintain His promises to His covenant children....