The first time Megan and I sat down with our financial advisor will forever be etched in my memory.
We were 22 & oh-so-eager to develop a grown-up financial plan for our future.
I had visions of saving for retirement, giving generously to our church, and buying all the “much needed” stuff for our new house.
You know, like “man-chairs” and gas grills and 2 am infomercial knives. Which, for the record, we still have those and they were a fantastic purchase…Megan!
After surveying our entire financial situation, our friendly advisor looked us square in the eye and broke the news nobody wants to hear:
“You don’t have enough money to live the life you’re currently living.”
Two 22-year-olds have never felt so small.
Between a new mortgage, two leased cars, two student loans, credit card debt, and one too many long walks through the aisles of Target, we had nothing in savings.
With a starter youth pastor salary and a starter loan processor salary, (yep my sweet creative wife did that for a season) we were in way over our heads.
It was at that point our financial advisor gave us the best advice we could’ve ever received.
He said, “People don’t plan to fail they fail to plan.”
Revolutionary.
I mean, I now realize that he stole it from this guy.
But at the time, revolutionary. Still, it would be a few more years of doing stupid stuff with money before we realized the necessity of a strategic plan for our money each month. A strategic plan that included 3 things:
Spending. Saving. Giving.
For you and I to live the full, well-rounded, meaningful life we all desire, managing our finances wisely has to be a KEY factor.
Proverbs 11:24-26
the world of the stingy gets smaller and smaller.
those who help others are helped.
Around this time of year, you’re most likely about to receive a tax refund. And although it might seem tempting to book that dream vacation, buy a new car, or go on a serious shopping spree, you have to first assess where you are financially.
For some who have been disciplined, you could be in the perfect position to spend all of it on something fun for yourself. Cool. Enjoy. You’ve worked hard and some money should be fun money.
For others, dealing with consumer debt, student loans, or car loans, future you will thank today you for buckling down and throwing some serious money at those debts.
Still, others have been so blessed in life you may want to consider giving it to someone in need, giving to your church, or giving to another great non-profit organization *cough* like ours *cough* (NoSmallLife.me/donate). Shameless plug. BUT, we are doing some cool things. Check out what we do here & here.
Listen, I know this is a sensitive topic, but guys, the Bible talks SO MUCH about managing money. And what we often fail to realize is if you devise a smart plan which includes saving, spending, and giving, you will be able to win with money! Even if you or no one in your family has in the past!
And long term, you’ll be able to create a less stressful life for yourself, even if you don’t make a ton of the dollars. Sound good?
So what does a do-able financial plan that includes spending, saving, and giving actually look like for the real person? Check it out:
Spending
Based on advice from my financial advisor/long-time friend Steve, and this book, I believe you have the green light to spend your tax refund IF you are in the following financial situation:
- You have no debt other than your mortgage. This includes auto loans, student loans, credit cards, and that “interest-free-12-month-same-as cash-loan” you got at Home Depot. They get ‘cha, don’t they?
- You have a 3-6 month emergency fund in your savings account. Your Roth IRA or 401K don’t count.
- You have a 15-year-fixed rate mortgage that doesn’t exceed more than 25 percent of your monthly take-home pay.
Ok, ok before you throw your phone at me, keep reading.
I know it’s WAY more fun to spend your money on memories or things, but the freedom you’re craving will come when you start attacking these debts.
Where do you start?
List your debts smallest to largest regardless of interest rate (other than your mortgage) and start paying them off in that order, smallest to largest.
Each time you pay one off, you feel lighter. You gain momentum. Believe it or not, and maybe this is my “nerd” showing, paying off debt can be fun! I’ll never forget when I paid off my student loan and then my last car payment. Having no debt other than my mortgage felt so amazing! I felt so free!
If that’s your financial position, you have been working your tail off friend. Go spend a little and have some fun. Create that memory. Take that trip, debt free.
And If you’re not yet in that position, you’ll get there. Let’s just place that dream trip on the back burner for now and use it as motivation to pay off debt faster.
Saving
If you have all of your debt (other than your mortgage) paid off, but nothing in your reserves in case of emergency, this year’s refund is for saving. Joe average American pays for emergencies on a credit card because he didn’t put any money away in case of emergency.
Putting a grand on your credit card when your car breaks down or your washing machine takes a dive is annoying and costs you money in interest if you can’t pay it off at the end of the month.
A few months back our stove and dishwasher decided to stop working the same week. They were in cahoots. Thankfully, because we had an emergency fund, we were able to pay cash and replace both of them. It was a bit of a nuisance and I hated spending that much money at one time, BUT the point is, we had it. We replaced them. A few years ago we wouldn’t have been able to do that.
(SIDE NOTE: We’ve actually cut up all of our credit cards just so we couldn’t default to them on such “emergency occasions” and I can’t tell you how freeing it is.)
It may also be a good time to save this money if you have nothing saved for retirement. My advisor had Megan and I open a Roth IRA and invest in good growth stock mutual funds that had a strong track record for more than 10 years. We invest solely in mutual funds. However, we didn’t open that Roth IRA until our emergency fund was fully funded. If you’re eager to start investing but don’t know where to start, visit Daveramsey.com and click on ELP. (not a paid sponsor, just a huge fan 😉 )
Giving
There are 3 scenarios that I foresee where people should give some or all of their tax refund away.
1. You are currently not tithing or giving at all. Even if you are in debt, giving some of your money away each month will do 2 things:
-keep you from becoming greedy
-allow you to leave a legacy that can transform lives
2. You are debt free. Sometimes we give out of a need for approval and to keep up appearances even though we are not in a position to do so. Don’t do that to yourself. The Bible says that,
“the borrower is slave to the lender.” Prov 22:7
Get yourself out of debt and then you will be able to give so much more! If you are debt free and have an abundance, you will find so much joy in giving if you aren’t already doing so. Try it!
3. God is leading you to give.
When Meg and I finally paid off our cars and started saving our emergency fund, we no sooner paid it off when we felt “that nudge” from the Lord to give away our car to someone we met in need of transportation. Now, my car was nothing fancy, but it was mine, and it was paid off. But ironically, saying that “yes” to the Lord was a really easy decision. We followed God’s prompting even though we were not in the best financial position to do so. And we were and are so glad we did! IT was exhilarating, even if we did have to walk home after giving it away.
Many times we try to fill the void in our lives through buying stuff and going on fancy vacations, but the reality is, giving is so much more fun.
“it is better to give than to receive.” Acts 20:35
When we take our eyes off ourselves and give to others in need, our world gets bigger and our hearts and lives begin to change. “Give” (see what I did there) it a try. I can almost guarantee you’ll be hooked.
So there you have it. 3 things you can do with that golden ticket of a tax refund and truly, with money in general. Don’t allow debt to make your life feel small. You are the boss of your money. The effort is worth the reward to:
spend it, save it, or give it away.
Which one of the three are you going to do with your tax refund this year?
Until next time,
Chris
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