first things first, 2nd edition

First Things FirstLearn how to manage your money

from a Christian perspective

by putting first things first.

First Things FirstLearn how to manage your money

from a Christian perspective by putting first things first.

A Study Guide written by Edwin Friesen, stewardship consultant

Mennonite Foundation of CanadaWinnipeg, Manitoba

2007

First Things First

Copyright ©2007 by Mennonite Foundation of Canada. All rights reserved.Contents of this book may be used freely in study sessions, workshops, andseminars in the Foundation’s participating conferences. For all other uses written permission must be obtained from the Foundation.

Scripture quotations are taken from the Holy Bible, New Living Translation,copyright ©1996. Used by permission of Tyndale House Publishers, Inc.,Wheaton, Illinois 60189. All rights reserved.

ISBN: 978-0-9680829-6-6

Design by Juliana Fast / Redhouse Design

Published in Canada by Mennonite Foundation of Canada12-1325 Markham RoadWinnipeg, Manitoba R3T 4J6

Printed and bound in Canadaby Premier Printing, Winnipeg

First Things FirstLearn how to manage your money from a Christian perspectiveby putting first things first.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Laying the Foundation

1. Where are you now? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5A. Approaches to managing moneyB. Managing personalitiesC. Current money practicesD. DebtE. Net worth

Offerings and Worship

2. Where do you want to go? . . . . . . . . . . . . . . . . . . . . . . . . . 17Developing goalsA. Approaches to managing moneyB. Managing personalityC. Current money practicesD. DebtE. Net worth

Pursue Contentment

3. Planning Family Finances . . . . . . . . . . . . . . . . . . . . . . . . . 37A. One income or twoB. Children and moneyC. Teens and moneyD. Saving for your children’s education

4. Planning Long Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45A. InvestingB. Retirement incomeC. Insurance

5. Planning Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55A. Will and estate planningB. Power of attorneyC. Blended family issuesD. Death and taxesE. Probate

Appendices

1. First Things First Money Allocation Plan . . . . . . . . . . . . . .65

2. Buying a House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

3. Purchasing a Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

4. Living on your Investments . . . . . . . . . . . . . . . . . . . . . . . 72

5. Monthly Income and Expense Analysis . . . . . . . . . . . . . 73

6. Saving for your Children’s Education . . . . . . . . . . . . . . . 74

7. Life Insurance Worksheet . . . . . . . . . . . . . . . . . . . . . . . . 75

8. Retirement Planning Worksheet . . . . . . . . . . . . . . . . . . . . 77

9. Choosing a Professional Planner . . . . . . . . . . . . . . . . . . . 79

Leaders’ Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

I N T R O D U C T I O N 1

Money comes to usthrough earnings,profits, inheritance,marrying rich, andinvestments. Where ismost of your moneylikely to come from?

A Million Dollars?!If you live in North America you will likely earn and spend wellover a million dollars in your lifetime ($25,000 a year for 40 yearsequals $1 million; $37,000 a year for 40 years equals nearly $1.5million; $50,000 a year for 40 years equals $2 million). That’s a lotof money.

Money plays a significant role in North American culture and inour personal lives. We are surrounded by influences that tell usthat life goes better with money – preferably with more money.And for too many of us, money has become more than simplycurrency with which to buy things. It speaks of who we are, ofhow important or successful we are. It also influences how wesee others.

Into this cultural mix are spoken these uncomfortable words ofJesus: “… Real life is not measured by how much we own” (LUKE 12:15). Similarly, King Solomon reminds us that being eitherrich or poor has pitfalls. He said, “… give me neither poverty norriches! Give me just enough to satisfy my needs. For if I growrich, I may deny you and say, ‘Who is the Lord?’ And if I am toopoor, I may steal and thus insult God’s holy name” (PROVERBS30:8-9). Possessions are tools for living but should never becomethe central focus of our lives (MATTHEW 6:25-34).

It is a challenge to manage money wisely. What principles guideyour day-to-day money decisions? What is important to you?What are your goals? Where do you go for guidance? What roledo your faith and the teachings of the Bible have in your ongoingmoney decisions?

The lessons in this booklet focus on managing money from a bib-lical perspective; they invite you to worship, balance, content-ment, and generosity. You will be challenged to think of yourselfas a steward or manager of the resources and opportunities thatcome your way. You will also be prodded towards change inareas where you need help. We hope you will find the materialhelpful as you plan your financial future.

INTRODUCTION

2 L A Y I N G T H E F O U N D A T I O N

Its bright side“Kneeling beside him, the Samaritan soothedhis wounds with medicine and bandagedthem. Then he put the man on his own donkeyand took him to an inn, where he took care ofhim. The next day he handed the innkeeper

two pieces of silver and told him to take care of the man. ‘If hisbill runs higher than that,’ he said, ‘I’ll pay the difference the nexttime I am here.’” (LUKE 10:34 & 35)

Money has almost unlimited potential for good. With our offeringswe confirm our commitment to God. With it we provide for our-selves and our families. With it we better the communities we livein. Money also enables us to reach around the world supportingthe proclamation of the good news of Jesus, providing help andhope to the needy, and advocating for the oppressed. To havemoney is to have options, opportunities, and responsibilities.

Money itself is neutral, simply a medium of exchange. We deter-mine whether it is helpful or harmful, good or bad, by the choiceswe make. Our challenge is to use money as a gift from God, tem-porarily entrusted to our management to be used for the good ofall. Using our money for good gives witness to our faith and values.

In addition to money, we can use the things we own as tools ofgenerosity. We can open the door of our homes for hospitality.We can share our tools, our cooking ingredients, our vehicles,our knowledge, our skills, our recreation “toys,” and our time;share with others what God has given to us. It is in generous giv-ing and gracious receiving that we authenticate our interdependence.

God, Money, and Me –

“Tell them to use theirmoney to do good.They should be rich in good works andshould givegenerously to those inneed, always beingready to share withothers whatever Godhas given them.”(I TIMOTHY 6:18)

Money and God are both powerful forces in our lives. We need both but they cannot bothbe the central focus of our lives. Jesus said we would have to choose: “You cannotserve both God and money” (LUKE 16:13).

L A Y I N G T H E F O U N D A T I O N 3

Its dark side “Those who love money will never haveenough. How absurd to think that wealthbrings true happiness!” (ECCLESIASTES 5:10)

We are drawn to money and the benefits it pro-vides. If we watch TV, go to the mall, or even listen to our friends,we are continually presented with images that give us theimpression that having lots of money is the door to happiness.Money makes us feel good. It gives us status, power, and choices.

Yet simply having more money may not provide the happinessand significance we all long for. The Bible warns that if we runafter money hoping for happiness we will end up disappointed. Ifwe allow it to, the pursuit of money can quickly become the dom-inant force in our lives, often destroying the very things we desireand value.

The desire for money can also lead us to become workaholics,leaving little time or energy for others, the work of the church, orcommunity. Some, desiring fast money, turn to gambling, oftenlosing what little money they have. Unless we are careful, thedesire for more money may control our lives. If our main focus inlife is more money, we will have little room for God.

Since money and power are usually linked, those with more moneymay take advantage of and dominate those who have less. Somepeople with significant wealth may develop attitudes of superiority,believing they are especially favoured by God. When we havewhat we need, and have the status that we desire, it is easy tobecome proud and forget that God is the source of all.

LAYING THE FOUNDATION

“Tell those who arerich in this world notto be proud and not totrust in their money,which will soon begone. But their trustshould be in the livingGod, who richly givesus all we need for ourenjoyment.”(I TIMOTHY 6:17)

God asks us to regularly give a portion of our income back to God as acts of worshipand thanksgiving. This practice will keep our hearts focused on God and lead to a life ofcontentment and generosity.

W H E R E A R E Y O U N O W ? 5

Accept your present financialcircumstances as theplace to begin.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Since all planning starts with “where are you now,” this sessionasks you to identify your current status and practices aroundmoney in the following areas: approaches to managing money,managing personalities, current money practices, debt, and networth. Once you have identified your current position you will beasked to mark any areas of your current money handling that giveyou concern. In Chapter 2 you will be asked to revisit these areasof concern; guidance will be offered to help you set new direc-tions. The Summary of Loans/Vehicle Lease Information chart,page 11, and the Net Worth Statement section, page 14, will takeconsiderable effort and should be completed outside of sessiontime. Both are critical for sound planning, so don’t skip them.

A. Approaches to managing money People take very different approaches to managing their money.Each approach will work in certain settings. Whether you areaware of it or not, you already have an established way of man-aging money. Maybe you see your approach reflected in one ofthe following:

! “The seat of your pants” approach. People who use thisapproach live with the hope that somehow their income willmatch their obligations each month. This may work reasonablywell when there is significant stable income and expenses aremostly routine. However, this approach will not work well forpeople who are undisciplined and given to making impulsivemoney decisions.

! The “established routine” approach. Those who use thismethod have planned well. Their monthly income and expensesare fairly predictable. They have made arrangements with theirbank to make automatic payments for utility bills, life insurancepremiums, vehicle insurance, loans, savings/RRSP deposits,property tax installments, etc. Though they may have no writtenspending plan, sound planning and an established routine pro-vides a strong framework for most of their money allocations.

CHAPTER 1 Where are you now?

6 W H E R E A R E Y O U N O W ?

It is difficult to bejoyful and generous ifyou are over-extendedfinancially.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

! The “detailed money allocation” approach. This approach isfor those who like to have a highly structured plan in which allthe income is allocated to various needs in advance, accom-panied by detailed income and spending records. In thisapproach, all the usual expenses (tithes/first fruits giving, food,transportation, housing, gifts, medical, transportation, savings,utilities, clothing, etc.) are assigned a specific monthly amount.A variety of books and computer programs are available tohelp you with this approach. Before you look at other sources,check out the First Things First Money Allocation Plan,Appendix 1, page 65.

! The “cash and labeled envelopes” approach. Those whoprefer a visual, hands-on approach to handling money will findthis simple method helpful. As soon as a paycheque arrivesand is cashed, predetermined amounts of cash are placed intolabeled envelopes already designated for a specific livingexpense such as groceries, gas, clothes, mortgage payment,etc. When the money in the grocery envelope is gone, thismeans no more grocery purchases until the next paychequecomes and a fresh amount of money is put into the groceryenvelope.

If urgent or unforeseen expenses arise, people who use thisapproach tend to “borrow” from another envelope to coverthese costs. That is fine as long as they don’t make a regularpractice of it. If they “borrow” from other envelopes too often,the system loses its intended benefit – self-imposed restrictionson spending. If you raid envelopes that contain money intend-ed for a once-a-year expenditure such as property taxes, it canleave you in a difficult spot when that bill comes due.

..........................................................................................................

Which of the above approaches best describesyour current style of managing money?

___ seat of the pants

___ established routines

___ detailed money allocation plan

___ envelope system

___ a combination of ____________ and _____________

___ other ________________________________________

..........................................................................................................


What have you donetoday that did not, inany way, involvemoney?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Though there is more than one way to manage money, the plan youadopt should help you manage your money intentionally and do thefollowing:

! Facilitate giving/tithing/first fruits offering

! Enable you to provide for yourself (and your family)

! Help you spend less than you earn

! Provide a current financial picture so you know where thingsstand on an ongoing basis

B. Managing personalitiesPeople’s personalities are often revealed in how they managemoney. Some are savers, others are spenders. Some are impul-sive, others ponder and deliberate over every financial decision.Some are cautious and fearful while others are entrepreneurial,ready to take risks. Some like to live (too) close to the edge, withevery dollar spoken for even before it is earned, while othersplan for a comfortable financial margin.

Your management personality has likely been shaped by a num-ber of factors – parents, faith, life experience, self-study, media,friends, etc. Knowing your style and how it was shaped may bemost helpful as you try to understand why you handle money theway you do.

Think back to your parents. How did they manage money? Whatwas the atmosphere in the room when money was talked about?Who took the lead? Who kept the records? How did they work attheir disagreements around money?

List three money characteristics you admired in your parents

__________________________________________________________

__________________________________________________________

__________________________________________________________


“Can two peoplewalk together withoutagreeing on thedirection?”(AMOS 3:3)

When oppositesattract, there is stillhope for them to walkarm in arm into thesunset if they canagree “on thedirection.”

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

..........................................................................................................

PERSON XPlace a ! in front of each of the characteristicsthat describe your money management style.

___ spontaneous ___ stingy

___ careful ___ generous

___ compulsive spender ___ saver

___ frugal ___ borrow easily

___ thankful ___ worried about future

___ content financial needs

___ honest ___ faithful to financial

___ plan for a financial margin commitments

___ other ___________________________

Now put a !! in front of the characteristics youfeel good about. Put a ? in front of those youwould like to change.

..........................................................................................................

PERSON Y (if sharing a household with X)Place a ! in front of each of the characteristicsthat describe your money management style.

___ spontaneous ___ stingy

___ careful ___ generous

___ compulsive spender ___ saver

___ frugal ___ borrow easily

___ thankful ___ worried about future

___ content financial needs

___ honest ___ faithful to financial

___ plan for a financial margin commitments

___ other ___________________________

Now put a !! in front of the characteristics youfeel good about. Put a ? in front of those youwould like to change.

..........................................................................................................


Our use of money canlead us closer to Godand the church or itcan lead us fartheraway.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Couples who have sharply different money personalities may stillshare common values and goals. To get headed in the samedirection, couples should work towards agreement on basicssuch as charitable giving (see page 15), loans, savings/RRSPdeposits, use of credit cards, who pays the bills, and who keepsthe records.

Couples also need to give each other room for personal prefer-ences. One spouse may choose to buy better quality clothes,believing that to be the best value, while the other spouse mayprefer to shop for no name brand rack specials. Even when cou-ples don’t agree, they still need to try to respect each other’schoices. Some couples agree to give each other a monthlyamount of discretionary spending money so each has at leastsome measure of financial independence.

Given your different styles of managing money, how do you makeit work as a couple? Who takes the lead? Who pays the bills?Who keeps records? Who watches the bank balance? Is there alimit (e.g., $100) on what one spouse can spend without priordiscussion or a review of family goals? Let the person who hasthe interest, skills, and discipline take the lead in managing yourhousehold money, or agree on how this is to be shared.


God provides thewind but we mustraise the sail.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

C. Current money practices..........................................................................................................

Place a ! in front of those statements that bestdescribe your current financial practices.

___ I/we have started to put money aside for retirement___ I/we keep financial records that help track our money___ I/we usually give at least 10% of our income to

God/charity___ I/we usually pay our credit card bill in full when due___ I/we are current with all our debt payments___ I/we have at least $1,000 available for an emergency___ I/we have several credit cards___ I/we have a detailed monthly spending plan___ I/we have life insurance to provide family income

for 5 years___ I/we save for and pay cash for holiday trips___ I/we have an adequate margin to do some

“fun things”___ I/we are concerned about our current debt situation___ as a couple, we have very different opinions as to

how we should allocate our money___ I/we have a sports/health club membership___ I/we own a house___ I/we are concerned about our use of credit cards ___ I/we would like to buy a new(er) vehicle___ I/we would like to (long term) live debt free___ I/we want to purchase a cottage at the lake ___ I/we pay our monthly bills on time___ I/we are saving for further education/career

advancement___ I/we have started saving for our children’s

education___ I/we eat out more than twice a week___ other _____________________________________

Look at the list again and note the !. Put a !! infront of the ones you feel good about. Put a ? infront of those you would you like to address or onwhich you would like to take action. You will beasked to consider these in the next section.

..........................................................................................................


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D. Debt List all your debts on the chart on page 11. Given your currentfinancial status, are you concerned about your debt? If you couldgo back in time, would you change any of your “debt” decisions?Can you think of a way to speed up your debt repayment? Youwill have an opportunity to formalize your good intentions in thenext session.

E. Net worth For financial goals to have a realistic chance of achievement theymust be based on where you stand today. If you set a goal ofhaving $300,000 in retirement funds by age 65 but have no ideawhat is in your retirement account today, how can you set a spe-cific goal? A net worth statement gives a “this is where I am now”picture, providing a baseline for all future planning. It will alsohelp you monitor the performance of your investments.

Your net worth is what you own minus what you owe. To deter-mine the net worth of your household, assign a realistic value toall the major things you own and then subtract any debts whichyou owe. This should provide a fairly accurate picture of yourcurrent financial net worth. You may wish to refer back to theSummary of Loans/Vehicle Lease Information, page 11, for theinformation needed for the Net Worth Statement, page 14.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Tax credits

Though not the primary motivation for giving, the Canadian gov-ernment offers a tax credit for gifts given to qualified Canadiancharities, thereby reducing taxes payable. For those who owetaxes, this means that, in effect, each dollar given to charity onlycosts the donor approximately 55-60 cents since the other 40-45 cents would have been paid to the government in taxes.The cost of a donation may be even less if you donate appreciat-ed stocks or mutual funds held outside a retirement plan, due tothe federal government’s 2006 decision to eliminate capital gainstax when these gifts are made “in-kind.” Ask an MFC consultantfor information about the benefits of this type of gifting.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Recap

In this session you looked at your current status and practicesaround money. Hopefully you found encouragement in at leastsome of your answers. Other areas may need adjustment. Thenext session will ask you to set meaningful goals for change inthe areas that you have identified as needing improvement.


YEAR

Assets (what you own)Property

HouseFurniture

InvestmentsSavingsRRSPsStock/mutual funds

Vehicles

Total Assets

Liabilities (what you owe)House MortgageCar loanFurniture loanCredit cardPersonal loan

Total Liabilities

Total AssetsMinus Total LiabilitiesNET WORTH

Net Worth Statement

O F F E R I N G S A N D W O R S H I P 15

“. . . The purpose oftithing is to teach youalways to fear theLord your God.”(DEUTERONOMY 14:23B)

“Honor the Lord withyour wealth and withthe best part ofeverything your landproduces. Then hewill fill your barnswith grain, and yourvats will overflowwith the finest wine.”(PROVERBS 3:9-10)

“Wherever yourtreasure is, there yourheart and thoughtswill also be.”(MATTHEW 6:21)

“Jesus replied, ‘Youmust love the Lordyour God with allyour heart, all yousoul, and all yourmind.’”(MATTHEW 22:37)

As in every other area of life, followers of Jesus need to declareGod first in and with their finances. Since the very beginning(GENESIS 4:4-5) God has asked people to bring the first of the cropand herd as a gift of thanks and worship. It was a way of recog-nizing God as the source and owner of all. Through offering theirgifts of first fruits, the people openly and deliberately declaredGod to be first in their lives (DEUTERONOMY 14:22-29; 26) and in thisway confirmed their covenant with God.

Worship leads to offering and offering leads to worship. God asksfor our money because God wants our hearts. The two are insep-arably connected. Giving to God is not an obligatory “God tax”that we pay to gain God’s favour or to manipulate God for ourown purposes. Giving is a joyful celebration of God’s generosityto us and a sign by which we recognize our ongoing depend-ence on God. Though we often draw a line between the materialand the spiritual, our material offerings lead our hearts into wor-ship and gratitude. When we give to God, our hearts will follow.

Often people feel they need all of their income just to make endsmeet. Yet, though it might defy logic, many Christians testify thatonce they developed the discipline of giving to God from the“top,” their remaining income was more than enough to covertheir needs. Others add that the practice of giving to God fromthe top has reduced the tensions around money issues in theirhousehold. Giving tends to break the powers of greed and self-ishness – debilitating temptations that afflict all of us.

Even as a wedding band symbolizes the covenant between hus-band and wife, our ongoing gifts to God are a tangible sign thatwe belong to God. Each gift we bring confirms once again thatwe have placed our trust in God for our current and future needs.God is our God and we are God’s people. We celebrate that rela-tionship by offering our best.

OFFERINGS AND WORSHIP

W H E R E D O Y O U W A N T T O G O ? 17

Though there is morethan one way tomanage money, anyplan you adopt shouldhelp you to managemoney intentionallyand do the following:

! Facilitate tithing/first fruits giving

! Help you providefor your family

! Help you achieveyour lifestyle goals

! Help you spend lessthan you earn

! Provide a currentfinancial picture soyou know wherethings stand on anongoing basis.

“. . . and he will give you all you need from day to day if you livefor him and make the Kingdom of God your primary concern.”(MATTHEW 6:33)

Putting first things first is the key to much of the Christian life,including finances. That certainly applies to giving to God fromthe first of our income, but it also extends to all the other financialdecisions we make from day to day. That perspective shouldinfluence how we earn, how we invest, how we share, and howwe spend money. Even the money we spend on our families andourselves needs to reflect our understanding that God comes first.

Developing goalsMoney needs to be managed intentionally. Setting financial goalsmakes money management much easier. Not only do goals pro-vide a target for achievement, they encourage us to dream.Goals should be visionary, yet attainable. People who plan aheadhave choices.

Well-defined goals help focus energies and resources towardsthe things that are important to us. Goals help us stay on courseeven when life throws us a financial curveball, as it will from timeto time. Furthermore, achieving our goals gives us reason to celebrate.

Goals may include saving for a down payment on a house, pay-ing off student loans, paying off credit card debt, saving to buy acar, pursuing further education, or putting money aside for retire-ment income. You may set a goal of paying off your monthlycredit card when it comes due or learning to balance yourcheque book. Other goals may include living without debt ormaking regular gifts.

Goals will change as you go through the various stages of life. Ayoung adult may focus on paying off a student loan or buying acar. This may be followed by other priorities such as a housepurchase, travel, retirement funds, or children’s education funds.

CHAPTER 2 Where do you want to go?

18 W H E R E D O Y O U W A N T T O G O ?

Many people readilyagree that moneydoesn’t bringhappiness, but theywould like to discoverthat for themselves.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

For goals to have meaning they must be specific, attainable, andmeasurable.

For example, to say that you want to save money to buy a car isa statement of good intentions. To say that you want to buy a$10,000 car a year from now, and pay half in cash, is specificand measurable.

In the previous section you were asked to note current moneyissues that needed attention. Good intentions are great, but notenough. To move from good intentions to actually doing some-thing is the hard part, but you can do it. Significant change ispossible if you break it down to a series of small, deliberatesteps. You are encouraged to formulate specific measurablegoals for each of the areas you noted. Making wise financialdecisions is an art learned through experience. Ask God for wis-dom. Seek the advice of trusted friends. Then do it.

After each of the following sections A through E, you will find abox entitled “Going Forward.” Please note any changes you wishto make under the following two headings: Desired improvement,Plan of action going forward.

A. Approaches to managing money Different approaches to managing money work for different peo-ple and different families. But there are some common principles:

! Long term, you must not spend more money than you earn

! Some purchases are far more important than others

! Giving to God or charity is best done off the “top”

! Just because you can afford it doesn’t mean you should buy it

! Couples need to agree on the basics of their spending plan

! You will never have enough money to make you happy

What’s your excuse?

___ Don’t think you have enough money to warrant planning

___ Don’t want to face your current financial facts

___ Don’t know how to plan

___ Don’t think you can stick to a financial plan


“I will live within myincome even if I haveto borrow to do it.”(MARK TWAIN)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Not all expenditures are equally important. Groceries are moreimportant than eating out. Tires for the car may be more impor-tant than a new wardrobe. The way to start thinking about yourfinancial priorities is to ask yourself some questions. If yourincome were reduced by 25% for three months, what would youcut? What would you keep in your spending plan? If you cananswer those questions, you are well on the way to determiningyour priorities.

..........................................................................................................

JUST FOR FUN: Following is a list of typicalmonthly household expenses. Suppose that for thenext three months your income is reduced by 25%.Place a ! in front of the items you would pay asusual and an X in front of the items you wouldreduce or cut.

___ pay the credit card bill in full___ put 5% of your month’s income into savings/RRSPs___ pay the utilities___ set aside the monthly amount for the annual

property tax ___ give 10% of your income to God/charity___ go out for a steak supper with your friends___ buy badly needed tires for your car___ make your monthly student loan payment___ buy groceries___ sign up for cable___ pay house insurance___ put money aside for your next holiday___ fix a leak in the roof of your house___ pay your monthly life insurance premium ___ buy new clothes for the family for Aunt Sue’s

wedding___ make a shopping trip to New York with friends___ buy a larger TV to watch your favourite team in the

playoffs___ upgrade the stereo in your car

..........................................................................................................

While it is easy to think of all your expenses as “fixed,” in mostsituations you do have choices.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

..........................................................................................................

PRIORITIES: To reinforce the concept of priorities,try grouping all your current monthly living expen-ditures into the following three categories to indicate their relative importance.

1. First Things First allocations. These include givingto God/charity, an account for occasional expenses,rent/mortgage, loan payments, groceries, utilities, andother things you decide are of first priority for yourhousehold.

2. Lifestyle allocations. Included here are personalallowances, savings/RRSPs, car and gas expenses,and children’s allowance.

3. Discretionary allocations. Expenses included hereare eating out, clothing, travel, furniture, gifts, cable,health club, sports equipment, etc.

..........................................................................................................

(For a detailed explanation of this approach, see First ThingsFirst Money Allocation Plan, Appendix 1, page 65. This approachis based on priorities and available cash flow.)

Considerations when making spending decisions

! Is this something you really need or is it something that wouldbe nice but is not crucial at this time?

! Take a long-term look. Are you likely to be happy with the deci-sion one or two years down the road?

! Will you need to borrow money to make this purchase? Arethere alternatives? Buy used? Rent? Lease? Borrow from afriend?

! Would it make more sense to save for the purchase or to bor-row for the purchase?

! Will this financial decision enhance or restrict your ability to begenerous?

! Sleep on it. Don’t make impulsive financial decisions. Mostfinancial decisions are not that urgent.

! If married, do you and your spouse agree that this makes goodfinancial sense?


It is small leaks thatcause a dam to fail.Can you identifyspending “leaks” inyour monthlyallocations which,unless curbed, maythreaten yourfinancial security?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

This approach will teach you to prioritize your expenses. In theshort term, once you have taken care of the first two categories,you can relax knowing that you have taken care of the necessi-ties until the next pay cheque. Even a meal of macaroni andcheese will taste like a feast if you know that all the priority allo-cations for the month have been looked after. Over the long term,you will need to allocate funds for the items in the DiscretionaryAllocations category as well.

To get a good handle on your actual spending, especially thesmaller items, you may need to record every penny you spendover a period of several months. This will alert you to spendingthat could be reduced or redirected to more important things.

Involve everyone in your household, including your childrenwhere appropriate, in allocating funds. It is important for every-one to understand the priorities and limits of your householdincome. Sometimes simply saying to your children, “We can’tafford it,” is appropriate. However, be careful how often you usethat line. Saying you can’t afford something suggests to the child(and maybe to yourself) that if you had more money you wouldbuy it, thus reinforcing a consumer mindset – that lifestyle isdetermined by income. At other times you may want to say, “Wehave other priorities.” This shifts the focus from not havingenough money to what is really important to you and your family.

Small leaks, big investments

If you were able to delete some regular expenses from your dailyor weekly living costs (bag lunch instead of lunch out, daily cof-fee fix, cable TV, magazine purchase, etc.) it could make a hugedifference. See the following table:____________________________________________________

Weekly Investment Total in:savings rate 20 years 30 years 40 years

$10.00 5% $17,857 $36,176 $66,372

$20.00 5% $35,713 $72,352 $132,745

$30.00 5% $53,570 $108,528 $199,117

Small amounts saved and invested regularly add up. What “smallleaks” do you spot in your daily or weekly spending? Think of theinvestment potential.


“That which I spent, Ihad. That which Ikept, I lost. Thatwhich I gave, I have.”(UNKNOWN)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

If you find too much month left at the end of your money, youneed to spend more selectively. Look for the “small leaks” thatdrain your bank balance. Picking up a cup of coffee on yourdaily commute to work can cost as much as $625 per year($2.50 x 250 days = $625). Cut down on single-item trips to thestore. Don’t underestimate the impact small changes can haveover a period of time.

A month can be a long time

To monitor your cash flow more carefully throughout the monthyou need to follow a system that allows you to track incomingfunds and record expenses and commitments. These include:

! Deposits ! Debit card transactions! Cash transactions ! Credit card purchases! Pre-authorized payments ! Cheques written

Your “system” could be a manual ledger, a cheque book, or anyone of numerous computer software packages that you can pur-chase or develop. If you are punctual in recording your transac-tions you can review your “balance” any day of the month.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

In the long term, your income must match or exceed yourexpenses. If it doesn’t, you have two choices – reduce expensesor increase income. Usually the shortfall will have to be bridgedby reduced spending. Unless you manage your money intention-ally you will become a victim of your own mismanagement andwill eventually be forced to live below your means in the longterm, or go bankrupt. In the end, it matters greatly that you putGod first and don’t spend more than you earn.

.........................................................................................................

Look back at the exercise in “Approaches to managing money,” Chapter 1, page 6. You wereasked to identify your management approach. Dothe following exercise to identify any changes youbelieve you need to make.

EXAMPLE

! Desired improvement: I want to know where mymoney is going.

! Plan of action going forward: I will record every purchase I make during the next three months.

Going forward

I want to change my approach to managing money as follows:

! Desired improvement ____________________________________________________________________________________________________________________________________________________________________________________________________________________________

! Plan of action going forward____________________________________________________________________________________________________________________________________________________________________________________________________________________________


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

B. Managing personality..........................................................................................................

In the exercise on “Managing personalities” inChapter 1, page 8, you were asked to identify yourmanagement personality by placing a !! in frontof the characteristics you felt good about and a ?in front of those you wished to change. Take one ortwo of the items you would like to change and listthem here along with the steps you will take tochange them.

EXAMPLE

! Desired improvement: I have identified myself as acompulsive spender and wish to change that.

! Plan of action going forward: When tempted tomake an unplanned purchase over our agreed spend-ing limit, I commit to practising a 48-hour “cooling off”period and then make the purchase only if I reallyneed the item and (if married) if my spouse approvesof the purchase.

Going forward

I want to change my money management characteristics as follows:




Building margin intoour lives reducestensions and sets thestage for a generouslifestyle.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

C. Current money practices..........................................................................................................

On page 10, you were invited to identify your cur-rent money practices by placing a !! in front ofthe characteristics you felt good about and a ? infront of those you wished to change. Take one ortwo of the ones you would like to change and listthem here along with the steps you will take tochange them.

EXAMPLE

! Desired improvement: I want to have $1,000 avail-able in a savings account for unexpected expenses.

! Plan of action going forward: Arrange with yourfinancial institution to transfer $30 from every pay-cheque into a monthly savings account until the $1,000desired improvement has been reached. Remember,these funds are not for monthly living expenses but forunexpected circumstances and for exceptional needs.

Going forward

I want to change my current money practices as follows:




Though the emphasishere is on carefulspending, leave atleast some room forpersonal and familycelebrations.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

D. Debt “The wise look ahead to see what is coming, but fools deceivethemselves.” (PROVERBS 14:8)

“For the love of money is at the root of all kinds of evil. And somepeople, craving money, have wandered from the faith andpierced themselves with many sorrows.” (I TIMOTHY 6:10)

More than ever, North American culture encourages us to usedebt to get what we want today rather than to wait until we canpay for the item in cash. Those who sell products stronglyencourage and facilitate the practice by offering point-of-purchase credit. Rather than having to go to a financial institutionto arrange credit, you can make financing arrangements on thespot.

When the retailer, the media, and everyone around you says “Buynow and enjoy the product today,” many people find it hard tosay no, especially when credit is so easy to get. Unless youknow your self-imposed limits and are determined to live bythem, you may find yourself buying things against your betterjudgement, leaving you trapped under a crippling load of debt.

The enticing power of money coupled with easy credit is theseduction of consumerism: a lifestyle measured by the things weaccumulate. We need to hear what Jesus said to the man whowas caught up in the pursuit of things: “Real life is not measuredby how much we own” (LUKE 12:15B).

There is a place for leases, loans, and credit cards. But the avail-ability of credit should not be the primary factor in your decisionto make yet another purchase. Just because a lender is willing tolend you the funds does not mean that you can afford the item orthat you should proceed to buy it.

Borrowing to make a purchase allows you to enjoy the things youneed or want before you have the money to pay for them. It is forthis privilege that we pay interest (sometimes at exorbitant rates)to the lender. Not all loans are the same. Loans made for assetsthat normally maintain or increase in value (e.g., house, land,income-producing investments) and that are within your financialability to pay may make good financial sense.

Loans made for items that normally decrease in value (e.g., com-puter, vehicle, furniture, vacations, yard equipment), should bekept to a minimum. Saving for such purchases not only


Just because you canafford somethingdoesn’t mean youshould buy it.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

eliminates paying interest on the loan but your savings will earninterest in the meantime, thus providing a double benefit.

At the very least, plan to pay off your loan on depreciating assetslong before the purchased item has lost its value. No one wantsto continue making loan payments on things that no longer haveany value or usefulness.

..........................................................................................................

Take another look at the Summary ofLoans/Vehicle Lease Information, page 11. Keepingin mind the examples mentioned above, place an“A” in front of the loans made for appreciatingassets and a “D” in front of the loans made fordepreciating assets. Do you see a pattern?

..........................................................................................................

If you do need to make loans, financial institutions will generallyregard 40% of your gross total household income as the absolutemaximum that you can allocate for all your combined loan pay-ments. To go beyond that will severely restrict cash flow for dailyliving. Failure to make timely payments on your debt or utility billswill cast a shadow on your credit rating and affect your ability toborrow for more important things in the future.

Following is a brief description of the most common loans:

! Student loans. To encourage people to pursue post-second-ary education, the Canadian government offers loans to stu-dents to help pay for their education. Once you graduate ordecide to terminate your studies, interest begins to accrue toyour loan balance. Six months after you leave your studies youwill have to begin paying back the loan, including interest.Interest payments on student loans are now tax deductible.

Another option may be to borrow from yourself. If you haveRRSPs, you can withdraw up to $10,000 annually to a maxi-mum of $20,000 in four years from your RRSP under the gov-ernment’s Lifelong Learning program to pay for tuition at anapproved learning center. To avoid having the withdrawnRRSPs taxed as income, the loan balance must be repaid intoan RRSP within ten years.

Be aware that by withdrawing your RRSPs for a period of time,you are interrupting the benefit of compound earnings on your


People tend to findmoney for the thingsthey really want.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

retirement funds. Even if you repay the principal, you will stillhave significantly less money in your retirement account whenyou retire.

Try to keep your student loans to a minimum. Just because youcan access funds doesn’t mean you should. It takes seriousdiscipline to pay off student loans, even more so if you don’timmediately get a well-paying job in your field. Also, rememberthat student loan payments may have to be paid off alongsideother financial obligations such as a mortgage and familyresponsibilities.

! Consumer loans. Consumer loans are normally used to pur-chase household items and vehicles with a repayment periodof one to five years. Consumer loans have become big busi-ness as major retailers entice buyers by offering veryfavourable loan rates to people buying their product now.Usually the item purchased (e.g., car) is considered securityfor the loan.

! Lines of Credit. A line of credit allows you to draw on a pre-authorized loan amount that you have arranged with your finan-cial institution. While a loan limit is established, the paymentschedule is not. Interest (usually at a reasonable rate) is nor-mally deducted monthly from your account. The purpose ofthis kind of loan is to tide you over periods of low income orexceptional expenses – or for investment purposes. If you findyourself drawing on your line of credit for day-to-day livingexpenses, it may mean you are living beyond your means andneed to adjust your lifestyle.

! Mortgages. Loans for a house or other property are usuallysecured by a mortgage on the property. The loan may last aslong as 25 years or even more. Historically, the buyer wasexpected to have at least 25% of the funds in hand to makethe purchase. Today, many financial institutions offer mort-gages with a much smaller down payment.

Some financial institutions will finance 100% of the home, mak-ing it very easy to get into home ownership. But the two loanpayments (mortgage and down payment loan), plus the addedcost of home ownership (e.g., property taxes, insurance, houseand yard maintenance), can leave people squeezed for oper-ating cash. Rising interest rates, which lead to higher monthlypayments, can quickly put a serious squeeze on cash flow.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

! Credit cards. Credit cards are big business. Some large cor-porations generate more profit from their credit card loan busi-ness than from their retail sales (National Post, April 9, 2005,p.1). In other words, the business makes more money by hav-ing you use their credit card to purchase a sofa than the mar-gin they make by selling you the sofa.

No wonder retailers have people standing at the entrance totheir stores making “in your face” credit card pitches to everyconsumer who enters. Then there is the mail. Hardly a weekgoes by when you don’t receive yet another unbelievable cred-it card offer in the mail, complete with pre-approved credit andvery enticing, low introductory interest rates. Getting people tosign up and use their card is a strategic part of many corpo-rate business plans – not just any card but their card.

The credit card was designed to benefit business, not you –the consumer. Yes, it offers convenience for you but that con-venience comes at a price: high interest charges, frequently ashigh as 28.8%. You can avoid the interest charges by payingyour monthly balance in full by the due date. If you have ahabit of leaving an unpaid balance on your credit card(s), stopusing them until the balance is paid in full. Then commit topaying the full balance each month.

Studies have shown that people spend more – up to 35% more– on in-store purchases when using some form of borrowedmoney (credit card, consumer loan, etc.) rather than payingcash (Three Simple Rules, Theo A. Boers, p.12). If you areunable to control the use of credit cards, consider cutting themup and using only cash or debit.

Because all retailers want you to use their card, you may endup with a number of different credit cards in your wallet, eachwith a built-in credit of several thousand dollars – all itching tobe spent. With a number of cards in use, you may be in for asurprise when you receive your monthly statements and findyou spent more money than you thought you did.

But wait! This is where the card company comes to the rescue.No need to pay the whole amount! Just pay the minimum (thecurrent interest and a tiny bit of principal) and the card compa-ny is happy. Of course it’s happy. You have just fulfilled itsbest-case scenario – you will pay them major interest chargesnow and likely for years to come. You may end up paying dou-ble or more for a purchase you couldn’t resist because theitem was on sale. Beware!


“Trust in the Lord withall your heart; do notdepend on your ownunderstanding. Seekhis will in all you do,and he will directyour paths.”(PROVERBS 3:5-6)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

! Loans from family and friends. It is critically important whenyou are borrowing from or lending money to family members orfriends that the expectations are clearly outlined, preferably inwriting. This can sharply reduce the risk of misunderstandingsand loss of friendships. Record the loan amount, the repay-ment schedule, the rate of interest, if any, and any other perti-nent details.

! Co-signing. Occasionally a lender will ask a borrower to pro-vide a co-signer for a loan if other security is lacking. Thinkcarefully and critically before you agree to co-sign a loan foranyone. Co-signing a loan means that you will assume thedebt obligations if the person receiving the loan does not makethe payments.

! Debt consolidation. Debt consolidation is another approachto making loans more manageable but this option should beused with caution. This involves rolling all of your loans intoone loan, usually at a bank or credit union, using the loan pro-ceeds to pay off all the creditors and then making one monthlydebt payment to the bank or credit union. Usually consolidat-ing debt will result in a lower overall rate of interest as well as alower monthly principal payment since the loan repaymentperiod on some of the loans will have been extended.

Debt consolidation can bring a measure of relief but if thereduced loan payments open the door to further debt, debtconsolidation is self-defeating and should be avoided. If youfind yourself trapped by debt, seek the help of a financialcounsellor.

Feeling squeezed by debt? First, make sure you complete theSummary of Loans/Vehicle Lease Information on page 11, listing

Tax refund

If you have employment income and make charitable donationsor RRSP deposits during the year, you will likely receive a taxrefund when you file your annual tax return. Why not considerusing part of the refund to make gifts to charities that are notalready included in your monthly giving? Consider using half ofthe remaining balance to pay down your debt and the other halffor necessary bigger-ticket purchases, add to your RRSP/savingsaccount, or fund your “account for occasional expenses.”


“We purchase what wedo not need, withmoney we do nothave, to satisfy a needthat doesn’t exist.”(GORDON MOYES)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

all debts, their rate of interest, and payments. Make the minimumpayments on all loans. Then choose the loan with the highestrate of interest and concentrate on paying off this loan as quicklyas possible. More than likely, it will be your credit card debt thathas the highest rate.

Any extra payments you are able to make over and above therequired amounts will quickly reduce the loan balance and great-ly accelerate the loan pay-down. As one loan is paid off, roll theamount of that loan payment over to the next loan until it is paidoff. Continue until all debts are paid off. ..........................................................................................................

Go back to the Summary of Loans/Vehicle LeaseInformation in Chapter 1, page 11. Are debts a con-cern to you? Can you think of ways you couldaddress your debt concerns? Take one or two ofthese ideas and convert them into action plans.Remember a series of small but intentional changescan make a big difference over the long term.

EXAMPLE

Desired improvement: I/we want to pay off our accu-mulated credit card debt within 18 months.

Plan of action going forward: I/we will pay off ouraccumulated credit card debt by paying in full anynew charges each month, plus pay at least double therequired minimum monthly payment until the balanceis zero. Once the accumulated debt is paid off, I/wewill make it a practice to pay the bill in full each monthwhen it comes due.

Going forward

I/we want to make changes to our debt accumulation practices:

! Desired improvement ______________________________________________________________________________________________________________

! Plan of action going forward______________________________________________________________________________________________________________


If you want to feelrich, give. If you wantto feel poor, hoard.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

E. Net worthIn Chapter 1 you were asked to spend some time developingyour own Net Worth Statement. Take another look at it to get asense of your “big picture” financial situation.

Over the years, annual net worth statements will allow you tomake year-to-year comparisons and to observe trends. If you dis-cover that your net worth is shrinking from year to year, it is timeto take another look at your income and expenditures to deter-mine what’s happening. As you struggle to pay your monthlybills, you may feel you are on a financial treadmill when, in fact,your net worth shows an encouraging increase.

Others, upon realizing their net worth, may determine that theyhave more than enough and, given their stage in life, choose tolevel off or deliberately decrease their assets. This may includean increase in giving, giving an early inheritance to heirs, or leav-ing a paying job to do volunteer work.

How much is enough? Enough for what? Enough for when?These are tough question with no definitive answers but thatdoesn’t mean we shouldn’t reflect on them. If we depend onmoney to make us feel secure, we will never have enough. If welook to money to make us feel important, we will still feel hollowinside. If we think we don’t have enough, how can we be gratefuland generous? And how do we balance long-term financial plan-ning with trust in God? What does it mean to be content?

If you live without financial margin, you will feel poor. If you livewith at least a small margin you will feel wealthier, even if yourincome has not increased. If you share of what you have, you willfeel even richer. Worship, gratitude, and generosity lead to con-tentment. Contentment is a choice; make it a way of life.

..........................................................................................................

Look back at your Net Worth Statement on page 14of Chapter 1. Are there things you would like tochange?

EXAMPLE

Desired improvement: I would like to be more grate-ful for what I already have, and focus less on thethings I still wish for.


NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Plan of action going forward: I will memorizePhilippians 4:12-13 and thank God daily for what Ialready have. I will look for opportunities to share ofmy time, abilities, and possessions with others.

Recap

This session invited you to take firm steps towards change inhow you view and manage your money. You were asked to rankyour money allocations in order of importance – an approach thatpermeates this entire book. You are now better informed aboutdebt, its potential and its pitfalls. You have been encouraged tobe content, focusing more on what you already possess and lesson what you still wish for.

Going forward

I/we want to change how we view our Net Worth Statement by:

! Desired improvement ______________________________________________________________________________________________________________

! Plan of action going forward______________________________________________________________________________________________________________

P U R S U E C O N T E N T M E N T 3 5

“. . . for I havelearned how to getalong happilywhether I have muchor little. I know howto live on almostnothing or witheverything. I havelearned the secret ofliving in everysituation whether it iswith a full stomach orempty, with plenty orlittle. For I can doeverything with thehelp of Christ whogives me the strengthI need.”(PHILIPPIANS 4:11-13)

“Yet true religion withcontentment is greatwealth. After all, wedidn’t bring anythingwith us when wecame into the world,and we certainlycannot carry anythingwith us when we die.So if we have enoughfood and clothing, letus be content.”(I TIMOTHY 6:6-8)

Whether rich or poor, for many of us contentment is an elusiveideal. We know that we should be grateful for what we have, butwe weigh the gifts God has given us and find them inadequate.We don’t have to look far to find someone who has more than wedo. If contentment is rooted in circumstances and comparisons,then only some people can be content. If contentment is achoice, then we all have the opportunity to be content.

Having much or little, the apostle Paul had learned to be content.It would have been easy to focus on the things he lacked (II CORINTHIANS 11:23-31) and yet, instead of griping about his badcircumstances, Paul chose to be grateful for God’s provision andpresence. Paul chose to focus on God rather than on his immedi-ate physical circumstances. That opened the door to gratitudeand contentment.

True contentment frees us to enjoy our gifts in the present. To becontent does not mean that we don’t work for better tomorrows orplan for the future. It does mean that we do not let our dreamsand concerns about tomorrow rob us of fully enjoying the giftswe have today. We will always live with uncertainty about futurecircumstances. However, in any circumstance God remains con-stant and can be fully trusted to be present with us. Our content-ment comes not in having everything we want but in a securerelationship with God.

People dominated by greed have an insatiable obsession tohave more (I TIMOTHY 6:9-10). It makes no difference how muchthey already have; it is never enough. When we take for grantedwhat we already enjoy and become obsessed with what we don’thave, we invite greed to take root. Left unchecked, greed willlead to the loss of relationships as people are increasinglyviewed as things that either help or hinder further wealth accu-mulation. Gratitude and generosity are powerful antidotes togreed and selfishness.

Contentment is a choice. Make it your way of life.

PURSUE CONTENTMENT

P L A N N I N G F A M I L Y F I N A N C E S 37

There are alwaystrade-offs, regardlessof which option youchoose.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

A. One income or twoMany couples start out with two incomes but then face difficultemployment choices when children arrive. Should one of the par-ents interrupt his or her career and be a stay-at-home parent, atleast until the children are in school? Will the career interruptionmake it difficult to get back into a similar role years later? Will thejob market be so different that re-entry will mean significantretraining to get back on stream?

With the added expense of caring for children, can you even sur-vive on one income? Can one of the parents arrange for home-based employment? How much of the second income will needto go for childcare and other related costs? Some parents chooseto make significant financial sacrifices so that one of them canbe at home to spend more time with the children through theirearly years. Others want to keep on with their career or feel theyneed the added money from a second income.

Staying at home to care for young children may not be an optionfor single parents. Even with spousal and/or child support, it islikely that the single parent will need to look to employmentincome to provide for the household, adding to the tensionsbetween work and parenting.

Regardless of your personal circumstances, there are alwaystradeoffs – personal/family time versus the time needed forwork/career advancement, more income versus higher child-care/nanny expenses, and more financial elbow room versuspaying more income tax. In the end you have to decide what’simportant to you and what is realistic in your circumstances.

To help you clarify your personal situation, rank the following on ascale of 1 – 5, with 1 being very important and 5 not important.Spouses should do this independent of each other. Once bothhave completed the exercise, they should compare and discusstheir rankings with a view to clarifying and establishing commonvalues. Hopefully this process will help you make sense of yourunique circumstances.

CHAPTER 3 Planning Family Finances

38 P L A N N I N G F A M I L Y F I N A N C E S

Make time as ahousehold to explorethe issues. Who knowswhat creativesolutions you maycome up with?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Person X

Very important Not important

1 |__________|__________|__________|___________|___________| 5Making more money to pay off loans more quickly

1 |__________|__________|__________|___________|___________| 5Maintaining/advancing my career

1 |__________|__________|__________|___________|___________| 5Providing more opportunities for children growing up

1 |__________|__________|__________|___________|___________| 5Having one parent home with the children

1 |__________|__________|__________|___________|___________| 5Having adequate income to meet basic needs

1 |__________|__________|__________|___________|___________| 5Acquiring better house, vehicles, etc.

1 |__________|__________|__________|___________|___________| 5Retiring early

1 |__________|__________|__________|___________|___________| 5

Having home-cooked meals

1 |__________|__________|__________|___________|___________| 5Having more money for charity

1 |__________|__________|__________|___________|___________| 5Funding post-secondary education for children


Which of the issuesyou rated as veryimportant are relatedto the quality of yourfamily life? Whichones are related toincome?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Person Y

Very important Not important

1 |__________|__________|__________|___________|___________| 5Making more money to pay off loans more quickly

1 |__________|__________|__________|___________|___________| 5Maintaining/advancing my career

1 |__________|__________|__________|___________|___________| 5Providing more opportunities for children growing up

1 |__________|__________|__________|___________|___________| 5Having one parent home with the children

1 |__________|__________|__________|___________|___________| 5Having adequate income to meet basic needs

1 |__________|__________|__________|___________|___________| 5Acquiring better house, vehicles, etc.

1 |__________|__________|__________|___________|___________| 5Retiring early

1 |__________|__________|__________|___________|___________| 5

Having home cooked meals

1 |__________|__________|__________|___________|___________| 5Having more money for charity

1 |__________|__________|__________|___________|___________| 5Funding post-secondary education for children

Talk with parents who have chosen to carry on with careers along-side child-rearing as well as those who have chosen to be stay-at-home parents. Listen to the pros and cons. There will always betradeoffs. You can’t have it all. Learn from other people’s experi-ences and then decide what makes sense in your situation.

If you could make do with one income but choose to continuewith the second income through your child-rearing years, consid-er using the second income for things like additional loan pay-ments, additional gifts to charity, retirement savings, post-sec-ondary education funds, rather than for month-to-month livingexpenses. That way, if you choose to live on one income, yourlifestyle will not be greatly affected.


You need to decidewhat makes sense inyour uniquecircumstance andthen move forwardwith confidence, notguilt.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

B. Children and money“Teach your children to choose the right path, and when they areolder, they will remain upon it.” (PROVERBS 22:6)

“A student is not greater than the teacher. But the student whoworks hard will become like the teacher.” (LUKE 6:40)

Children learn by watching and imitating. Parents with goodfinancial habits and practices are in an excellent position to passthese positive values on to their children. Though young childrenmay not yet understand money, and in particular “plastic” money(credit or debit cards), they will pick up on values and attitudesaround money. In keeping with their level of understanding,explain to your children how money is earned and how it works(e.g., work done is rewarded with money, which in turn can betraded for things like food, clothes, toys, etc.).

Opinions are divided as to whether allowances should be givenwithout expectations or be payment for household chores. Someargue that we do chores because we are part of a household,and everyone participates. Other parents feel that allowances area reward for doing household chores and, therefore, tying theallowance to performance can be a good motivator, particularlyas children move into their early teens. It also helps them tomake the connection between work performed and income,something they will face as soon as they have their first job.

There are at least three important concepts that our childrenneed to learn about money: sharing, saving, and spending. Withsome planning, allowances can help parents teach those

Guidelines for giving allowances

! Be consistent. Try to give the money on the same day everyweek.

! Allow children to make mistakes and to learn from them. Betterto make mistakes now when the stakes are still small.

! Give an additional allowance (beyond a set base amount) thatchildren can earn for doing extra work around the house or yard.

! Remember, your goal is to prepare your children to managemoney well after they leave home.


You might wish toreplace the term“allowance” with“income,” if youconsider it “earned”money.

Sharing does notcome naturally to all children, andtherefore needs to bemodeled and taughtearly in the child’slife.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

concepts. Outline the allowance system clearly to your children.Keep the system simple, straightforward, and consistent.

Whether you decide that an allowance is only a tool to teach chil-dren to manage money or you feel it should be tied to householdchores, consider giving an allowance as soon as your childunderstands something about the value of money – around theage of six or seven. You might link the amount of the allowanceto the age of the child (e.g., 50 cents to $1 a week per year ofthe child’s age, or $3.50 to $7 per week for a seven-year-old).Amounts will vary depending on the family situation and what achild is expected to buy with his or her own money (for instance,school lunches, gifts, fees for optional after-school activities, etc.).

Some parents use a three-jar system or another way of makingclear from the time an allowance is first introduced that money isto be allocated for different purposes. For example:

! Sharing – 10% (or more) should be set aside immediately forgiving to the church and/or other charitable causes of thechild’s choosing. This act of giving should to be connected tothe teaching of first fruits giving/worship and our need to share.Sharing does not come naturally to all children, and thereforeneeds to be modelled and taught deliberately early in thechild’s life.

! Saving – 40% is placed into longer-term savings to be usedfor larger purchases. Not only will this provide money for largerpurchases (computer games, music players, trips, car, or edu-cation), this fund will also help children understand that some-times we need to wait (save) to get what we want – a veryimportant life lesson for children as well as adults. While chil-dren will need help in planning for the future and waiting to getthings, eventually, as they get older, they will begin to under-stand.

Opening an account for your child at a local financial institu-tion, and then depositing the savings portion of the child’sallowance regularly, perhaps once a month, is a good practice.Having your child physically make the deposit will help him orher connect deposits and withdrawals from the account. Someinstitutions have special accounts that pay a premium rate ofinterest for children’s accounts and are exempt from servicecharges to encourage young savers.


Learning to save andwait for something wereally want is acritical life skill forall ages.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

! Spending – 50% is given to the children to spend (mostly) asthey wish. Spending comes fairly easily to most children; how-ever, they will need guidance. They see things they want andthey know that money is the tool to get it. Teach children thatthey will have to make choices and tradeoffs. Instead of unduly criticizing poor choices (EPHESIANS 6:4), reinforce gooddecisions.

As children get older and the allowance increases or once thechild has a part-time job, you should add age-appropriate cat-egories (e.g., gifts, clothes, school lunches, outings) which thechild is expected to pay with his or her own money. This teaches the child to plan, to make choices, and to live with the consequences.

C. Teens and moneyAs a parent, your goal is to teach your teens how to handlemoney responsibly on their own by the time they are adults. Theyshould be able to distinguish needs (what I need to live) andwants (anything beyond what I need to live). They should be ableto keep their spending within their income. They should under-stand loans, including interest on loans. Some might even under-stand the basics of investments and returns on investments.

The way to move your teens towards being financially responsi-ble is to gradually let them manage more of the money youwould normally spend on their needs. Your ultimate goal is even-tually to have your children handle all of the money related totheir needs (clothes, outings, charitable giving, CDs, etc.),except for basic room and board. You should be able to begin aserious shift of responsibility around age 11 or 12, with the goalof completing the process by the time your child finishes highschool.

You may need to help your teens visualize the implications of thistransfer of money and responsibility by tracking and reviewingactual expenditures currently made on their behalf. Use thatinformation to help your teens list the purchase items and expen-ditures they will need to plan for each month. Teach them to keeptrack of what they receive/earn and what they spend it on –another good financial management tool.

If your teen has a part-time job, as many do, this should allowyou to reduce the allowance money you pay to your teen or to


The goal is to haveyour teens able tohandle moneyresponsibly on theirown by the time theyare 18.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

shift more of the responsibility of paying his or her own way,speeding up the process of making your child financially “inde-pendent.” Through work experiences, teens also learn the connec-tion between work and income, and the disciplines related to it.

Some families find it difficult to give regular allowances due tocircumstances such as unemployment or underemployment ofthe primary income earner. Maybe the household is barely mak-ing ends meet as it is. Parents need to be careful not to over-whelm their children with concerns about money while at thesame time involving them in the decision-making processes asappropriate for their age.

As your children mature, keep nurturing fiscal responsibility andgenerosity. When they are old enough to understand, introducethem to different investment concepts (see Chapter 4 for moredetails), which is another way of preparing them for the future.

D. Saving for your children’s educationRegistered Education Savings Plans (RESPs) are an attractiveway to save for your children’s education. While there are no taxdeductions available for contributing to an RESP, the moneyinside a plan is sheltered from tax until it is withdrawn. Once thechild draws on the money, the child pays tax at his or her mar-ginal rate, which for most students is the lowest tax bracket, if notentirely tax-free. The 2007 federal budget proposed a $50,000lifetime limit per child, up from $42,000 previously.

Loans to children

Although delayed gratification is one of the first spending lessonsthat you want to teach, there may be times when your childrenwant a legitimate item before they have enough money on handto make the purchase and want to borrow the balance from you,the parent. What should you do?

Depending on the circumstances, this could be an opportunityfor you to help your child understand how loans work by clearlyoutlining how you expect the loan to be repaid and by what date.If the child is developing a habit of using tomorrow’s money fortoday’s wants, discourage the practice and help the child focuson saving rather than borrowing for the purchase


When your childrenare young, you haveno way of knowing ifthey will pursue post-secondary education,and yet that is exactlythe time to plan for it.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

An added incentive to save through an RESP is the matchinggrant provided by the Canadian government. For every dollaryou put into the plan, the government will add 20 cents, up to amaximum grant of $500 per child per year, provided an initialRESP contribution is made by the time the child turns 15. Anadditional income-dependent grant of 30 or 40 cents per dollaron the first $500 contributed in a year is available to families withhousehold incomes of under $72,000. (See Appendix 6, page 74for details.) This arrangement lasts until the end of the year inwhich the beneficiary child is 17 (a maximum of $7,200 perchild). Should you have missed contributing in some years, thereis provision for making catch-up contributions.

Do your research. Not all RESPs are the same. Compare the fea-tures of several different plans to ensure you get a plan that bestsuits your family’s needs. You may need to check with more thanone financial institution.

Should none of your children pursue post-secondary studies, thegovernment grants must be repaid. If that happens, the parents’or grandparents’ contributions and related earnings in the RESPcan be rolled into their own Registered Retirement Savings Plan(RRSP), provided they have unused RRSP contribution room.

Some parents choose to save for their children’s education bysetting up a trust account for the child. If the trust is funded fromthe respective child’s Canada Child Tax Benefit, any income taxis attributed to the child, (who likely doesn’t have enough incometo be taxable). Likewise, if the investments in the trust accounthad a capital gain, the capital gain is attributed to the childrather than to the contributor when the asset is sold. If a parentor grandparent contributes money into the trust account, interestincome or dividends from such investments are attributed to theparent or grandparent, who must report the income on their owntax returns until the child reaches the age of 18.

Recap

This session provided a framework for making an informed deci-sion about “one income or two.” You were also offered practicalsuggestions on how to develop good money sense in your chil-dren, and some ideas on saving for your children’s post-secondary education.

P L A N N I N G L O N G T E R M 45

Remember, the goalof life is not to makemoney – it is to earnmoney to fulfill yourgoals in life.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

“Look here, you people who say, ‘Today or tomorrow we aregoing to a certain town and will stay there a year. We will dobusiness there and make a profit.’ How do you know what willhappen tomorrow? For your life is like the morning fog – it’s herea little while, then it’s gone. What you ought to say is, ‘If the Lordwants us to, we will live and do this or that.’” (JAMES 4:13-15)

Planning for the future is good and proper but all such planningis subject to “if the Lord wants us to . . . . ” Much of what hap-pens in life is beyond our control. Even the best-laid financialplans can go awry. That should not stop you from planning butyou shouldn’t be surprised when things turn out quite differently.

A. Investing1. Align your investments with your values. When looking forinvestment options there is more to consider than simply chasingthe highest rates of return. Followers of Christ should also con-sider how their investments align with their faith convictions andpersonal values.

An investment option gaining respect in the investment marketsis “Socially Responsible Investing” (SRI), or “Mission BasedInvesting” (MBI). These terms refer to investment products thatare screened according to various social, employment, and envi-ronmental criteria. While there may be no market investment that

CHAPTER 4 Planning Long Term

Seek advice

Seek out the advice of a well-qualified financial planner whounderstands your values and can help you shape your goals.Financial planners are trained to provide investment advice aswell as tax planning advice, both important considerations in anyfinancial plan. At the same time, remember that the goal of life isnot to make money but to earn money to fulfill your goals in life.

46 P L A N N I N G L O N G T E R M

“Give generously foryour gifts will returnto you later. Divideyour gifts amongmany for you do notknow what risks lieahead . . . . Be sure tostay busy and plant avariety of crops, foryou never know whichwill grow – perhapsthey all will.”(ECCLESIASTES 11:1, 2, 6)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

is completely “clean,” it is still important to seek out investmentsthat are consistent with your social and spiritual values.

2. Invest early. If you are able to make investments early in life,you will benefit from the power of time and compounding. Whilethe following examples do not take into account the effects ofinflation or income tax implications, they do graphically illustratethe power that time and compound interest have on long-terminvestments.

Option 1

Age 25 years oldAnnual investment $2,000.00Average annual return 8%No. of contributing years 10Total investment $20,000.00Total value at age 65 $334,996.00

Option 2

Age 35 years oldAnnual investment $2,000.00Average annual return 8%No. of contributing years 30Total investment $60,000.00Total value at age 65 $246,692.00

Meritas Financial Inc. is a mutual fund company owned andoperated by Mennonite Foundation of Canada, MennoniteSavings and Credit Union, and Mennonite Mutual Aid. The goalof Meritas is to provide investors with the opportunity to put theirvalues and beliefs into action through the investment of theirmoney. Meritas offers a family of mutual funds that includesmoney market, bond, Canadian, US, and international equityfunds. For more information on investment options with Meritas,contact your financial planner or visit the Meritas website atwww.meritas.ca.


To invest is to sendyour assets out towork for you, hopingfor a positive return.

There is no tax on theincreased value ofyour primaryresidence, making itone of the most tax-efficient investmentsaround.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

3. Diversify your investments. “Don’t put all your eggs in onebasket” is wise investment advice. Consider a variety of invest-ment types (property, guaranteed investment certificates, bonds,mutual funds, shares), with percentages in each that reflect yourinvestment goals and risk tolerance. Rather than trying to out-guess the market when buying stocks or mutual fund units, con-sider buying regular amounts at regular time intervals (e.g.,monthly or quarterly) in order to “average” out the highs and lowsin market value fluctuations.

Too many people look for the highest return on their investmentwithout considering the increased risks that are often associatedwith particular investments. People who don’t sleep well at nightwhen their investment portfolio moves up and down in value maywant to stick to more predictable investments like fixed-termdeposits and bonds that have guaranteed returns. Investorsshould bear in mind that there is a trade-off between risk andreward, and that inflation can erode or even wipe out the value of“fixed” income holdings.

4. Tax considerations. Not all income is taxed equally. Takingthis into account when you plan your investments makes goodfinancial sense. Dividends and capital gains are taxed at a morefavourable rate than interest income. There is no tax on theincreased value of your primary residence, making it one of themost tax-efficient investments around. Taxes on RRSPs aredeferred until the money is withdrawn.

In a family farm or business there may be opportunities to splitthe income among family members, thus reducing taxes. Consultwith your tax advisor as to what makes sense in your circum-stance. Charitable gifts to eligible charities as well as any chari-table bequests are eligible for a charitable tax credit that mayfurther reduce taxes owing.

Rule of 72

A quick way to calculate how long it will take to double yourmoney at a particular interest rate is to use the “rule of 72” (72 ÷ rate of return = number of years to double). If your invest-ments earn 2% it will take 36 years to double your money, if theyearn 4% it will take 18 years, if they earn 6% it will take 12 years,and if they earn 7.2% it will take 10 years.


“Tell those who arerich in this world notto be proud and not totrust in their money,which will soon begone. But their trustshould be in the livingGod, who richly givesus all we need for ourenjoyment.”(I TIMOTHY 6:17)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

5. Start with the basics. Though one size doesn’t fit all, particu-larly in investment planning, the following chart may help you topicture the various financial issues and stages you may comeacross at some point in your life.

6. Develop your own priorities chart. Given your values andstage in life, develop your own priorities chart. To get started lookat the example above and then develop your own First ThingsFirst chart. While some of the suggested steps won’t apply toyou, others will. Take that information and develop your own lad-der of priorities on the following blank chart, listing the mostimportant in step one. Proceed up the stairs, listing other priori-ties as you see them. Your priorities may change as you movethrough the various stages of life; that is to be expected. Somefoundational priorities will likely remain.

Rather than feeling overwhelmed by all that needs doing, this willhelp you visualize your priorities and what you should addressfirst. Use this chart when you meet with your investment planner.He or she can help you tailor this into a plan that reflects your spe-cific life circumstances and values.

Even the most brilliant investment strategy is of no value ifyou make a practice of spending more than you earn.

6. Non-registered investmentsReal estate, stocks, etc.

5. Registered Education Savings Plan and/or Registered Retirement Savings Plan

4. House purchase

3. Saving for a down payment on a house

2. Two to three month cash reserve or other readily available funds. Life and disability insurance.

1. Develop the practice of giving first fruitsLearn to live below your income


To seek the wisdom ofothers is good advice.

Reduced CPP benefitsare available as earlyas age 60.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Some of the steps you have outlined above will need to be for-malized into specific, measurable goals. To get a handle ondeveloping financial goals, read “Financial Planning Process” inBuying a House, Appendix 2, page 69.

B. Retirement incomeWhile many people assume that “the government” will take careof them when they retire, government-sponsored retirement ben-efits were never meant to provide full retirement income.Following are the most common retirement income sources. Mostpeople will need to combine several of these sources for theirown retirement.

6.

5.

4.

3.

2.

1.

A moving target

To some extent, financial goals are moving targets as you movethrough life. This means that financial planning is always a workin progress. Circumstances that may affect your financial planinclude: age, marital status, your risk tolerance, charitable giving,debt, family obligations, values, health, and investment climate.


Though governmentpensions are asignificant help, mostpeople will need tosupplement theirincome from othersources to livecomfortably inretirement.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

! Old Age Security (OAS). All Canadian citizens age 65 andover, provided they meet the residency requirement, qualify forOAS benefits. In addition, spouses of seniors, and in somecases dependent children may also be eligible for benefits.The government pays for this benefit from general tax rev-enues. If your income rises above certain levels, OAS benefitswill be partially, or completely, “clawed back” by the govern-ment. In 2007, the government clawed back 15 cents of OASpayments for every dollar of net income above $63,511. At netincome of $102,865, OAS benefits are completely clawedback. These levels are indexed to inflation.

! Canada Pension Plan (CPP). CPP is an employer/employeefunded retirement program managed by the Canadian govern-ment. Generally, CPP benefits are paid in direct proportion tothe contributions made by the employer/employee duringemployment years. Disability and survivor benefits are alsoavailable in certain circumstances.

The CPP pension benefit amount is based on the applicanthaving reached the age of 65. However, a reduced pensionbenefit (reduced by 0.5% for every month it is drawn beforeage 65) is available as early as age 60, at which time theapplicant receives 70% of what he or she would be eligible forat age 65. Alternatively, people who wait to draw after age 65will see their benefits rise by 0.5% a month for each monththey delay collecting CPP until age 70, then reaching a maxi-mum of 130% of what their base amount would have been atage 65. (People who live past 77 might be better off waitinguntil 65 to collect CPP).

! Registered Pension Plan (RPP). If you work for a companythat has a group pension plan, you will likely be enrolled in thecompany’s RPP. Usually, both the employer and employee con-tribute to the plan. In some cases employees are allowed tochoose from several predetermined options how their funds willbe invested. Check with the human resources department ofyour company to determine details and options.

! Registered Retirement Savings Plan (RRSP). In addition toOAS or RPP, there is a government program called RegisteredRetirement Savings Plan (RRSP). Deposits can be made inyour name or in the name of your spouse. To encourage peopleto put money aside for their own retirement income, annual


“Many speak the truthwhen they say theydespise riches, but they mean the richespossessed by othermen.”(CHARLES CALEB COULTON)

Pay off credit card debt before makingRRSP deposits. Somewould advocate paying off all non-deductible debt beforecontributing to RRSPs.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

taxable income is reduced by the amount of the deposit, andtaxes are deferred until the funds are withdrawn. RRSPs canbe withdrawn at anytime with taxes payable on the amountwithdrawn.

Reasons why you might want to make early withdrawals fromyour RRSP include the following: to supplement your incomewhile staying at home when your children are young, to fundfurther education, to supplement your income while volunteer-ing with a mission or service agency, or to provide income dur-ing a period of little or no other income. Remember that anyfunds withdrawn decrease your potential retirement income,which is the primary purpose of RRSPs. Think carefully aboutthe costs and benefits before making early withdrawals.

You can also use your RRSP funds to make a down paymenton your first house. No taxes are payable on the amount with-drawn provided the “loan” is repaid as outlined in your loanagreement. If you fail to repay the “borrowed” funds, taxes aredue on the funds withdrawn. (For more details on using RRSPsfor house purchase see Buying a House, Appendix 2, page 69.)

! Registered Retirement Income Fund (RRIF). During the yearin which you reach the age of 71, RRSPs must be converted toa RRIF, beginning the process of drawing these funds into yourincome. There is a prescribed minimum but no maximum(unless your funds are “locked in,” as would normally be thecase if yours was a Registered Pension Plan or RPP – seeabove) amount of RRIF that must be withdrawn each year, butthe prescribed minimum withdrawal increases each year.Starting at age 65 you may take advantage of the PensionIncome Tax Credit. The first $2,000 of pension income is tax-free. If you have no company pension this can come out ofyour RRIF.

! Non-registered investments. Investments such as rentalproperties, savings, business investments, shares, etc., canalso provide income in retirement, as can the sale of assets nolonger needed or desired for income purposes.

It’s never too early to think about saving for retirement, especiallyin light of ever-longer life expectancies. Though government pen-sions are a significant help, most people will need to supplementtheir income from other sources to live comfortably.


To get a perspectiveon your ownretirement planning,see “Living on YourInvestments” and“RetirementWorksheet” in theappendices.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Work through the retirement planning worksheet in the appen-dices (Appendix 8, page 77) to project your retirement incomeneeds. Remember, even if the amount invested is modest, start-ing early will give you the benefit of compound interest/capitalappreciation over time. At the same time, do not becomeobsessed with or overly stressed out about having enough.

C. InsuranceInsurance involves many people (policyholders) paying for theloss suffered by a few policyholders. The primary reason peoplebuy insurance is to provide compensation to an individual, a fam-ily, an organization, or a company when a loss occurs for rea-sons named in the insurance policy. Insurance can also be usedto make a charitable gift.

Following are some of the most common types of insurance:

! Asset insurance. This type of insurance pays you when aninsured asset (e.g., house, furniture, tools) that belongs to youis damaged or destroyed by fire, storm, or other named perils.You may also have asset insurance on your car, farm machin-ery, or your business interests.

! Liability insurance. Liability insurance covers your legal liabili-ty in case of injury to other persons or damage to their proper-ty while they are on your property or using property thatbelongs to you.

! Disability/income replacement insurance. Disability insur-ance provides compensation for your loss of income due to anaccident and/or illness. Disability insurance can be purchased

A retirement income example

$ 500 OAS (x2 if married)500 CPP ($0-800 range, depending on contributions)

1,500 RRSPs/RPPs500 Drawing on other investments________

$3,000 monthly income

See the chart in Appendix 4, page 72 to see how long yourinvestments will last as you draw them down in retirement.


Life insurance can beused to make acharitable gift. Askyour MFC consultantfor details.See the life insuranceworksheet, Appendix7, page 75.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

privately or it may be provided through your employer in agroup insurance package, which generally costs less than aprivate policy.

! Life insurance. Life insurance normally provides for the pay-ment of a sum of money to a stated beneficiary when theinsured person dies. Reasons for buying life insurance include:replacement of lost family income, paying the mortgage on ahouse or business, buying out the shares of a company part-ner in the event of death, covering taxes in an estate, leavingmore for your heirs, and ensuring a gift or gifts to charity.

The main types of life insurance are whole life, universal life,and term insurance. Each serves a particular purpose, asbriefly outlined below.

1. Whole Life. Whole Life insurance is an insurance contractwith level premiums that has both an insurance and an invest-ment component. The insurance component pays a fixedamount upon the death of the insured. The investment portionaccumulates a cash value that the policyholder can use to paypremiums, withdraw, or borrow against.

2. Universal Life. Universal Life insurance, like Whole Life,includes both a death benefit and a savings component.However, with a universal policy, the policyholder can deter-mine how the savings portion is invested. The owner may alsodecide to increase the regular premium in order to add moremoney to the savings portion of the policy. Currently, within cer-tain limits, death benefits paid out from these policies areexempt from tax on the savings portion. Like whole life, univer-sal life policies can be “paid up.”

3. Term. Term insurance is used mainly for coverage of a spe-cific situation over a certain period. In a sense it is like rentinginsurance coverage for a period of time. Most term policies donot contain a savings feature. They provide compensation onlywhile they are in force. Common terms include five, 10, and20-year policies.

Term to 100 insurance is also available and will pay out a stat-ed amount on the death of the insured or upon the insuredreaching the age of 100 years. Whereas term insurance premi-ums will increase with each new term, premiums for Term to100 insurance remain level over the life of the policy.


Do you haveinsurance or otherreplacement incomein place that wouldprovide income foryour family (ifneeded) in the eventof death?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Young couples often buy term insurance so that upon thedeath of one spouse, the proceeds of the policy provide suffi-cient funds to enable the surviving spouse to stay at homewhile the children are young and need more care. A homeownermight buy a 20-year term policy to insure a 20-year mortgage.

The cost of insurance. The premium (cost of life insurance) isdetermined by a number of factors, including the age of theinsured, lifestyle, health, amount and length of coverage, typeof insurance, provincial tax rates, and life expectancy.Verification of good health is normally required before an insur-ance policy will be approved.

Recap

In this chapter you were introduced to long-term financial plan-ning concepts such as investment considerations, retirementincome, and insurance options. You were encouraged to developyour own set of long-term goals based on your priorities and yourcurrent life circumstances.

P L A N N I N G A H E A D 55

Though the willprovided by yourprovince is well-intentioned, you haveno input into whoyour executors willbe, or who will beappointed asguardians for yourminor children.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

A. Will and estate planningIt is no secret that someday, sooner or later, we will all die.Making estate plans will do nothing to cause or delay theinevitable. When we die, we will leave behind all our carefullyaccumulated possessions for others to enjoy. Solomon capturedthe irony of this in the following statement:

“For though I do my work with wisdom, knowledge, and skill, Imust leave everything I gain to people who haven’t worked toearn it. This is not only foolish but highly unfair.” (ECCLESIASTES

2:21)

Everyone who has reached the age of majority (age 18 or 19,depending on your province of residence) should have a proper-ly drafted personal will. Even if you have only a few assets, it isessential that you have a will to ensure a smooth transfer of yourestate to your beneficiaries and to prevent unnecessary worriesfor your loved ones at a time when they are dealing with thestress of your death.

If you die without leaving a valid will, you die “intestate.” In thatcase, rather than leaving the estate settlement to the whims ofyour family and friends, most provincial governments imposedefault provisions. Provincial wills distribute assets in a pre-scribed order giving preference to spouse, children, parents, sib-lings, and then the extended family.

Though the provincial will is well-intentioned, you have no inputas to who your executors will be. Your estate will be distributedaccording to the law of your province of residence without provi-sion for unique family situations, for friends, in-laws, or businesspartners, and without opportunity to make a charitable gift fromyour estate.

If you have children you have an added reason to make your ownwill. A will gives you the opportunity to nominate the guardianswho will look after your children in the event that both you andyour spouse die prematurely. Parents of under-age children

CHAPTER 5 Planning Ahead

56 P L A N N I N G A H E A D

A life lived for God isthe best inheritancewe can leave ourchildren.

Where there is a willthere is a way.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

ought to make sure that their guardians have resources to pro-vide for the children’s care as they grow up.

Without a personal will, dealing with an estate is usually morecomplicated and more expensive. Take the initiative and get aproper will drawn up, one that expresses your wishes. This is notonly good planning but also good stewardship.

Will planning also creates an opportunity for you as a Christian todesignate a portion of your estate to charitable causes. MFC canhelp with planning this. While the needs of daily living may havetapped much of your available cash during your lifetime, youmay be able to make a larger gift to charity through your estateas your last expression of worship and service, especially if yoursurviving spouse and children have been provided for financially.

Although some (not all) provinces recognize a holograph will(i.e., a will written out long-hand and signed by the testator ortestatrix but not witnessed), it is generally not recommended.Most litigation dealing with wills involves poor drafting – andholograph wills are seldom well drafted.

All personal wills contain a number of basic components

! The name of the person making the will (testator if male, testatrix if female)

! A statement confirming that this is the last will of the personnamed

! The appointment of executor(s) and trustee(s)

! Granting of powers and direction for executors

! Names of beneficiaries and the amount or portion each is toreceive from the estate

! Nomination of guardians (if applicable)

! The date the will was signed

! The signature of the person making the will

! The signatures of two witnesses to the will


Would a familyconference at thistime make sense inyour estate planningprocess?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

The act of marriage (and, in some cases, common-law cohabita-tion) invalidates an existing will made by anyone who is single,divorced, or widowed unless the will was written specifically withmarriage in mind and names the intended. Wills for “blended”families need special attention (see section C on the next page).In some situations, it may be wise for the couple to draw up aprenuptial/postnuptial marriage agreement in addition to the willto address the special concerns related to a blended family.

B. Power of attorneyWhen you grant power of attorney to someone (in someprovinces this person is referred to as a “personal representa-tive”), you are giving that person the legal right to make deci-sions for you. While it can be most helpful, there is also the riskthat the power can be misused. Choose someone you trustimplicitly, who understands you, and who is willing to serve asyour legal representative. It can be a spouse, a family member,or friend (anyone over the age of majority).

1. Power of attorney for personal care decisions. It is wise tohave documents in place should the time come when you are notable to make health care decisions for yourself. One option is toappoint a proxy (power of attorney for personal care) who canmake health care decisions on your behalf when you are not ableto do so.

In some provinces, an informal option is to leave written instruc-tions (sometimes called a “living will”) as a guide for your family,physicians, and other caregivers should critical health care deci-sions need to be made for you in the event of illness or injury.Through this document you can specify what life-sustaining treat-ments you want or do not want used in various situations (perma-nent coma, dementia, physical impairment, terminal illness, etc.).

2. Power of attorney for property. A power of attorney for prop-erty is a formal document by which you give authority in advanceto someone else to make decisions for you regarding your prop-erty or finances when you are absent or become mentally orphysically incapable of handling your own affairs. It is in effectonly while you are living – these powers do not extend to yourestate. Since provincial laws differ, make sure you get adviceapplicable to your area.


If yours is a blendedfamily, have youmade the specialarrangements neededto ensure that all theheirs will get whatyou intended?

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

C. Blended family issuesChildren who find their lives irrevocably changed by the introduc-tion of a step-parent are often concerned that their new step-mom or step-dad not take financial advantage of their mother orfather while living. In addition, the children are concerned abouttheir inheritance when their biological mother or father dies. Inparticular, they wonder if the inheritance that would normallyhave been theirs is now going to go to the step-parent or beshared with step-siblings. The issues are magnified when one ofthe parties brings significantly more assets into the marriage thanthe other or one has a large family and the other has few or nochildren.

While money can be a leading cause of marital discord at thebest of times, the potential is heightened with remarriage. Peoplewho remarry often bring significant financial responsibilities andassets to the union. Often there are issues such as property,alimony, child support payments, insurance policies, invest-ments, and retirement funds that need to be worked through toachieve a fair and common goal.

To prevent spouses from taking financial advantage of eachother, each province has rules that outline spousal entitlementswhen a marriage fails. For people entering a second marriage,these ground rules may not always make sense in their circum-stance and that is where a prenuptial/postnuptial marriage agree-ment can help. A marriage agreement is not intended to discour-age couples from sharing their resources and using them fortheir mutual enjoyment. After all, marriage is all about sharing.Rather, a marriage agreement sets out the ground rules for suchmutuality.

In a marriage agreement, a spouse voluntarily gives up his or herrights under normal spousal entitlement and agrees to a differentdivision of assets – one that reflects the unique situation of thecouple. As well, arrangements formalized in a marriage agree-ment are normally binding upon the surviving spouse and willensure that all the heirs get their intended inheritance.

As part of a marriage agreement, both parties to the marriage listtheir individual assets and then together determine which assetswill be held jointly and which will be held in their respective indi-vidual names. This allows each spouse to determine how his orher assets will be managed during life and sets the stage for


It’s not what yougather but what youscatter that tells whatkind of life you havelived.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

their new wills, outlining distribution at death. A marriage agree-ment, along with new wills that dovetail with the marriage agree-ment, can help to safeguard everyone’s interests and set thestage for trust and openness for all concerned.

Note: Similar considerations apply in most provinces with respectto common-law cohabitation.

D. Death and taxesAlthough Canada does not have succession or estate taxes assuch, there are taxes that can come due at death. As in otheryears, income earned in the year of death must be declared andappropriate taxes paid. Other taxes, which have been deferred,may be triggered by death. The two most common areas ofdeferred taxes are capital gains and registered pension funds.

Generosity from different pockets

! Giving from income. Giving as you earn your income is a wayof declaring God first in your finances and encourages anongoing lifestyle of gratitude and generosity. (MFC offers gift-ing accounts that allow you to make a donation, receive acharitable receipt, and distribute the gift to charities over thefollowing five years.)

! Giving from accumulated assets. If you have accumulatedassets which are no longer needed for provision or enterprise,this may be an excellent opportunity for you to help fund a sig-nificant project, establish a long-term charitable fund such as astudent bursary, or to establish a family foundation that willkeep on supporting your favourite charitable causes long afteryou are gone.

! Giving from your estate (a bequest). After providing for yourfamily, making a gift to charity through your estate is an excel-lent way of extending your legacy of faith to those who follow. Itis a way of saying a final thank you to God for a lifetime of pro-vision as well as reminding your family that generosity is anintegral part of life as well as death.

Contact your MFC consultant to discuss options such as giftinglife insurance, RRSPs or RRIFs, or establishing a family founda-tion or other long-term charitable fund.


“An inheritanceobtained early in lifeis not a blessing inthe end.”(PROVERBS 20:21)

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

A capital gain is the increase in value of capital property, whichis an asset that may gain or lose value. In general, capital gain isthe difference between the purchase price and the selling priceless the cost of any improvements. At the death of the owner,most capital property is “deemed” to have been sold at fair mar-ket value with any increase in value considered as taxableincome. This might include shares of a private company, sharesof a public company, real estate (other than a principal resi-dence), and other non-cash assets.

Capital gains on the primary residence of the owner are exemptfrom tax. Subject to restrictions, there are also exceptions forfarms and small businesses when rolled over to eligible familymembers.

The other main area of deferred taxes is contributions to aRegistered Retirement Savings Plan. Contributions to such plansare allowed to appreciate “tax-deferred” until withdrawn or untilthe death of the plan holder. At that time, unless there is a tax-deferred rollover to a spouse or financially dependent child, anyremaining RRSPs or RRIFs must be included as income in thefinal tax return. The tax rate could be as high as 50%. Goodestate planning, including bequests to charities, can help toreduce or eliminate the tax bite.

E. ProbateProbate is the process whereby the executor presents the will ofthe deceased to a provincial probate court for validation. If thewill that is submitted for probate is declared to be valid, it is reg-istered and validated as the last will and testament of thedeceased. Probate is then granted, verifying to all concernedthat the named executor has the official authority to carry out theterms of the will. This validation also provides a measure of pro-tection for the executor. If a more recent will is later discovered,the executor will not be held liable for having acted on the earlierprobated will.

Probate fees can take a considerable bite out of estate assets,causing some people to structure their assets so that these feeswill be reduced or eliminated altogether. Though that is under-standable, care must be taken not to make foolish arrangementsto save a few dollars on probate fees. With the exception ofQuebec, which does not require probate for notarized wills, each


Probate validates thewill and authorizesthe executor to act forthe estate.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

province sets its own fee schedule (ranging from approximately0.5% to 1.5% of estate assets depending on the province), whichis applied to all the assets of the estate.

Not all wills need to be probated. If the estate is small and theexecutor is able to carry out the terms of the will (access fundsheld in financial institutions, deal with property issues, etc.) itmay be possible to avoid probate. If the assets are more signifi-cant, most financial institutions, in an attempt to avoid potentialliabilities, refuse to release funds to an executor without probate.

Even if a will needs to be probated, some assets may bypassprobate. Life insurance and retirement funds, where a beneficiaryhas been named, properties held in joint tenancy or in a trust,and joint bank accounts with right of survivorship are passed onoutside the will. If a person dies without leaving a valid will theprovincial will applies and all assets of the estate will need to beprobated.

Though joint tenancy is a popular way for assets to transfer byright of survivorship, having another name or names on the titlecan leave all owners vulnerable to future complications. Thinkcarefully before doing this. In effect, the original owner losesexclusive control of the asset. If, for example, the other person(s)named on your title files for bankruptcy, creditors could force thesale of the asset, including your share, to pay off the debt.

Mennonite Foundation of Canada consultants are available toguide you through the estate planning process to ensure that youend up with a will that meets your needs and expresses yourwishes. Once your intentions are clear, written instructions areforwarded to the lawyer of your choice for further legal adviceand drafting of the final document.

Though there are many do-it-yourself will kits available, MFCstrongly encourages you to work with professionals in formalizingyour will. Sometimes a poorly drafted will is no better than havingno will at all.

The cost of having a lawyer draft your will is minimal comparedto the expense and problems that may be incurred by yourestate if you die without a will or with a poorly drafted will. This isnot the time to take chances to save a few dollars. Remember,good planning can reduce the hassles and expenses of dealingwith your estate and leave more for the people and charities youvalue.


A life lived for Godleaves a lastinglegacy.

NOTES____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Recap

While estate planning is often difficult, this chapter should help.You were offered guidance in will and incapacity planning.Guidance was also offered on blended family issues. For morein-depth information on these and other estate planning topicssee Mennonite Foundation of Canada’s Estate Planning Guide.

Estate planning checklist

___ Have a family meeting (if applicable) to discuss your estate plans

___ Current will(s) in place

___ Power of Attorney for property in place

___ Power of Attorney for health care in place

___ Inform executor(s) and PoA of their appointments

___ Inform executor(s) and PoA of the location of documents

___ If applicable, give appropriate consideration to the needs of your blended family

If you need help with any of the above, call MFC or your lawyerfor guidance.

A P P E N D I C E S 63

First Things First Money Allocation Plan

Buying a House

Purchasing a Vehicle

Living on your Investments

Monthly Income and Expenses Analysis

Saving for your Children’s Education

Life Insurance Worksheet

Retirement Planning Worksheet

Choosing a Professional Planner

APPENDICES

64 A P P E N D I C E S


Appendix 1

In most budget programs, all the monthly allocations appear to be equally important. In reallife, however, we often have to make financial choices and trade-offs. Less important expendi-tures will have to wait or be cut while we direct our resources to our most important needs.The First Things First Money Allocation Plan will help you do just that. It is based on your prior-ities and cash flow. This method will work best for people whose income and expenses arefairly predictable. People with irregular income such as self-employed entrepreneurs, will needto make modifications to make this plan work. See Lines 1 & 2 in the following detailed Notes,page 67.

The basic idea of the First Things First approach is really quite simple. Upon receiving yourpaycheque, declare God first in your finances by offering your gift of worship to God/charity(see note below). Next, make your most important monthly allocations such as rent, mortgagepayment, groceries, utilities, and savings, and then live on what’s left until the next paycheque.

A good way to get started is to collect all financial transaction slips throughout the month (payslips, deposit slips, purchase receipts, bills paid, etc.). Place them into one of four envelopeslabeled: Income, First Things First Allocations, Lifestyle Allocations, and DiscretionaryAllocations. You may need to put notations on some of the slips in case you forget what thetransaction was about.

At the end of each month, fill in the monthly column on the chart. Begin by filling in the incomeamount(s) and then the itemized First Things First Allocations. Any First Things First alloca-tion bills not included in the itemized list should be totalled and the amount entered as “other.”

Repeat the same process for the Lifestyle Allocations section. Again, begin this section byfilling in the amounts for any itemized lifestyle allocations. Any lifestyle allocation bills notincluded in the itemized list should be totalled and the amount entered as “other.”

Group all remaining bills and enter the total in the Discretionary Allocations line. Total theamount and you’re done. Once you have done this for several months, patterns will emerge,making the process fairly simple and efficient. Feel free to fine-tune the system to reflect yourneeds. Remember, the bottom line is to pay for priority items first and then to live within theremaining balance.

Note: For a fuller discussion on charitable gifting, see the notes on Line 3 as well as the article“Offerings and Worship” on page 15. An additional resource is the MFC book, God, Money,and Me, especially Chapter 9, “Offering Our First Fruits.”

The following chart has a set of numbers in the left-hand columns for the different allocationcategories. This is a generic example and will not likely match your personal circumstances.You will need to personalize the numbers, keeping in mind factors like income, number of people in your family unit, their ages, where you live, lifestyle preferences, and transportation needs.

First Things First Money Allocation Plan


Exam

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Lines 1 & 2: Income. List all regular, net monthly income including salary, child tax credit,pension, investments, etc. Since you do not receive the portion of your salary that is deductedat source (CPP, income tax, group insurance, etc.) do not include these amounts in yourincome figures. List only the income you actually receive.

If your income is sporadic or seasonal, take a reasonable annual amount and divide by 12 forthe monthly amounts. If your monthly income fluctuates significantly, you may need to arrangefor a line of credit to cover your needs during months of lower income or higher expenses. Becareful not to use the line of credit to raise your lifestyle above your realistically expectedincome for the year.

Lines 3-12: First Things First Allocations. Pay the First Things First allocations first. Yourfinancial institution will be happy to make most of these payments for you through preautho-rized withdrawals from your account. If you find yourself financially squeezed, you may needto revisit these (even if they are priority allocations) to see if you can find cheaper housing ortemporarily reduce the amount going into the Account for Occasional Expenses.

! Line 3: First fruits/tithes/offerings. These are listed as the first allocation for good reason.Giving to God from the “top” is an act of worship, a way of declaring God first in your life,including your finances. It is a way of acknowledging that even though you manage money,all you have comes from and belongs to God. Through giving you break the powers ofgreed and selfishness, temptations that afflict us all.

Though it might defy logic, many Christians will testify that once they developed the disci-pline of giving to God from the “top,” the rest of their money seemed to go farther. Othersadd that the practice of giving to God from the “top” has reduced tensions around moneyissues in their household. (For an interesting biblical example of not putting God first infinances, see (HAGGAI 1:3-11).) Sharing also leads to gratitude since it shifts the focus from“What do I need?” to “What do I have that I can give?”

! Line 4: Account for Occasional Expenses. Every household has occasional expenses thatare hard to plan for because they happen at random. Instead of having many contingencyaccounts for things like eyewear, tires, dental, trips, house repairs, and gifts, arrange for thebank to withdraw a fixed amount from your chequing account each month and place it intoa monthly savings account to cover these occasional expenses. In a period of low or no in-come you might also draw on these funds to help tide you over. In essence, the Account forOccasional Expenses is a self-funded line of credit for random expenses.

Periodically review the amount you are setting aside each month to ensure that the fund isadequate for the purposes outlined above. Make adjustments as needed to ensure that thethe fund remains relevant. If you are collecting more funds than needed, use the excess todo some extra charitable gifting, make an additional loan payment, or move the excessfunds into your long-term savings/RRSP account.

Notes to Money Allocation Plan chart


It will take discipline to develop this fund but once established you will wonder how you evermanaged without it.

! Line 5: Rent/mortgage. For a fuller discussion regarding purchasing a house see Buying aHouse, Appendix 2, page 69.

! Line 6: Life insurance. For a fuller discussion on insurance options see Chapter 4, page 52.

! Lines 7 & 8: Loans. For a fuller discussion on loans see Chapter 2, page 26.

! Line 12: Other. Sum up any other fixed priority monthly obligation.

Lines 13-17: Lifestyle Allocations. Once First Things First allocations have been made,move on to lifestyle allocations. Normally these would also be monthly allocations but withmore flexibility than First Things First allocations.

! Line 13: Personal allowances. To give each other a measure of financial freedom, couples sometimes agree to give each partner an amount of monthly discretionary money for which no accounting is required other than to record the monthly amount on the chart.

! Line 14: Savings/RRSP. This category is different from line 4, which serves as a personallyfunded line of credit for occasional, short-term needs. The savings/RRSP allocation is long-term investing and retirement funding. For a fuller discussion on savings, investments, andRRSPs see Chapter 4, page 49.

! Line 15: Vehicles. For a fuller discussion on vehicle costs, see Purchasing a Vehicle,Appendix 3, page 71.

! Line 16: Kids’ allowance. For a fuller discussion on structuring kids’ allowance see Chapter3, page 40.

! Line 17: Other. Sum up any other more flexible monthly allocations.

Line 18: Discretionary Allocations. Eating out, travel, furniture, cable, gifts, etc.

Sum up any remaining allocations made during the month. Should money be in short supply,these are allocations that you can delay or cancel altogether, at least in the short term.


Appendix 2

Most people dream of owning a home even if they can’t afford it now. Financial institutionshave aggressively marketed their services to make this dream possible by offering after-hoursservice, longer-term mortgages, and low or even no down payment loan options. Low downpayment home purchases work when interest rates are low, but be cautious.

Historically, home ownership has proven to be one of the best long-term investments peoplecan make. Inflation has pushed house values up, in some cases way up. Since there is nocapital gains tax on the increased value of a primary residence, any rise in value is tax free.Instead of paying rent to someone else, people are adding to their home equity.

At the same time, home ownership is not for everyone. Some people do not wish to beresponsible for the ongoing maintenance that is required of home owners, while some believethey will not stay in one place long enough to make buying a home worth their while. Still oth-ers want to keep their assets more liquid, available for investment or business opportunities,or as retirement income. Home ownership is a choice that has huge implications for manyother areas of your life. You have to decide what makes sense in your particular circum-stances.

In general, home mortgage payments (principal and interest) should not exceed 30% of grosshousehold income. Total household debt payments should not exceed 35-40% of grosshousehold income. You will reduce your financial stress significantly if you stay well withinthose limits.

Before you go shopping for the house of your dreams, seek the advice of a financial planningprofessional (e.g., banker, or financial planner) to review your loan capacity in the context ofyour present financial circumstances, taking into account your income, existing debt obliga-tions, and any other anticipated expenses or obligations.

In addition to cash, you can also withdraw a loan from your RRSPs for your down payment.

Under the Home Buyers Plan, first time Canadian homebuyers (where neither spouse hasowned a home which they have occupied as a principal residence during the last five years)can withdraw up to $20,000 of their RRSP funds, per spouse, to help them purchase a home.Under this arrangement, funds withdrawn and applied to the purchase and related expensesare not considered cashed in and no income taxes are payable on the withdrawn funds. Youmust pay back the loan, without interest, over a maximum of 15 years.

Financial Planning ProcessWhen making major financial decisions, you may find the following planning process helpful:

1.Determine your objective. E.g., buy a $150,000 home.

2.Decide what’s important to you, collect data, and consider your options. You have$23,000 in savings at present but realize that it would take considerable discipline to save

Buying a House


much more for a house while still paying the monthly rent. You know that your mortgagecosts (principal, interest, and taxes) should not exceed 30% of gross household income.

And so the choices are:

! continue renting

! buy now with a low down payment

! as a first time home buyer, use the $20,000 you have in RRSPs to increase the down payment

! wait to buy until you have considerably more in savings for a larger down payment, or

! get a loan from your parents to cover the down payment shortfall.

Consider the implications of each of the choices.

3.Develop a plan. After considering your options, you decide that it is unrealistic to save for alarger down payment since your current rent is $900 a month, leaving little room for addi-tional savings. In fact, you discover that your mortgage payments on a $112,000 mortgage($150,000-$38,000 down payment) are less (payments on a $90,000 mortgage amortizedover 20 years at 6% interest are $798 per month) than your monthly rent. That’s a good thingsince you still have taxes, insurance, and maintenance to consider. You know that it will like-ly cost you more but given what you know, you decide to take the plunge and buy a house.

4. Implement your plan. After getting pre-approval for a $112,000 mortgage, you begin toshop. When you find the right house you close the deal, formalize the mortgage, givenotice, and begin packing. Congratulations! You are now a homeowner with all the prideand challenges connected with ownership.

5.Monitor your plan. As the months roll by you realize that in some months you have severalhundred dollars left at the end of the month. You decide to use that to make additional pay-ments on the loan, significantly shortening the amortization period.

Mortgage payment comparisons

Interest costs can be reduced significantly with a shorter amortization period. Note the com-parative figures in the following table. The figures are based on a $100,000 mortgage.

Amort. period Rate of interest Monthly payment Total

25 years 6% $639.51 $191,85325 years 7% $700.42 $210,126

20 years 6% $712.19 $170,92520 years 7% $769.31 $184,634

15 years 6% $839.88 $151,17815 years 7% $893.25 $160,785


Appendix 3

To get a handle on what makes sense for you when buying a vehicle, take note of how manykilometres you typically drive in a year and how many people you normally need to transport.Since the main function of a vehicle is to provide safe, economical transportation for yourneeds, choose the vehicle category (e.g., compact, mid-size, van, truck), that makes the mostsense in your situation.

The Canadian Automobile Association (CAA) provides information about the costs involved indriving your own vehicle. Costs can be broken down into two main categories:

! Operating costs: these vary and depend on where you live, how you drive, how much youdrive, and what you spend on service and repairs. They include fuel, maintenance, andtires.

! Ownership costs: these also vary greatly and depend on what type of vehicle you choose;however, they change very little with the amount and type of driving. When calculating thecosts of ownership of a vehicle, in addition to the purchase price you must consider insur-ance, license fees, registration fees, taxes, finance costs, and depreciation. Generally, thelonger you own a vehicle the lower the average annual cost of ownership.

CAA provides average annual operating costs per kilometre for two representative vehicles: a2005 Cavalier Z-24 and a 2005 Dodge Caravan.

Average per km.

Cavalier Z-24 – 4 cyl. Caravan – 6 cyl.

Fuel* 8.5¢ 10.25¢

Maintenance 2.48¢ 2.87¢

Tires 1.79¢ 1.48¢

Total 12.85¢ 14.60¢

Purchasing a Vehicle

*Gasoline costs are based on the national average gas prices (as of December 2004) of 86.9¢per litre. The fuel costs reflect the purchase of unleaded regular grade gasoline, based on100% self-service gas prices.


Appendix 4

Total Indexed Interest Time to depletion Time to depletion Invested Monthly Draw Rate at 2% inflation at 3% inflation

50,000 500 5% 9 yr 8 mo 9 yr 3 mo

50,000 500 7% 10 yr 10 mo 10 yr 3 mo

50,000 500 9% 12 yr 5 mo 11 yr 7 mo

100,000 500 5% 23 yr 2 mo 20 yr 6 mo

100,000 500 7% 34 yr 6 mo 27 yr 4 mo

100,000 500 9% Indefinite Indefinite

100,000 750 5% 13 yr 7 mo 12 yr 9 mo

100,000 750 7% 16 yr 2 mo 14 yr 10 mo

100,000 750 9% 20 yr 9 mo 18 yr 1 mo

150,000 750 5% 23 yr 2 mo 20 yr 6 mo

150,000 750 7% 34 yr 6 mo 27 yr 4 mo


150,000 1000 5% 15 yr 9 mo 14 yr 7 mo

150,000 1000 7% 19 yr 6 mo 17 yr 5 mo

150,000 1000 9% 27 yr 8 mo 22 yr 7 mo

200,000 1000 5% 23 yr 2 mo 20 yr 6 mo

200,000 1000 7% 34 yr 6 mo 27 yr 4 mo


200,000 1500 5% 13 yr 7 mo 12 yr 9 mo

200,000 1500 7% 16 yr 2 mo 14 yr 10 mo

200,000 1500 9% 20 yr 9 mo 18 yr 1 mo

200,000 2000 5% 9 yr 8 mo 9 yr 3 mo

200,000 2000 7% 10 yr 7 mo 10 yr 3 mo

200,000 2000 9% 12 yr 5 mo 11 yr 7 mo

300,000 2000 5% 15 yr 9 mo 14 yr 7 mo

300,000 2000 7% 19 yr 6 mo 17 yr 5 mo

300,000 2000 9% 27 yr 9 mo 22 yr 7 mo

Living on your Investments


DATE: ______________________

INCOME PER MONTH

Gross wage/salary _______ Investment _______ Pension - CPP _______

- OAS _______- Other _______

Family allowance _______ Child tax credit _______ Other _______

TOTAL GROSS INCOME _______

EXPENSES PER MONTH

1. Tithe & charitable gifts _______

2. Income TaxPayroll ded. _______ Installments _______ TOTAL _______

3. Savings _______

4. Food _______

5. Household items _______

6. Housing Mortgage/rent _______ Insurance _______ Taxes _______ Hydro _______ Heating _______ Water _______ Telephone _______ Cable TV _______ Maintenance _______ Other _______ TOTAL _______

7. Education Subscriptions _______Tuition _______Other _______TOTAL _______

8. Insurance Life _______Other _______TOTAL _______

9. Clothing _______

Appendix 5Monthly Income and Expense Analysis

10. TransportationCapital pmts. _______Gas & oil _______Insurance _______License _______Maint/repairs _______Other _______TOTAL _______

11. Recreation/entertainmentFood _______Fees _______Activities _______Vacation _______Babysitting _______Other _______TOTAL _______

12. Discretionary allowancesParents _______Children _______Other _______TOTAL _______

13. Gifts Christmas _______Birthdays _______Other _______TOTAL _______

14. MiscellaneousToiletry _______Hair Care _______Laundry _______Other _______TOTAL _______

15. DebtCredit Cards _______Loans/notes _______Other _______TOTAL _______

16. Medical/DentalTreatment _______Drugs _______Other _______TOTAL ________TOTAL EXPENSES ________TOTAL GROSS INCOME _______

Less TOTAL EXPENSES _______SURPLUS _______


Tuition at universities and other post-secondary educational institutions has increased muchfaster than inflation in the last several years. Analysts predict this trend will continue. It is wise,therefore, to plan ahead for your children’s future education needs and expenses. There areseveral different strategies that can be utilized to set money aside for educational expenses.This chart summarizes the advantages and disadvantages of four different strategies.

Appendix 6Saving for your Children’s Education

Strategy Advantages Disadvantages

Conventional savings • Maximum flexibility (funds • Any interest income earned isaccount may be used for any purpose taxable to you(in trust for the child) at any time) • No CESG*

Investing child tax • Maximum flexibility (funds • No CESGcredit payments maybe used for any purpose • Investment income is taxable(in trust for the child) at any time) in the year it is earned

• Investment income is taxable to the child (as the child tax credit payments are considered to be the child’s income)

Stock or equity mutual • Maximum flexibility (funds • No CESGfunds maybe used for any purpose • Investment income is taxable(in trust for the child) at any time) in the year it is earned

• Capital gains are taxableto the child

Registered Education • Attracts the CESG • No flexibility (funds may Savings Plan (RESP) • Investment income is tax- be used only for education

deferred until withdrawn when for that child) the child is a student • Limitations on rolling income • Investment income is taxed in into your RRSP if the child does the hands of the student not pursue further education

Note: *CESG stands for Canada Education Savings Grant. The government matches contribu-tions to an RESP by 20% on the first $2,500 per year (maximum of $500/year). There is anenhanced grant of 40 cents per dollar contributed on the first $500 for families whose house-hold income is less than $36,378 and 30 cents per dollar contributed on the first $500 for fam-ilies whose household income is less than $72,756 (2007 amounts).


STEP 1: How much do you need to pay off your debtsand cover ongoing expenses?

1. Current bills, outstanding balance on your mortgage +$_________________and other loans or debts.

2. Children’s education. +$_________________

3. Expenses on death (e.g., funeral costs, legal and probate fees, etc.) +$_________________(If unsure use an estimate of $10,000-$20,000, since funerals alone start at $4,000.)

4. Emergency fund (equivalent of 3-6 months of expenses). +$_________________

Add lines 1 through 4 (A)$_________________

STEP 2: How much income would your family need?

1. Annual income. (B)$_________________(As an estimate, use 80% of your current annual income, since some expenses will be reduced with one less family member.)

2. From the table below, select the factor that corresponds to the number of years you wish to provide an income for your family. (C)__________________

*Assumes a 7% rate of return, a 3% annual inflation rate, and that the funds will be depleted at the end of the period.

3. Multiply line (B) by line (C). This is the amount required to provide an income for your family for the number of years selected. (D)$__________________

STEP 3: Total amount needed to pay off debt and provide an income

1. Add lines (A) and (D). This is the total amount your family will (E)$__________________require to pay off debts and maintain your standard of living.

STEP 4: Determine the value of your existing assetsand life insurance coverage

1. Group life insurance. +$__________________(If you are a member of an employer-sponsored or professional association life insurance plan, enter the amount of coverage you currently have.)

Appendix 7Life Insurance Worksheet

No. of Years 10 15 20 25 30 35 40Income Needed

Factor* 8.47 11.64 14.26 16.43 18.22 19.70 20.92


2. Personal life insurance. +$__________________(Enter the total amount of any existing life insurance coverage. This includes all term, whole life, and universal life policies.)

3. Mortgage insurance +$__________________(If your mortgage is currently life insured, enter the current outstanding balance on your mortgage.)

4. Liquid assets (non-RRSP) +$__________________(Enter the total amount you have invested in GICs, Canada Savings Bonds, treasury bills, money market mutual funds, and bank accounts.)

5. Long-term assets +$__________________(Enter the total amount you have invested in stocks, bonds, real estate, and non-money market mutual funds.)

6. Current value of your RRSPs +$__________________(Many people prefer to leave the value of their RRSPs out of the calculation of life insurance needs. This way, the funds can be left to grow and form part of a spouse's retirement income. If you include the value of RRSP assets, reduce the current value by 40% to allow for the fact that these funds are fully taxable on withdrawal.)

Total funds available from existing assets (add lines 1 through 6) (F)$__________________

STEP 5: Determine how much insurance you need

Subtract line (F) from line (E). This is the amount of $__________________life insurance required to meet your needs.

If the number on this line is negative and your estimates are realistic, you may already be ade-quately insured. Be sure to review your insurance needs any time there is a significant changein the balance of your assets or a change in your life circumstances.


Appendix 8Retirement Planning Worksheet

STEP 1: Determine your annual retirement income

Think about the lifestyle you want in retirement. Do you have any expenses that may be reduced(e.g., mortgage, dependants, work-related expenses)? Will you have any new expenses (e.g.,medical coverage, travel, hobbies)? A general guideline is that you may need 60-80% of yourpre-retirement gross income to maintain your previous standard of living in retirement.

1. Based on these considerations, estimate your annual retirement (A)$__________________income needs.

2. You will need to adjust your annual retirement income needs (B)___________________for future inflation. From the table below, select the number of years until you retire. Enter the corresponding inflation factor on line (B).

3. Multiply line (A) by line (B). This is your annual retirement (C)$__________________income requirement, adjusted for inflation.

STEP 2: Determine your sources of retirement income

1. Estimate the annual amount of income you expect to receive (D)$__________________from sources other than your personal savings (e.g., CPP, OAS, rental income, etc.)(As an estimate, if you have a company pension plan, multiply line (C) by 60%. If you do not have a company pension plan, multiply line (C) by 30%. Use an even lower percentage if you are uncertain about the future availability of government benefits.)

2. Subtract line (D) from line (C). This is the amount of annual (E)$__________________retirement income you will need to fund from your personal savings, such as your RRSPs.

STEP 3: Determine your personal savings goal

1. From the table below, select the number of years you expect (F)___________________your retirement income to last and enter the corresponding factor on line (F).

*Assumes a 6% pre-tax annual rate of return, 3% annual inflation, and that the funds will be depleted by the end of the period selected.

Years to Retirement 5 10 15 20 25 30 35

Inflation Factor (3%) 1.16 1.34 1.56 1.81 2.09 2.43 2.81

No. of Years 15 20 25 30 35Income Needed

Factor* 12.36 15.44 18.10 20.40 22.40


2. Multiply line (E) by line (F). This is the amount you need to save (G)$__________________prior to retirement in order to produce your annual retirement income.

3. Enter the total amount your already have saved in RRSPs. (H)$__________________

4. From the table below, select the number of years until you retire (I)__________________and match it with the return you expect your savings to earn. Enter the corresponding factor on line (I).

5. Multiply line (H) by line (I). This is the amount your current RRSPs (J)$__________________will be worth at retirement.

6. Subtract line (J) from line (G). This is the additional amount you (K)$__________________must save by the time you retire to meet your retirement income goal. (If this number is less than zero, you’re ahead of your retirement savings goal! Consider other goals you may have and put a strategy in place to achieve them.)

STEP 4: Determine your monthly savings goal

1. From the table below, select the number of years until you retire (L)__________________and match it with the return you expect your savings to earn in the meantime. Enter the corresponding factor on line (L).

2. Divide line (K) by line (L). This is how much you need to save $__________________each month to reach your retirement savings goal.

Years to Retirement 5 10 15 20 25 30 35Annual Rate 4% 1.22 1.48 1.80 2.19 2.67 3.24 3.95

6% 1.34 1.79 2.40 3.21 4.29 5.74 7.698% 1.47 2.16 3.17 4.66 6.85 10.06 14.79

10% 1.61 2.59 4.18 6.73 10.83 17.45 28.10

Years to 5 10 15 20 25 30 35RetirementAnnual Rate 4% 66.18 146.70 244.66 363.84 508.85 685.27 899.92

6% 69.49 162.47 286.91 453.44 676.29 974.51 1373.608% 72.94 180.12 337.61 569.00 908.99 1408.55 2142.57

10% 76.56 199.86 398.44 718.26 1233.32 2062.84 3398.79


“Plans go wrong for lack of advice; many counselors bring success.” (PROVERBS 15:22)

“Get all the advice and instruction you can, and be wise the rest of your life.” (PROVERBS 19:20)

Self-help resources The number of self-help resources – such as will kits, financial publications, and related soft-ware – are growing rapidly. From writing your own will to managing your investments, informa-tion and “fill in the blank” forms are only a mouse click away. Yet in the midst of all this infor-mation, it is more important than ever that you get sound advice and learn from the wisdom ofothers.

Self-help material can be very educational but it does not replace professional counsel. Forexample, a will kit might be inexpensive to purchase and may contain some helpful informationabout making a will but may not address your unique circumstances. An improperly designedwill could end up costing your estate a great deal more than what you saved on legal fees ifthe wording isn’t precise or other details have been omitted or not properly outlined.

MFC stewardship consultantsMennonite Foundation stewardship consultants are generalists, trained to assist you with char-itable, estate, and financial planning. Their role is to provide objective information and counselin cooperation with other professionals. With their broadly based training and experience,MFC consultants can help you determine the expertise needed, where to get the products,refer you to qualified professionals, and walk with you through the steps you need to take.

While not every action requires the advice of a professional, activities such as developing andimplementing a financial or estate plan, making wills, granting powers of attorney, or makingsubstantial charitable gifts should be worked at with the appropriate professionals. For thosewho are already aligned with planning professionals, involving an MFC consultant in the dis-cussions alongside your other professionals adds another skill set.

MFC consultants will meet with you to help you plan your will, outline your options, and informyou of factors to consider. Mennonite Foundation does not write wills or powers of attorney, butwill provide you with a written summary of the discussions and decisions you have made.Once you are satisfied with the instructions, they are forwarded to a lawyer of your choice,where the actual will or power of attorney is drafted and signed.

MFC can also facilitate a broad range of charitable gifting options and will help you choosethe ones best suited to your circumstances. When making charitable gifts through theFoundation, donors have input into how a gift is managed and how it is distributed. If desired,MFC can provide you, the donor, with anonymity in your gifting.

Appendix 9Choosing a Professional Planner


Mennonite Foundation provides its counseling and planning services free of charge and with-out obligation to individuals and families. MFC stewardship consultants are available to meetwith you in your home or at one of our six offices across Canada .

Other advisors In addition to MFC consultants, you may wish or need to include other professionals (i.e.,lawyer, accountant, life insurance, or investment agent, etc.) to finalize and activate your plan.One of the most important aspects to consider is compatibility – how well you and your advi-sors communicate and work together. Finding advisors with whom you feel comfortable andconfident is an important step toward developing and implementing a sound financial andestate plan.

Choosing the right advisor is too important to be left to chance. Consider the following whenmaking your choice:

! Qualifications. Does the person have the expertise and qualifications in the appropriatefields? If required, is he or she appropriately licensed? Does she have a recognized desig-nation in her area of expertise and training?

! Objectivity. Is the person an independent advisor or is he an agent for a particular productor company? Will he be able to provide you with the best service or product available?

! References. Is the person endorsed by someone you know and trust? You can usuallyavoid unpleasant experiences by using a professional who is highly recommended and hasa proven track record.

! Compatibility. Is the person interested in your goals and sensitive to your values, or is shemostly intent on her own perspective and agenda?

! Approach. Does the advisor do detailed, all-encompassing financial plans or is his focus ona specific area of planning (e.g., taxation, insurance, investments, estate)? If the latter, is heopen to working with other professionals that you may already be using or wish to bring in?

! Compensation. What costs will there be for the services of a professional advisor? In whatform is remuneration requested? Most professionals will provide a free preliminary consulta-tion. After that, costs can be charged on a commission basis, a combination of fees andcommissions, or on a fee-only basis. Determine the costs and how they are charged at thebeginning, before the “meter” starts running.

L E A D E R S ’ G U I D E 81

Congratulations! You are about to guide your group through an exciting and important study.The issues around money permeate our lives. How we manage money speaks volumes aboutour faith and values.

All participants in the study should have a book in hand before the study begins so that theycan familiarize themselves with the material. In particular, encourage all participants to readthe biblical teaching sections on pages 2, 3, 15, and 35 so that these concepts get imbed-ded in their minds and hearts.

Although this study guide is divided into five chapters, feel free to spend more time with somesections and less with others, depending on what is most relevant for your specific group. Atthe same time, you will increase the impact if you follow through on all the chapters insequence.

While the Bible has a lot of specific advice, it does not try to answer all the day-to-day moneyquestions we face. For example, it doesn’t address questions related to retirement income, lifeinsurance, or children’s allowance, yet these are issues many of us face. Rather than trying tofind specific verses that address each money question, offer general principles. Appeal to thewisdom of the group to help guide the process.

As noted in several places in the book, there are different approaches to managing money.Don’t push to have everyone conform to one method. It won’t work. At the same time, by theend of the sessions everyone in the group should become much more deliberate about howthey make money decisions, guided by their values and the principles outlined in the guide.

There are a number of places in the material that invite participants to check off or write intheir reflections. Please allow class time to do these. These exercises are important stepstowards self-understanding as well as for intentionally affirming new directions. In some situa-tions it may be appropriate to ask the participants to share their reflections, while at othertimes doing so may make some hesitant to be honest in their responses for fear of having toreveal what they consider private information.

Everyone has made some good and some not so good financial decisions in their lifetime. Asthe group gets more comfortable, invite participants to share stories of what they now see asgood decisions as well as ones where, given the chance to do things over, they would makedifferent choices.

When discussing the section, “One Income or Two” in Chapter 3, consider inviting peoplefrom your group to share about their experience/reflections around deciding whether to carry

LEADERS’ GUIDE

82 L E A D E R S ’ G U I D E

on working after a baby arrived or to be a stay-at-home parent at least until the children werein school. Allow time for members of your group to ask questions and to interact with thosewho shared from different perspectives.

If you have agreed to teach/coordinate the series but find there are sections you feel illequipped to teach, look for someone else in your church that has the life experience and pro-fessional training to do those section(s). MFC staff consultants are also available to do any orall of the sessions, as time permits.

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Disclaimer

This book is published by Mennonite Foundation of Canada for the benefit of people who seek to establish theirfinancial affairs in a manner that is consistent with their Christian faith. The content is intended as informationonly, and should not be construed as legal or financial advice for any specific situation. For further information,or to follow up on the contents of this book, talk to a stewardship consultant from the Foundation. Additionallegal and financial advice should be sought from professionals in those fields.

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NIAGARA OFFICE

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As each has received a gift, employ it for one another asgood stewards of God’s varied grace. I Peter 4:10

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