Budgeting and Debt Reduction

Responsible Stewardship of

God’s Great Gifts

Personal Finance Workshops

A. Budgeting and Debt

Reduction

B. Saving and Investing

C. Personal Financial

Management

D. Stewardship

E. Charitable Giving

Our time today…

• Consumer Trends • The debt crisis

• Causes of debt

• Budgeting

• Budgeting and debt reduction tips

Consumer Trends Today

• 10 years general prosperity up to Sept. 2008• 70,000 full time jobs disappeared in Dec. alone• Canadians are awash in debt:

• Canadian household debt at all-time high at $1 trillion in 2006

• Interest on debt: 1984 = $6 billion 2003 = $22 billion

• Average total household debt = 127% of household income

• Savings: 1980’s =20.2% at highest point; 2005 = 1.2%

How has Debt gotten so out of control?

• Confusion between our needs and wants

• Driven by fear

• Generosity

• Circumstances beyond our control

Toronto Star: “Canadians starting to save cash, shun debt” Jan. 9/09

Reversing the trend

1. Recognize it is not how much you make

2. Philosophy of “all is a gift from God”

3. Trust in God that HE provides4. We can’t take it with us5. Good stewardship

Reversing the trend

6. Live within our means – use debt wisely

7. Prioritize our life decisions

8. Limit borrowing to appreciating assets

9. Understand risks

10.Develop a financial plan and use a budget

What is a “Budget”?

Budget = Spending plan It helps you:

• see where money comes from and where it goes

• communicate with loved ones• set and achieve your goals• take advantage of opportunities• be a good steward of God’s great gifts

Budgeting Myths

1. Budgeting is painful

2. You only need to budget if you are in financial crisis

3. Budgeting requires long hours and lots of paperwork

Source: http://www.tuliptreepress.com/myths.htm

The Three Steps of Budgeting

1. List available monthly income

2. List monthly expenses

3. Compare income vs expenses

Tracking is key

Actual RecommendedBudget % of budget % of budget

Gross monthly income 6,979 Less: Tithe 697

Taxes and deductibles 1,276 Net spending income 5,006

Housing 2,102 42% 39%Food 700 14% 14%Transportation 754 15% 13%Insurance 125 2% 5%Debts 470 9% 3%Entertainment/Leisure 570 11% 6%Clothing 100 2% 3%Savings - 0% 4%Medical - 0% 1%Miscellaneous 179 4% 5%Investments 150 3% 7%Child Care/School 90 2% 5%

Total Expenses 5,240 Income vs Expenses (234)

Budget Example

Some budgeting tips

• Jar principle• Use credit cards with caution - freezer• Pay mortgage bi-weekly and pay more

towards the principal• Car pool/eliminate 1 car • Pack a lunch• Start cooking/plan meals• Buy bulk

Efficient steps for Debt Reduction

Debt Elimination Worksheet Conventional

Item

AmountOwed

Interest Rate

Months to Pay Off

Car Loan $6,000 9.2% 22

Credit Card 3 $1,000 28.8% 25

Credit Card 1 $2,000 11.5% 26

Credit Card 2 $1,600 18.5% 27

Family $ 900 0.0% 27

Line of Credit $9,550 8.9% 95

Debt Elimination Worksheet Snowball Effect

ItemAmount

OwedInterest

RateMonths to Pay Off

Family $900 0.0% 5          

Credit Card 3 $1,000 28.8%   9        

Credit Card 2 $1,600 18.5%     13      

Credit Card 1 $2,000 11.5%       17    

Car Loan $6,000 9.2%         20  

Line of Credit

$9,550 8.9%           33

Make the Commitment

• To yourself, in God’s presence

• As a family – state your goals

• Consult a trusted advisor

• Create a plan – a commitment to action

What the Bible says about debt

“The rich rule over the poor, the borrower is servant to the lender”

Proverbs 22:7

“You are bought at a price, do not become slaves of men”

1 Corinthians 7:23

Want to go deeper? To review or start your plan

– consider FaithLife Financial

Go Green - www.faithlifefinancial.ca• download financial tools

• view seminars

• calculators

• great financial articles