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How Do I Report IRA Contributions To The IRS?

by Monday, August 19, 2019
Picture of IRS Schedule 1 with blog post title: How Do I Report IRA Contributions To The IRS?

Today’s post was inspired by one of my loyal readers who had a very frustrating time trying to figure out the answer to that simple question. Unfortunately, I’m too late to come to his rescue, but my hope is that others of you may find this useful.

It Doesn’t Work Like The Housing Allowance

I think this subject may actually be harder for pastors than for others. Why? Because of the clergy housing allowance. The housing allowance is exempt from taxation. IRA contributions are tax-deferred, which is basically exempt from taxation at the present time. So shouldn’t they work the same way?

Hardly. Which can throw pastors for a loop. 

With the housing allowance, it’s never even included in your income. It never shows up on your W-2. The only way the IRS even knows you got the money is when you pay your self-employment taxes, if you didn’t opt out. If you did opt out, the money never appears anywhere except your bank account.

It’s not nearly that simple with IRAs.

How IRA Contributions Appear On Your Pay Stub

You can make IRA contributions through direct payroll deductions or on your own after you get paid. If you have it come straight out of your paycheck, it will be very different than the housing allowance. It will appear at the bottom where medical insurance premiums and the like are deducted, Adjustments to Net Pay. 

The top line that shows your salary or earnings will include the total amount. Your tax withholdings will be calculated on that total amount. Then, at the bottom, the IRA contribution will be deducted.

You may be wondering, how are traditional IRA contributions pre-tax if my withholdings are calculated before they are deducted? Good question. They are exempted from taxes, or made pre-tax, on your tax return. 

How To Report IRA Contributions On The New Form 1040

On the old Form 1040, there was a line called IRA Deduction (line 32). That line was subtracted from taxable income to arrive at Adjusted Gross Income. Simple.

Not so simple with the new, “simplified” Form 1040. They basically took half of the information from the old form and divided it into a handful of new schedules. Line 32’s new home is on Schedule 1, Additional Income and Adjustments to Income (see below). At least they were nice enough to keep the same line numbers!

Thus, to get a tax benefit from making an IRA contribution, you have to first enter that contribution on Schedule 1, line 32. That will then become a part of the total on line 36 of the same form. The number from Schedule 1 line 36 is then transferred back over to Form 1040 and included on line 7. 

Don’t just write the same number on line 7, though. Line 7 is your total income from the previous line less the number from Schedule 1. Aren’t you glad Congress simplified our taxes? 😉



So, whether your IRA contributions are deducted directly from your paycheck or you make them on your own after getting paid, you need to fill out Schedule 1 when you file your taxes in order to defer income taxes on the contributions. I hope this article has made the process a little bit less confusing and good job on saving for your future!

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How The Clergy Cash Or Rental Housing Allowance Works

by Monday, August 12, 2019
Picture of an apartment building with blog post title: How The Clergy Cash Or Rental Housing Allowance Works

For almost 100 years, since the Revenue Act of 1921, pastors in the United States have had the privilege of living in employer-provided housing without having to pay income taxes on it. Back then, it was common practice for churches to provide a home, or parsonage, for their pastors. 

By the 1950s, it wasn’t quite as common. As the number of churches increased, many simply did not have the funds to provide a parsonage. This forced the pastors to find their own place to live and pay for it out of their taxable income. 

Congress felt that this was unfair discrimination between pastors, that some didn’t pay income taxes on their housing while others did. So, in 1954, they expanded the law to include the payment of a “rental allowance paid to him [the minister] as part of his compensation, to the extent used by him to rent or provide a home.” This leveled the playing field and created what is now called the clergy cash housing allowance or clergy rental housing allowance.

How It Works For Pastors Without A Parsonage

This is how the cash rental housing allowance works if your church does not provide you with a parsonage:

  1. You go buy or rent a place to live.

  2. You calculate your housing expenses, including rent, mortgage, utilities, furniture, etc.

  3. You ask your church to designate that amount (your calculated expenses) as a housing allowance.

  4. The church makes an official designation.

  5. When the church pays you your salary, the portion that was designated as a housing allowance does not appear on your pay stub as taxable income and is not reported to the IRS- but they still give you the money.

  6. You track your housing expenses throughout the year.

  7. At the end of the year, your church will let you know what your housing allowance was for the year, either with a letter or on Box 14 of your W-2 (NOT Box 1).

  8. If your housing allowance exceeded your housing expenses for the year, then you have to add that back into your taxable income when you file your tax return. Learn how to do that here. 

How It Works For Pastors With A Parsonage

If you live in a parsonage, then you are already getting your housing income tax-free. But, if you read the section above, you’ll see that those without a parsonage can include things like utilities and furniture in their housing allowance. What if your church doesn’t pay for those things for you and you purchase them out of pocket? Then, you can take advantage of both a parsonage allowance and a cash housing allowance. They are not mutually exclusive.

Taking a cash housing allowance when you live in a parsonage is much like taking the rental allowance for those providing their own homes. This is how it works:

  1. Calculate the housing expenses that you are paying for out of pocket. This could be utilities, furniture, pest control, etc. 

  2. Ask your church to designate that amount (your calculated expenses) as a cash housing allowance.

  3. The church makes an official designation.

  4. When the church pays you your salary, the portion that was designated as a housing allowance does not appear on your pay stub as taxable income and is not reported to the IRS- but they still give you the money.

  5. You track your housing expenses throughout the year.

  6. At the end of the year, your church will let you know what your housing allowance was for the year, either with a letter or on Box 14 of your W-2 (NOT Box 1).

  7. If your housing allowance exceeded your housing expenses for the year, then you have to add that back into your taxable income when you file your tax return. Learn how to do that here. 

I’ve heard that some churches are not comfortable with the idea of providing a cash housing allowance if they are already providing their pastor with a parsonage. If you run into this, you should simply (and kindly and humbly) educate the decision-makers at your church about what the law entails and how it can save you a lot of money in taxes at no expense to the church. I think sometimes churches don’t realize that they have nothing to lose in designating a housing allowance for their pastor. 

Who Is Eligible For A Housing Allowance

That is how the cash or rental housing allowance works. Before requesting one, though, it’s important to verify that you are eligible for one and the expenses you have in mind are also eligible. You can learn about all of the eligibility requirements here. 


Don’t forget to check out our Housing Allowance Calculator!

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How To Start A Side Business For Pastors: 5 Simple Steps

by Monday, July 22, 2019
Picture of a computer, notebook, hands holding a coffee cup and the word DREAM with blog post title: How To Start A Side Business For Pastors: 5 Simple Steps

Side business, side gig, tent-making ministry, side hustle, part-time self-employment, side job; doing some extra work on top of your regular job has a lot of different names these days. No matter what you call it, a lot of pastors (and their spouses) see it as a good way to provide for their families when serving in a position that doesn’t pay quite enough. 

We have discussed different ideas for side jobs for pastors on this blog previously and even took an in-depth look at how one pastor’s wife has used Airbnb to augment her husband’s pastoral salary. We also spent some time discussing the ethics of pastors and business and how to maintain boundaries between your business and ministry. 

Today we’re going to get really practical. How do you actually go about starting your own little business on the side?

1. Pray

I know this should go without saying, but I know from time to time we all let our human nature take over and jump into things without really seeking God’s will on the matter. Like Psalm 127:1 says, though, “Unless the Lord builds the house, the builders labor in vain.” We all know this. 

Before you get started, spend some time in prayer. Make sure it’s really a God-idea and not your flesh or insecurities driving you to start your own business. Then, in each step of the process below, make sure you are taking it to God for his wisdom and guidance. 

2. Gather & Research Ideas

Once you get the green light from God, start brainstorming ideas. Here are some that I came up with that would be able to work around a pastor’s schedule. Here are some that are specific to the Christmas season. You can also google “side job ideas” and get 802,000,000 results in half a second.

As you come up with ideas, look for things that:

  • Can work around your pastoral schedule
  • Will not create conflicts of interest or ethical dilemmas
  • You would enjoy at least somewhat (it doesn’t have to be your greatest passion but you shouldn’t hate it)
  • There are easily identifiable people willing to pay for it
  • You will be able to earn enough to make the time and effort worthwhile

After you have a couple of ideas that excite you, do some research. The internet is chock full of information from personal experiences of people who have done that job to information on how the job pays, how much competition there is for it, and ideas for how to be successful doing it. In addition to researching your ideas online, seek the advice of experienced business people that you know. As Proverbs says, there is safety in a multitude of counselors.

3. Build A Plan For The Best Idea

The next step is to pick the best of your ideas based on your research and God’s guidance and then develop a detailed plan for how you’ll transform it from a thought into reality. As you get into the details, you’ll probably have to do even more research.

Things to include in your plan are:

  • What exact products or services will you offer?
  • What resources will you need?
  • Where can you get those resources?
  • How much time are you going to need to commit (and when)?
  • How much money will it require?
  • Who are you going to market to?
  • How are you going to market to them? 
  • Are there any legal requirements to conduct this business?

4. Start With A Minimum Viable Product

Now it’s time to get started and actually see if this idea is going to work. It’s not time to “go big or go home,” though. You want to start small to make sure you’re on the right track. You want to start with just enough to be able to analyze the viability of your idea, called a “minimum viable product” in the business world. 

If you want to get into landscaping, instead of going out and putting $8,000 worth of tools on your Home Depot card, start with just a lawnmower. Mowing lawns is enough for you to see if you will enjoy the work, if there are enough people willing to hire you, and if you will be able to earn enough to make it worth the effort. If it works out for you, it’s easy to scale up. But, if it doesn’t work out, you haven’t wasted a lot of time or effort discovering that.

5. Analyze & Refine

As I just said, you’re allowed to change your mind, even after you’ve picked an idea. It’s wise to analyze and refine the business as you go. You may only make small tweaks to your plan from Step 3 or you could decide to toss out the business idea altogether and start over at Step 1.

Every step of the way it’s important to pause and reflect on how the business is going. Take some time to look at how the business is doing financially, if there is enough of a market for it to continue and grow, if your product or service can be improved and how, how you feel about doing the work itself, and how it is affecting your family and ministry. Take stock of where you are and the potential for where you could go and don’t be afraid to make course corrections.


When it all comes down to it, running a business isn’t a whole lot different than running a ministry. It needs to be fluid. You need to always be adjusting, growing, improving, and listening to the voice of the Holy Spirit for direction. 

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Do Pastors Pay Social Security And Medicare?

by Monday, July 15, 2019
Picture of US government building and US flags with blog post title: Do Pastors Pay Social Security And Medicare?

So, you’re entering the ministry and you’re excited. You’re excited to devote your life to God’s work. You’re excited to make an eternal impact on the world. And you’re excited to do your taxes in a completely new way.

No, not really. If that kind of thing excited you, you would be a CPA instead of a pastor. Even though you’re new to pastoral ministry, you’ve probably already heard a thing or two about clergy taxes from seasoned veterans. And there’s a good chance that there are conflicts in what you’ve heard.

One of the biggest areas of confusion when it comes to a minister’s taxes relates to Social Security and Medicare. There are a lot of myths floating around, both inside and outside the church. Let me see if I can clear things up for you.

How Social Security & Medicare Taxes Work

Social Security and Medicare taxes are paid by all workers and deducted directly from their paychecks. Because of this, they are often called payroll taxes. Traditionally, the employee pays half of the taxes and the employer pays half of the taxes. Self-employed people, being both employee and employer, have to pay both halves, or the total tax.

For 2019, the Social Security tax rate is 6.2% each for employee and employer and the Medicare tax rate is 1.45% each. That means that 7.65% is automatically deducted from every employee’s paycheck. Self-employed people have to pay 15.3% total. 

Social Security has a wage-base limit. That means that the Social Security tax only applies to the first $132,900 of income. Above that, the Social Security tax no longer applies. Medicare taxes always apply. In fact, they actually get higher if you earn a lot. High-income earners have to pay an extra Additional Medicare Tax, so they have an extra 0.9% withheld once their income exceeds $200,000.

Do Pastors Have To Pay Social Security & Medicare Taxes?

Social Security and Medicare taxes are pretty straightforward for most people. Not for pastors, though. Both how they pay them and whether or not they even have to are very unique for pastors. Unique, meaning complicated and causing lots of confusion.

First, let’s address whether pastors even have to pay Social Security and Medicare taxes. For everyone else, it’s required. They have no choice in the matter. But, pastors have a choice. At least regarding their ministerial income. 

If you can honestly say, “I am conscientiously opposed to, or because of my religious principles I am opposed to” the acceptance of public insurance, then you can opt out. You only have a brief window of time where this option is available and you have to fill out an IRS form and follow their process. And, if you opt out, it’s permanent. You can never opt back into Social Security for your ministerial income. (Though you still may be able to receive benefits even after opting out.) For more information, follow the links in this paragraph.

How Do Pastors Pay Social Security & Medicare Taxes?

Thus, at the beginning of your ministry, you have the opportunity to opt out of the Social Security and Medicare programs and their taxes related to your ministerial income. Even if you opt out, any secular jobs you hold will still be subject to payroll taxes. 

But what if you don’t opt out? Does it work for you just like it does for everyone else? No way! That would be too easy!

All pastors have to pay Social Security and Medicare taxes as if they were self-employed. Even if you work for a church and receive a W-2. And you have no choice in the matter, it’s the law. Churches aren’t even allowed to withhold payroll taxes for pastors. (Some non-pastoral church employees also have to pay their taxes this way as well.) If you want to learn more about these crazy rules, follow the links in this paragraph.

How do pastors actually pay these taxes, then, if they can’t do it as employees? Well, throughout the year, you should either be paying estimated quarterly taxes or having your church withhold taxes (technically, only income taxes) from your paycheck. Then, when you file your tax return, you have to fill out Schedule SE to calculate your Social Security and Medicare taxes. 

On your tax return, your Schedule SE taxes are added together with your income taxes for your final tax bill. Because of this, even though your church can’t withhold payroll taxes for you, they can withhold extra income taxes to make up the difference. If you end up owing money, it means your church isn’t withholding enough or your estimated payments were too low. If you get a refund, it means the opposite.

There you have it, that’s how Social Security and Medicare taxes work for pastors. If you have further questions, ask them in the comments or send me a quick email!

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What To Do About Your Housing Allowance If You Move During The Year

by Monday, July 1, 2019
Picture of a man carrying moving boxes with blog post title: What To Do About Your Housing Allowance If You Move During The Year

Summer is in full swing and that means house listings are skyrocketing and people are moving. This has been on my mind as our neighbors behind us just sold their house and we have yet to meet our new neighbors. Hopefully, they’ll be nice!

Moving is a big undertaking. Packing your things, transporting them, figuring out the logistics of it all, and trying to make sure nothing gets dented or dinged or forgotten in the process. It’s a lot of work, both mental and physical. In addition to all of the usual chores of moving, pastors have to think about their housing allowance as well. I’ll give you a hand and lay it out for you. If you’re a pastor with a housing allowance, this is what you need to do when you move:

Calculate Your New Expenses

Are your expenses going up or down? You need to calculate your expenses and find out. If you need a calculator to help, we have one. This should be fairly easy if you’re not making any big changes. However, if your living situation is changing dramatically, then this might be a several month process as you get used to your new lifestyle and get a better handle on your actual expenses. 

It’s important to figure out how your expenses are changing, though. If they are going down and you don’t adjust your housing allowance accordingly, then you will have to add the excess back into your taxable income at the end of the year and you could end up with a large tax bill. If the opposite is the case, then you could end up paying taxes unnecessarily. 

Calculate The Fair Market Rental Value Of Your New Home

Remember, there are limitations to the amount you can exclude from taxation as a housing allowance. The big one that some people forget about is that your housing allowance cannot exceed the fair market rental value of your home, even if your real expenses do. So, you need to calculate the fair market rental value of your house. Know how to do that? If not, read this article. 

Request An Updated Housing Allowance

Once you’ve calculated your actual expenses and the fair market rental value of your new home, pick the lower of the two numbers and request it as a new housing allowance. If you’re not sure how to request a housing allowance from your church or denomination, ask whoever pays you. 

While you might be used to requesting a housing allowance at the beginning of the calendar year, there is no IRS rule about when or how frequently you can request one. So, you can update it whenever you move. And then two months later when you figure out that your calculations were wrong you can update it again. The only limit to how much you can change and update your housing allowance is how much your church or denomination is willing to put up with.

It is important that you request your new housing allowance as soon as possible, especially if you’re asking for an increase. Housing allowances can only be paid proactively, not retroactively. That means that if you move in, buy $10,000 worth of furniture, and then request an updated housing allowance, your new housing allowance cannot cover that big furniture purchase. It needs to be both requested and approved before you incur the expenses for them to apply.

Make Sure Your Request Is Officially Approved

That brings me to my last point. Make sure your housing allowance is officially approved by your church or denomination. It’s not valid until it is. I’ve heard from pastors who thought they did everything right, but their church dropped the ball. They never made the housing allowance official, so the pastor ended up paying a bunch of unnecessary taxes. 

Don’t let that be you. Follow up frequently until your updated housing allowance is approved and accurately reflected in your paycheck. 

That’s how you do it. I can’t come over and scrub bathrooms or move furniture for you, but I hope this helps you at least a little bit!


If you would like to learn more about the ministerial housing allowance, watch for our new book this fall. You can also sign up for updates at the top of your screen!

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What Taxes Can Churches Withhold For Pastors?

by Monday, June 24, 2019
Picture of a hand holding money with blog post title: What Taxes Can Churches Withhold For Pastors?

Thanks to the Tax Cuts & Jobs Act, people are paying a whole lot more attention to their tax withholdings this year. Employers had a hard time calculating withholdings with all the changes in the law and the result was far fewer people getting big tax returns (which I think is actually a good thing!) and more people owing. (Don’t get mad at the employers, though, no one really knew how it would all play out.)

So, with this renewed interest in tax withholding, I thought it would be a good time to go over how it all works for pastors. Because this is yet another area where it’s different for pastors than for everyone else. While some church employees do have to pay their taxes differently, the information in this article is only for pastors and does not apply to non-ministerial church workers.

Mandatory Withholdings

If you work a secular job, your employer withholds money from every one of your paychecks to cover federal income taxes, Medicare taxes, and Social Security taxes. They do it regardless of how you feel; you have no say in the matter. Because it’s the law.

Well, this is an area where pastors are truly above the law. Or at least they are an exception to the law. There is no mandatory withholding for pastors on those taxes. That means that your church is allowed to pay you all of the money you’ve earned, without sending some to the government first.

FICA/SECA (Payroll) Taxes

In fact, not only do they not have to withhold taxes, but churches aren’t allowed to withhold Social Security and Medicare taxes (also called FICA or payroll taxes). This is because pastors always have to pay those taxes under the SECA program (as opposed to FICA) as if they were self-employed. If a church withholds FICA taxes for a pastor, they are breaking the law and will mess up his or her records with the Social Security Administration. Neither of those are good things.

Let me say it again because there seems to be a lot of confusion about this. Ministers always pay under SECA, not FICA. You don’t have a choice in the matter, it’s the law.

Also, you don’t get to decide whether or not you want to be treated as a minister. The work you do and your ordination/licensure determine whether or not you are a minister. It is not your decision. You can’t just have your church treat you like a regular employee. It doesn’t work that way.

Federal Income Taxes  

The IRS is more flexible with income taxes. While pastors aren’t required to have income taxes withheld, you are allowed to. Why would you want your church to withhold taxes if it isn’t required? Because you have to pay the taxes yourself if you don’t.

Like the rest of us, you pastors have to pay federal income tax. And like the rest of us, if you don’t have an employer withholding those taxes on a regular basis then you have to pay quarterly estimated taxes four times a year. Either way, the government is getting your money. A lot of pastors simply find it easier to have their church handle it rather than doing it on their own.

Withholding Extra

While your church can’t withhold payroll taxes, it is common practice to have them withhold extra income taxes to cover the amount that you will owe in self-employment taxes. When you file your taxes at the end of the year, everything you owe gets lumped into one tax bill regardless of whether it is for income tax, self-employment taxes, or something else. So, if you owe $5,000 in self-employment taxes and your church withheld an extra $5,000 in federal income taxes, then it all evens out in the end and you don’t end up with a big bill on April 15.

To do this, you first need to estimate how much you will owe in taxes. And don’t forget about the housing allowance when you make your calculations. I found a great online calculator for estimating pastors’ taxes here.

The calculator will show you how much you would owe in federal, Social Security, Medicare, and state taxes each paycheck. It also gives a breakdown of how much to pay each quarter if you pay the taxes on your own. You can use the same information to adjust your withholdings with your church. Then they will withhold enough to cover your entire tax bill and you don’t have to make quarterly estimated payments.


If you’re a pastor, it’s important to understand the nuances of your tax situation, even if you find it incredibly boring. Get over it and be proactive. Taking a little bit of time to prepare at the beginning of the year can save you a huge headache and a big hit to your bank account come tax time. You’ll be glad you did.

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11 Reasons Your Kids Should Practice Entrepreneurship This Summer

by Monday, June 17, 2019
Picture of a girl selling strawberries with blog post title: 11 Reasons Your Kids Should Practice Entrepreneurship This Summer

Here in the Pacific Northwest, it is strawberry season. For most of us, that means we get to chow down on juicy berries that make us avoid the bland store-bought strawberries for several months afterward. For my daughter, it means business. Literally, business.

The minute the signs go up for the U-pick strawberry field near our house she starts asking when she can sell strawberries. You see, rather than just eating them, she likes to pick them and then set up her own stand by the side of the road to resell them. Yes, that’s her in the picture above.

It’s funny because at 5 she doesn’t seem to really care about money. Until strawberry season. Then, it’s all about earning money.

I think it’s a good thing. There are a lot of important life skills and lessons she’s learning as she sits in that field selling her wares. I think every kid should experiment with entrepreneurship, whether it’s babysitting, selling berries, pressure washing sidewalks, or something else. Here are some of the benefits of childhood entrepreneurship that my daughter and I came up with:

Practice Math Skills

When customers see how old my daughter is, they always want to test her math skills. If it costs $4 and I give you $5, what’s the difference?

I can’t blame them, though, because I do the same thing. It’s a great chance for her to practice that math that she’s been learning all year in kindergarten. Kids of all ages get a chance to put their math into practice when working with money. It’s good for them to see that there’s more to math than just endless worksheets.

Learn To Count Money

Working with money also gives them a chance to practice counting it. This is especially good for younger children who still see no more value in a $20 bill than a $1 bill. If you throw some coins in there, then the lesson gets really good. My daughter said that it’s important to learn to count money because “when you’re older you need to know how much you have.” She’s got a point.

Develop People Skills

One of the things that even trips up adults is that in order to make money, you need to interact with people. Entrepreneurship is good for your people skills no matter what age you are. Several years ago a neighborhood boy came to my door soliciting pressure washing and I was so impressed with how professionally he spoke to me and explained his services that I hired him on the spot.

If your kids have the opportunity to learn to talk to adults and explain their goods or services, it will only benefit them in the years to come. My daughter is young, so she is just learning to not be shy and look at people when she speaks to them. Older kids will have to rise to a different level of communication and sophistication of people skills, which is good for them.

Face & Overcome Fears

This one is closely tied with the last one because a lot of kids (and adults) are afraid of talking to people. But, like I said, in order to earn money you have to face your fears and interact with people. My daughter was a great example of this last year.

All spring she was scared to death of bees and wouldn’t look at or talk to anyone, even our next door neighbor whom she loves. However, when strawberry season came around, she spent hours sitting in a field full of bees and talking to strangers. I was so impressed with how she rose to the challenge and overcame her fears. Sometimes I wish I could be more like her.

Experience The Relationship Between Money & Work

Second Thessalonians 3:10 says that if you don’t work, you don’t eat. The concept that nothing is free and you have to expend effort in order to get a reward is being lost in our current culture. To me, the most appalling part of the Green New Deal that is being floated around is that they demand a living wage for anyone who is unable or unwilling to work. Yes, you should receive a living wage for doing nothing even if you’re perfectly able to work. Wouldn’t that be wonderful?

Unfortunately for some, the real world doesn’t work that way. If you want something, you have to work for it. There is a relationship between work and money and the sooner our kids can learn that the better our entire society will be.

Learn How Business Works

I studied business in school, so I’m a little biased, but I think everyone should learn about business. If you have a young adult going off to college that doesn’t know what he or she wants to study, have them study business. It is applicable to anything you do in life.

Going to work in a bank? You need to understand business. Going to be a professional artist? You’ll really need to understand business. Going to be a pastor? A lot of business principles still apply in the church (accounting, anyone?) even if some of your motivations differ.

Setting up their own little business will give kids hands-on experience with how business works. My daughter has learned that in order to make money, you need to have something (a good or service) that people want enough to pay money for it. To get that good or service you will need to either work hard for it or buy it. And then to make a profit, you need to charge more for it than it cost you.

This knowledge will help her later in life when she starts getting credit card offers in the mail. No, being pre-approved is not a special privilege because you are spectacular and unique. They are trying to sell you their product, a credit card, because statistics show that they will probably make money off of you. Lots of money.

Understand Economic Systems

As I mentioned above, you can’t sell a good or service if no one wants it. There has to be a demand for your product. And you can’t just charge anything you want. My daughter would have loved to have charged $50 a pint for her strawberries, but then no one would have bought any. She’s not that cute.

Supply and demand are basic economic principles that can sometimes be hard for kids to wrap their minds around until they live them out. Starting a business is an excellent way for kids to learn about economic systems by living them.

Learn To Tithe

My daughter can be incredibly generous most of the time, but not always. Every once in a while it’s like running into a brick wall and there’s no way around it, she simply won’t let go. When I brought up tithing in that field as we waited for customers I ran into the brick wall.

I had to use my entire Bible college education to try to persuade her that it’s worthwhile to give God 10%. It’s incredibly painful for her to think of parting with $3 of her hard-earned money but it will only get harder as she gets older and earns more and more. I think it’s very important to teach children generosity and tithing at a young age and the best way to do that is for them to start earning their own money.

Improve Prayer Life

When we were near the end of our berries and there were no customers coming, my daughter resorted to prayer. It was adorable to see her praying to God and asking him to send us customers. I think she was also trying to make a deal where her tithe was contingent on him sending customers, but hey, at least she’s starting on the right foot.

It may sound silly, but having their own business can be really good for your kids’ prayer life. Just try it and see.

Earn Money

Here’s the most obvious benefit: your kids can earn money if they start a business. Money to pay for Pokemon cards, ice cream cones, trips to the water park, and summer camp. The more money they earn, the less money will be coming out of your pocket. It’s a win-win for everyone.

When I asked my daughter why it’s good for kids to earn money, her response was, “To buy your own toys or when you’re older a phone so someone doesn’t have to give it to you for your birthday.” Kids’ activities and desires can be expensive and it’s good for them to learn to work for what they want.

Start A Roth IRA

Finally, if your kids earn their own money then you can open Roth IRAs for them. Anyone with earned income, regardless of age, can open a Roth IRA and contribute the lesser of their earned income or $6,000 in 2019. My daughter earned $33 selling berries last week so I’m going to put $33 of my own money into a Roth IRA for her.

Why would I do that? First of all, the sooner she starts investing, the longer her money has to grow. If all she ever invests is that $33, by the time she is 67 it will have grown to almost $7,000 if she can earn 9% returns (which is likely with her time horizon). I really don’t think she’ll use it for retirement, though. More likely she’ll use it to pay for college or buy her first house.

Contributions can be withdrawn from a Roth IRA at any time tax-and penalty-free. Also, once a Roth IRA has been open for 5 years, you can withdraw up to $10,000 of earnings to purchase your first home or take out money for qualified higher education expenses tax- and penalty-free. I think having her own investment account will also be a great teaching tool for her as she gets older, even if she doesn’t have much in it.



As you can see, there are a lot of benefits, both tangible and intangible, to your kids practicing entrepreneurship this summer. Perhaps more valuable to you than any of the above, it will also combat boredom. A kid who is out earning money is not moping around the house saying they are bored and annoying their siblings.

So, what are we waiting for? Let’s get these kids to work!

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Uncover Your Net Worth: A Step-By-Step Guide To Creating Your Own Personal Balance Sheet

by Monday, June 10, 2019
Graphic of people building stairs with blog post title: Uncover Your Net Worth: A Step-By-Step Guide To Creating Your Own Personal Balance Sheet

Do you know your net worth?

Do you know how to figure out your net worth?

Do you even care?

What Is Net Worth And Why Does It Matter?

Net worth is basically that which you’ve stored up here on earth. It’s the tangible things that you have to show for all your work.

I understand that it might seem funny, or even sacrilegious, to be discussing this with pastors. After all, doesn’t the Bible say to store up treasures in heaven and not here on earth? Well, yes, but it also says to learn from the animals that store up food for the winter.

I believe (and I think the Bible supports it) that it is wise to have some stores here on earth, but our focus should be on storing up treasures in heaven. And I don’t think anyone embodies that better than pastors. No one goes into the ministry for the money. But you still need money to live here on earth, especially in your golden years when you are unable to earn an income.

So, back to net worth. I think it is a good idea to calculate your net worth from time to time because it is useful for checking in on financial goals that you have set for yourself. Also, the trajectory of your net worth over time reveals a lot about what kind of steward you are of the resources God has entrusted to you.

How To Calculate Net Worth

Your net worth is a lot more than just the balance of your bank account. Your earthly treasures also include things like retirement accounts and the value of your house. But, wait, you don’t completely own that yet. How does your mortgage play into it? Or other debts, like student loans?

The basic net worth equation is:

Assets – Liabilities = Net Worth

Your assets are the things you own. Your liabilities are the things you owe. The difference is your net worth. You’d be surprised how many “rich” people out there actually have a negative net worth because of all the debt they’re swimming in. Just like God doesn’t look on the outside, net worth goes far deeper than appearances.

How To Create A Personal Balance Sheet

You can calculate your net worth by putting together a personal balance sheet. Balance sheet is an accounting term. It is a document that lists assets on one side and liabilities and net worth on the other. It’s called a balance sheet because the two have to be equal and balance out.

Assets

To start your own personal balance sheet, first list out your assets. Assets are things you own and can be divided into financial assets and personal assets. Financial assets include:

  • Cash
  • Bank accounts
  • Money market accounts
  • Certificates of deposit
  • Retirement accounts: IRAs, 401(k)s, 403(b)s, ESOP
  • Brokerage accounts
  • College savings accounts
  • Health Savings Account
  • Stocks
  • Bonds
  • Savings bonds
  • Life insurance cash value
  • Annuities


Personal (nonfinancial) assets include:

  • Primary residence
  • Second or vacation home
  • Rental real estate
  • Land
  • Business ownership
  • Vehicles
  • Jewelry, artwork, collectibles, tools, furniture, and other possessions

Liabilities

Next, you list your liabilities. These are your debts. They include:

  • Credit card balances
  • Balances on other lines of credit
  • Mortgages
  • Car loans
  • Furniture or appliance loans
  • Retirement account loans
  • Life insurance policy loans
  • Unpaid medical bills

Net Worth

Once you have all of your assets and liabilities listed, total each one. Subtract your liabilities from your assets and you end up with your net worth.

What Is A Normal Net Worth?

That heading was a trick question because, as you should know by now, there really isn’t a “normal” anything. It’s unwise for a 25-year-old just starting a career to compare their net worth with a 65-year-old about to retire after 40 years in the workforce. It’s also unwise for a pastor to compare their net worth with that of the doctor in their congregation. Remember, you didn’t get into this for the money.

However, I’m always curious about how I personally compare to averages. So, if you’re curious too, go ahead and keep reading. The Federal Reserve’s Survey of Consumer Finances found that the average net worth of all US families is $692,100. Now, before you start crying, remember that that includes all of Hollywood, Silicon Valley, and every NBA star.

If you look at the median, those in the 50th percentile, their net worth is a much more palatable $97,300. Still, that includes households of every age. Here is a breakdown by age:

Age 35 or younger: $11,100

Age 35-44: $59,800

Age 45-54: $124,200

Age 55-64: $187,300

Age 65-74: $224,100

Age 75 or older: $264,800

Even though I just gave you some numbers to compare yourself too, I’m going to tell you not to compare. Everyone has different goals and needs. If you have a special needs child, you will likely need to build a larger net worth in order to provide for them. If you opted out of Social Security, you will need to build a larger net worth to cover yourself once you retire. If your dad is a billionaire and you’ve seen his will, you might not need as much.

Every situation is different, so you should really only compare your net worth to your own personal financial goals. How are you doing with what God has called you to?

Net Worth Tools

If you want a quick and easy way to calculate your net worth, check out our calculator:

Net Worth Calculator

Or, if you want to personalize it and track your net worth over time, I made you a downloadable Excel spreadsheet. It already has some numbers in it so you can see how it works, but just replace them with your own information. Here you go:

Pastor’s Wallet Net Worth TrackerDownload
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Presenting Our Brand New Minister Housing Allowance Calculator!

by Monday, May 13, 2019
Picture of Pastor's Wallet minister housing allowance calculator with blog post title: Presenting Our Brand New Minister Housing Allowance Calculator!

I recently had a friend run some reports on my website to see how people are finding me. One of the most popular things that people search for, I learned, is “minister housing allowance calculator.” Now, I’ve written a lot about the clergy housing allowance, how to take one in retirement, what to do if you take too much, and things like that.

But people weren’t looking for articles about the minister housing allowance. They were looking for a calculator. They were saying, “C’mon, Amy, don’t just tell me how to do it. Give me the tools to actually do it!”

And I’m so obedient that I did just that. You asked for it, and now you have it:

The Pastor’s Wallet Housing Allowance Calculator

You can follow that link to try it out or just click on it from the menu at the top of this website.

How To Use The Minister Housing Allowance Calculator

It’s pretty easy to use. There are a bunch of categories of expenses that are covered under the pastoral housing allowance. All you have to do is input how much each category costs for you. Not every category will apply, so just use the ones that fit your situation. This is what it looks like:


Picture of beginning of Pastor's Wallet minister housing allowance calculator.

For example, if you live in a parsonage, you won’t have anything to put into the Mortgage Payment or Rent categories. If you do live in a parsonage, only add in the expenses that you pay yourself. If your church pays your water bill, you can’t claim that as a part of your cash housing allowance.

At the bottom, there will be a total that shows your anticipated housing expenses for the year. It’s pretty hard to anticipate everything exactly and claiming too small of a housing allowance can lead you to pay taxes unnecessarily. So, it is commonly recommended to request about 10% more than your expected expenses to cover surprise expenses. The Pastor’s Wallet Minister Housing Allowance Calculator calculates that for you too.

Picture of end of Pastor's Wallet minister housing allowance calculator.

Minister Housing Allowance Limitations

This calculator helps you calculate your housing expenses for the year. However, you may not be able to claim the whole amount as a clergy housing allowance. It is important to remember that the housing allowance is limited to the least of:

  • the amount actually used to provide or rent a home;
  • the fair market rental value of the home (including furnishings, utilities, garage, etc.);
  • the amount officially designated (in advance of payment) as a housing allowance; or
  • an amount which represents reasonable pay for your services.

So, before requesting your housing allowance based on your anticipated expenses, you need to figure out if they are lower or higher than the fair market rental value of your home. You can read all about how to do that here.

Then, once you figure out how much you can claim you need to get it officially designated. If your church doesn’t have it in writing somewhere that you’re getting a housing allowance, then you’re not getting one. Everything they give you will be considered taxable income. Do your calculations and then make sure your church makes it official.

Try out the calculator and let me know what you think. I hope you find it helpful!

Is there anything else you wish I had on this website? Let me know in the comments or by emailing amy@pastorswallet.com.

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Do You Know What Your Spouse Thinks About These Key Financial Topics?

by Monday, May 6, 2019
Picture of a couple laying in the grass holding hands with blog post title: Do You Know What Your Spouse Thinks About These Key Financial Topics?

While premarital counseling addresses a lot of expectations that we enter marriage with, anyone who has been married for over a day knows that there is no end to the surprises of how our spouse sees things. There are so many things in life that we take for granted and don’t even realize there is another way of viewing them. Until we get married.

Personal finance is a typical area for this. Usually, we assume that the way we grew up is normal. The way our family did things and viewed things is how everyone does. But that’s simply not true.

There are a lot of areas where spouses can have different opinions without ever realizing it. Unfortunately, those differences usually wait to reveal themselves in the heat of the moment when emotions are high and a decision has to be made.

Save yourself some trouble and have these discussions now, while you still have time to ponder each others’ point of view and come to a mutual understanding. Remember, most of these topics don’t have a right or wrong answer, rather they are a matter of personal experience and values.

Have you and your spouse discussed:

Do You Tithe On Net Or Gross Income?

I’m putting this question out there first because I think it’s the easiest one. There are only two options and if you’re a pastor, I hope you’ve discussed this already.

But you can take it beyond net or gross income: Where should your tithe go? Does it go to the local church you attend or to any ministry you believe in? Is it required or optional? Do you feel led to give beyond the tithe? Where will that money go? How will you determine how much to give?

Will Your Kids Be Expected To Work While In School?

Kids should be kids and not have to worry about jobs or adult responsibilities. It’s important for kids to get a job and carry their weight. They need to build a work ethic. If I can afford what they need, why would they work when they should be focusing their time on their studies?

There are a lot of different opinions and views on kids working while in high school and college. The only opinion that really matters in your case is your spouse’s. Don’t worry about what your friends, parents, or even kids think. You and your spouse need to come to an agreement and everyone else can just live with the consequences.

You should actually start this discussion long before your kids are old enough to hold a real job. Will your kids be expected to do chores? At what age? Will they be paid for them? If they receive an allowance will it be tied to work being done or not? When your kids are old enough to drive, who will pay for the car, gas, and insurance? What about school or missions trips? What luxuries are you willing to provide for them and what are they responsible for?

Whose Responsibility Is It To Pay For College?

“Doesn’t your dad have to pay for college?” I still remember a friend’s innocent question when I said I’d be attending a community college for lack of funds. She didn’t understand the concept that some dads simply don’t have money to pay for college. Your view on this will have a lot to do with how you were raised and what your parents did for you.

Personally, I’d like to help but I’m not going into debt or sacrificing my retirement for my kids’ education. As they say, you can take out loans for college but not retirement. My kids are just as capable of working their way through school as I was.

But that’s just my own personal opinion and value. For you, it might be different and that’s okay. Just make sure you and your spouse agree. Will you help your kids pay for college? How much help are you willing to offer? Are you willing to take out loans or co-sign for them? Is your assistance unconditional or do you expect them to maintain a certain GPA or lifestyle? How many years or what level of degree are you willing to help with? What happens if one kid goes to college and another doesn’t?

Will You Quit Working At Age 65 For A Traditional Retirement?

While a complete cessation of work is still the common view of retirement, things are changing. Many people believe God created us to work and we should keep doing so as long as possible, even if only part-time. Others dream of “retiring” early in order to explore the world or a different career path. If your wife is planning on spending her golden years doting on grandchildren while you feel called to the mission field, it’s best to have that discussion now.

Are Your Retirement Savings For Your Consumption Or To Leave An Inheritance?

Proverbs 13:22 says, “A good person leaves an inheritance for their children’s children.” How important is that to you? How much “lifestyle” are you willing to sacrifice in order to have something left over for your heirs? Is it more important to travel and spend time with your family or leave them an inheritance?

As with most things, there isn’t a black-and-white one-or-the-other answer. There’s a spectrum that ranges from “I earned it and I’m going to spend every last cent” to “I’m going to live as cheaply as possible in order to leave a big inheritance.” Most people fall somewhere in the middle and you have to choose a place where both you and your spouse are comfortable to land.

How To Discuss These Topics

While you’ve probably already discussed some of these topics, chances are there are some that require a little bit more consideration. Maybe you discussed parenting before having kids, but now that you’re in the thick of it you realize that you had no idea what you were talking about before. Or, maybe your retirement dreams have changed over the decades and it’s time to reassess each others’ goals.

The two most important things to remember for these discussions is that there’s no one right answer and nothing has to be decided in one sitting. Start the dialogue and then pause it to give each other time to consider the other person’s views and pray about it. You might wait a week or even a month to pick up the topic again.

Make sure you understand the why behind your spouse’s opinions. If you’re having trouble agreeing on something, you may discover that your hearts are in the same place and it’s just the implementation that you disagree on. If you take the time to understand why your spouse feels the way they do then you will be more compassionate and better able to reach an acceptable compromise.

And remember not to take a difference of opinion personally. Just because your spouse doesn’t see something the way you do doesn’t mean they think you’re wrong, bad, ignorant, etc. Everyone sees the world through different eyes. Your spouse’s views likely have nothing to do with you.

Finally, pray. That may sound pretty basic, but don’t forget to pray about it. For all you know, God has a different opinion than both you and your spouse and he wants a say in the discussion!

How about you? What are other important financial topics that you think married couples need to discuss? What are your suggestions for having healthy and constructive conversations? Share with us in the comments!

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