Having a baby comes with a lot of responsibility and a long to-do list. Here are the things you should do legally and financially to set yourself up for success once your little one arrives.
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4 Simple Ways To Make Budgeting Easy And Effective
A lot of people treat budgets like New Year’s resolutions. They are lofty and unrealistic goals with only an 8% chance of becoming reality. But that’s not how it’s supposed to be.
Budgets are supposed to be personalized money management tools that help you take control of your finances. If you don’t have a greater sense of control and empowerment, then your budget isn’t working.
If you don’t have the kind of budget I’m talking about, then you really need one. Follow this link to learn how to make a budget that serves as a GPS and not a jail cell. Once you’ve got your GPS budget going, here are a few simple ways to make budgeting easy and effective:
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Your Top 10 Clergy Housing Allowance Questions Answered
The clergy housing allowance is by far the most common topic that I receive questions about. Here are 10 or the most common questions answered to help you get the most value out of your housing allowance:
How does a housing allowance work?
- You, the pastor, calculate what your housing costs will be for the year and submit it to your church.
- Your church approves the housing allowance and does not include it as taxable income in box 1 of your W-2.
- You track your housing expenses throughout the year. Add any excess housing allowance to your taxable income on your tax return when you file.
- If you have not opted out of Social Security you need to include the housing allowance amount as income when calculating your self-employment taxes.
What expenses can be included in the housing allowance?
A housing allowance can cover:
- Down payment on a home purchase
- Mortgage principal and interest payments
- Property taxes
- Homeowner’s insurance
- Structural maintenance and repair
- Landscaping, gardening and pest control
- Furnishings (purchase, repair, replacement)
- Utilities (gas, electricity, water, internet) and trash collection
- Land telephone line
- Cable TV expenses
- Homeowner’s association dues/condo fees
Is the housing allowance the church’s or the pastor’s responsibility?
It is the pastor’s responsibility. The church’s only role is designating and paying the allowance. The pastor must calculate the allowance, document expenses and include the proper housing allowance amounts when filing his or her tax return.
Is a housing allowance considered income for tax purposes?
Not for income tax, but for self-employment taxes. If you have opted out of Social Security you do not pay self-employment taxes so your allowance does not affect your taxes. Housing allowances are exempt from most state income taxes, but you should double check with your particular state.
How much is exempt from federal income taxes?
The IRS specifies that only the lesser of the following can be excluded from your gross income:
- 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.
When should I request my housing allowance?
You should get your housing allowance approved prior to the beginning of the year or at the beginning of the year so that you don’t miss out on any of the benefits. An allowance can be approved at any time during the year, but only expenses incurred after the approval will be eligible for the housing allowance.
Is it better to overestimate or underestimate my housing allowance?
Overestimate. If you underestimate your expenses you cannot go back and increase your housing allowance. However, if you overestimate, you can make a correction by including the excess amount as taxable income when you file your taxes.
Can I change my housing allowance from year to year?
Most definitely. If your housing expenses change from year to year so should the allowance you request. When you plan on making a large purchase, such as a bed, deck or house, your requested allowance should include that amount. If you end up not making the purchase, you will simply adjust down the allowance when you file your taxes. If you don’t include the large expense, you will unnecessarily pay taxes on that amount.
Can I still take the mortgage interest deduction?
Yes. Receiving a housing allowance does not preclude you from deducting your home mortgage interest and real estate taxes if you itemize deductions.
Do I need to document my housing expenses?
Yes! Keep all receipts, bills, etc. that apply to your housing allowance. The IRS loves paper trails and if you get audited without one it could get ugly.
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Today’s post is written by Chris Wells, a CERTIFIED FINANCIAL PLANNER® professional and Certified Kingdom Advisor® who works with pastors and Christian families to help them make healthy financial decisions and become wise financial stewards. His firm, Flourish Financial Planning, is located in Texas and serves clients across the US utilizing a fee-only model with no asset minimums.
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Are Your Heart And Wallet In Alignment?
Do you feel like your money is all gone before you have a chance to spend it on what really matters to you? Here are 4 steps that you can take to ensure that your spending habits match up with your values.
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5 Practical Steps To Take In Light Of The Crazy Markets And Coronavirus Panic
As you have likely noticed recently, our world is currently in an upheaval. We just had our worst week in the stock market since 2008. The historic bull market that we have been enjoying for the past 11 years is now officially over. Gatherings of over 250 people are being banned all over the country and schools are closing left and right.
Things just aren’t normal right now.
You are likely being inundated with messages about the coronavirus. Some are saying just calm down and stop buying toilet paper while others are saying go into hibernation, the world as we know it is over. It’s hard to sift through the messages to find the truth. And it’s even harder to find actionable advice that will make a practical difference in your life.
Today I’d like to offer you some practical action steps that will be of great help to you if the coronavirus kills our economy as some expect. The good thing, though, is that even if the economy bounces back and nothing bad happens, these steps will still be of great benefit to you. This is a win-win situation with no downside, so it behooves you to take my advice.
1. Make Sure You Have An Emergency Fund
An emergency fund is a cash reserve sufficient to cover 3-6 months’ worth of living expenses. It is important that it is in cash so that you can access it at any time. Your 401(k) or other investments do not count as an emergency fund. As you’ve just seen, those can disappear without notice. A CD is not a good emergency fund either because you are locked in for a certain amount of time and have to pay fees to access your money sooner. Don’t expect your emergency fund to earn you interest, it’s insurance for protection, not an investment.
Is it too late to build an emergency fund now? As long as you’re still breathing, it’s never too late. Unless your income has dried up, you can start diverting funds into a savings account right now. Every little bit helps.
2. Understand Your Cash Flow In Detail
If you don’t have a budget, now is the time to make one. You need to understand your cash flow in detail. You need to get a handle on every dollar that comes into your possession and know exactly where it is going.
Why does having a budget matter when the stock market is falling? Because pretty soon you may need to start cutting back your expenses. Pastors are in a unique situation. For most people, you either have a job or you don’t. In a recession, you either keep your job or get laid off. It’s an all-or-nothing prospect.
With pastors, it’s different. When the economy turns sour, you will likely keep your job, but your paycheck may dwindle away. As giving to the church decreases, your income may shrink even though there is still plenty of work for you to do. You face more of a spectrum of income loss as opposed to the all-or-nothing that others face.
Thus, you may have to tighten your belt in the future even if you have job security. Having a detailed budget that already lays out all of your expenses will allow you to easily prioritize if you have to cut back. For married people, it also really helps to face written numbers together instead of feeling like you are facing off at each other.
3. Recognize Your Emotions & Responses
When you begin to invest, conventional knowledge says that you should try to discern your risk tolerance and invest accordingly. If you feel like you are comfortable with risk, then you can invest in riskier investments like stocks, especially stocks of small companies. If you’re less comfortable with risk, you don’t put everything in the stock market but add in more conservative investments like bonds and CDs.
It’s really hard to judge what your true risk tolerance is, though. You can look at this risk calculator to get a feel for the kinds of questions they ask. When filling out these questions in a safe environment, how do you really know how you would feel?
Now you can know your true risk tolerance level. Right now is a great opportunity to discern your true risk tolerance in a way that no questionnaire ever could. How are you feeling right now?
Personally, I’m feeling fine. I am not at all concerned with my investments right now because I am armed with knowledge and a long time horizon. I have confirmed that I have a high risk tolerance. But what about you?
If you’re freaking out right now or having trouble sleeping, God might be revealing something to you about your risk tolerance. Pay attention. Recognize your feelings and emotions and adjust your long-term plan accordingly once things smooth out.
4. Find An Accountability Partner
In times of mass hysteria (and normal times as well), it’s important to have another person you can bounce ideas off of to ensure you aren’t behaving irrationally. This is one of the greatest services that a professional financial advisor provides. Right now, they are being inundated with phone calls from scared clients who need someone to calm them down to avoid making foolish decisions. If you work with a financial advisor, they could probably use your prayers right now.
What if you don’t work with a financial advisor? It doesn’t take advanced technical knowledge to tell you to calm down. Just about any level-headed person will do. Many of us have spouses that can hold us in check. However, if both you and your spouse are prone to emotional behavior, you may want to find someone else to work with you as a couple. What your accountability partner should be telling you is Calm down and stick with your plan. The only people that get hurt are the ones that jump off the roller coaster. If you don’t have a plan, maybe you should reach out to a financial advisor.
5. Remember Who Is In Control
I probably don’t need to remind you about this one. But I will anyway. Our God is bigger than the coronavirus. He is bigger than the stock market. He is bigger than the national toilet paper shortage. And he is in control and knows what is best for us. So, calm down and pray for peace both in you and around you. Instead of panicking right now, be aware of those panicking around you that need to be pointed to a greater source of security than the US economy and healthcare system.
There you have it. Five things that you can actually take action on. Now go do them. No matter what happens with the economy, you’ll be better for having done them.
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Free Resources To Help You Master Your Personal Finances In 2020
It’s a new year, a new calendar, and many are hoping, a new beginning, too. The sense of a fresh start with the new year leads a lot of people to make new year’s resolutions. How about you?
Since 51% of 2019 new year’s resolutions were to save money, I figure some of you are looking to tackle your finances this year and I want to help. Below, I’ve listed 15 different free resources ranging from budgeting systems and high-yield savings accounts to Social Security estimators and housing allowance tools. There’s quite a variety, so there’s something for everyone.
Basic Financial Management
Easy-To-Use Budget Template
The same study I referenced above found that 35% of new year’s resolutions were to stick to a budget. That’s a lot. Budgeting is the foundation of any successful financial life. It looks like people realize the importance of budgeting but they struggle to do it.
One of the reasons budgeting is hard is because you’re often trying to track 20+ different spending categories. I don’t know about you, but I can’t track that many things at once. That’s why I only have 2 kids.
Ben Wacek, CFP™, of Guide Financial Planning uses an innovative way of budgeting where you don’t have to do that. Instead of burning out attempting to track a bunch of different spending categories, you only focus on the handful that you really have control over. If you’ve ever struggled with budgeting, then you’ll love his system. You can download it in exchange for your email address here and he even made a video that will explain the whole process to you.
High-Yield Savings
Do you have your emergency fund sitting in a savings account earning 0.03% interest? You can do much better than that! If you transfer your money to an online high-yield savings account you can earn 60 times as much in interest. (No, that is not a typo. It is sixty.) The best part is that those accounts are FDIC-insured just like your current bank account, so you’re earning higher interest without taking on any additional risk.
Ally Bank is an online bank that offers high-yield accounts. If you click that link, they also have a great savings comparison tool that shows you the difference in interest earned among the most popular savings accounts. I moved my emergency fund from Bank of America to a CapitalOne 360 account and am now earning hundreds of dollars instead of just dollars in interest. It’s pretty cool.
Online Financial Management Tool
If organization is your priority this year, then Flourish Financial Planning has a great tool for you here. It’s a free online financial management tool where you can input all of your information to see your whole financial picture in one place. It also includes software that can help you visualize the effects of different financial situations and decisions you may be facing using your own personal numbers.
Unclaimed Property
Did you know that you may have money that you’re not even aware of? There are billions of dollars of unclaimed property out there. It could be anything from forgotten bank accounts and 401(k)s to unclaimed refunds or lawsuit settlements.
Each state has a database that you can search and you can access them all at Unclaimed.org. In addition to the 50 US states, that site also links to searches for Washington, DC, Alberta, British Columbia, Kenya, New Brunswick, Puerto Rico, Quebec, and the US Virgin Islands. Sadly, I don’t have any unclaimed property, but I found that my aunt has $40 in “misc unclaimed checks.”
Clergy Issues
Pastor’s Wallet Resource Page
A lot of you find your way to this website because you have questions about clergy-specific financial issues. There aren’t a lot of resources for pastors like you online, which is why I’m here. I just put together a brand new page chock full of free resources, including housing allowance and net worth calculators, downloadable housing allowance worksheets, a checklist for getting your finances in order, and several other housing allowance-related tools. You can check out the new page here.
Pocket Guide To The Clergy Housing Allowance
Another new resource I just created is the Pastor’s Wallet Pocket Guide To The Clergy Housing Allowance. The housing allowance is one of the most misunderstood and under-utilized financial opportunities for pastors. This is not a comprehensive guide (that would take a book, which I’m working on right now), but more of the Cliff Notes for the housing allowance. All of the most important information is presented in simple bullet points and easy-to-reference facts. It’s a special treat for those who sign up for my updates, so even if you’re already on my mailing list, go ahead and use the bar at the top of the page to get access.
Clergy Tax Withholding Calculator
One thing that gets more complicated when you become a pastor is your taxes. Because pastors are dual-status taxpayers, traditional tax calculators that you find online don’t always work. The people over at StartCHURCH had compassion on you and developed a tax withholding calculator designed for clergy and your unique issues. It’s even state-specific and you can check it out here.
Tax Resources For Pastors And Churches
Taxes are a big deal and it’s hard to find a CPA or tax professional who actually understands the intricacies of how they apply to pastors. Wayne Vinson, CPA of Vingroup, however, is well versed in taxes and how they apply to both pastors and churches. They have a resource page with helpful tax forms and a good Request for Housing Allowance that you can personalize.
Church Accounting Help
The fact that clergy taxes are complex and confusing is a thorn in the side of most church bookkeepers. Also, IRS rules regarding churches are different than for other organizations and there isn’t a lot of reliable information out there. Freechurchaccounting.com is a wonderful resource for anyone involved in church finance. The site has an amazing amount of information and, best of all, it is actually accurate!
Debt
Debt Repayment Calculator
When it comes to your financial life, debt is like a giant millstone that you have to drag around with you everywhere you go. It affects the calls you can answer and how you make financial decisions. Most people just pay their minimum payments and dream of the day that their debt will go away.
It doesn’t have to be that way, though. If you have specific goals in mind, then you can adjust your payments to allow you to reach those goals. This debt repayment calculator lets you look at debt repayment based on payment amount or desired payoff date. It also shows you how much interest is paid over time and how increasing or decreasing your balance would affect things. The calculator works for everything from credit cards to student loans.
Student Loan Income-Driven Repayment Calculator
When it comes to student loans, you often have various options for repaying them. The government has several different income-driven repayment plans that base your monthly payment on your income. This calculator, built by a family-focused financial planning firm, will show you what your payment would be under each program so that you can decide the best program for you and your family.
Investing & Retirement
Investment Calculator
Once you free yourself from the burden of debt, it is important to focus on saving for the future. This investment calculator, brought to us by the famous Dave Ramsey and crew, will show you what to expect of your investments based on your time horizon and expected returns. There are a lot of investment calculators out there, but I like this one because of the way it is laid out and the graphs it provides that show the power of compounding interest.
Dave likes to use a 12% rate of return for his calculations, but if you invest in anything other than stocks or use a target date fund, there’s a slim chance that you’ll get such high returns. It’s safer to be conservative in your estimates. Also, it’s important to remember the effects of taxes when looking at your final expected returns.
Social Security Retirement Estimator
In addition to your personal investments, Social Security benefits will be an important part of your retirement planning if you didn’t opt out or are eligible for spousal benefits. For planning purposes, you can use this estimator from the Social Security Administration to get an idea of what to expect. You should also review your Social Security earnings history regularly by setting up an account at ssa.gov to make sure they have the right numbers for your estimates.
Retirement Savings Calculator
If you want to calculate how much you need to be saving for retirement, then here is a calculator for you. You can input your age, your current income and savings, when you plan to retire, and how much you expect to receive in Social Security benefits. It will tell you how much you should be saving to reach your goals, in dollars and as a percentage of your current income. It shows a graph of how your money will grow and then be spent down in retirement and tells you how much more you’ll need to save if you put it off.
Retirement Withdrawal Calculator
There is a lot of focus on saving for retirement, but what happens when you actually retire? You have to switch things around and start spending down your accounts instead of saving into them. That can be really scary.
If you want to know how long your money will last you in retirement, then this calculator can help you. Enter the balance you will be starting retirement with, the interest you’ll be earning on the money, and how much you’ll be taking out each year. Then the calculator will tell you how long your savings will last. It’s a great calculator to play around with because you can look at the effects of increasing your savings or decreasing your retirement spending.
Professional Help
Sometimes things are beyond your DIY abilities and you need to consult with a professional to master your personal finances. Professional help is not free, but it can be more than worth it. If you’re at the point where you need to talk to a professional, you can find one here:
- XY Planning Network– These advisors are highly-trained Certified Financial Planner™ professionals who swear to work in their clients’ best interests and also offer virtual services so that your location doesn’t matter.
- Fee-Only Network– These are advisors who do not accept commissions, so their advice is less conflicted and more likely to be in your best interest.
- Garrett Planning Network– These are fee-only (no commission) advisors who are willing to work on an hourly basis.
- Kingdom Advisors– These are Christian financial professionals who have received in-depth training on the integration of the Bible with finance.
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