Family Finances: Making Ends Meet

By: Larry Burkett

Q: We have a controversy going on in our church. Our pastor believes that if you have any problems in your life, it is an evidence of sin. I’m concerned with this philosophy. Eventually nobody will admit to any problems for fear that others will think he or she is sinning. Can Christians have financial problems that are not sin-related?

A: A current attitude among some Christians is that we should never have problems. If we do, we are being punished by God. What a defeating philosophy!

In James 1:2, God says, “Consider it all joy, my brethren, when you encounter various trials; knowing that the testing of your faith produces endurance. And let endurance have its perfect result, that you may be perfect and complete, lacking in nothing.” If you paraphrase that verse, it says, “If you really want to have your faith perfected, you need a problem to test it.” Therefore, we know with certainty that problems are not the evidence of sin.

Obviously, problems can be an indicator of sin, but there will also be many other indicators, including the sin itself. Christ promised that if we yield our rights to God, we will have peace when (not if) we have problems (ref. John 15:19-20). The Lord Himself had plenty of problems during His time on earth, and if we follow in His steps, we also will have problems. Through our difficulties, we are to be witnesses to others who are having similar problems. By observing us, they will know that our God is real.

One final point: The last thing someone having a serious problem needs is another Christian asking if he or she has confessed all known sins. Most of the people I counsel have confessed every sin at least twice and several they had never done, just to be sure.

Q: I find that as I get older, I worry more about the future. I’m worried about how I could earn a living if I lost my job and what will happen if I can’t afford to retire. It seems like I’m paralyzed by fear of the future. I know it’s wrong, but how can I change?

A: Worry has been described as taking on responsibility that belongs to God, and that includes being preoccupied with the future. The Lord said, “Do not be anxious, then, saying, ‘What shall we eat?’ or, ‘What shall we drink?’ or, ‘With what shall we clothe ourselves?’ For your heavenly Father knows that you need all these things” (Matt. 6:31-32). Worry is not the problem; it’s an outside indicator of an inside spiritual problem.

Most of our worries are based on future possible problems, not current circumstances. It’s the “what ifs” that cause us the most grief. Most people can handle the current situation, even a bad one, but they go into depression when they think about the future.

How can you handle worry? Stop, confess that you have assumed God’s responsibility, and turn that area of your life over to the Lord.

Q: My fiancee and I are getting married soon, and we have a question about whether we should rent an apartment or try to buy a home. We get a lot of conflicting advice. My parents have told us that it’s foolish to waste money on rent and get no return at all. However, most of the homes we looked at are beyond our financial capability. My fiancee’s father is willing to lend us the down payment and even to help make the monthly payments for the first year. Is this wise?

A: The decision about buying or renting depends on your budget only. If you have the money to make a down payment and you can afford the monthly payments, it’s probably wiser to purchase. However, in the case you presented, someone is lending you the down payment, and you would be taking on monthly payments larger than you can afford. That’s called a “contingent liability.” Scripturally what you’re doing is called “surety,” and you’re taking a risk that can cause you great grief.

I appreciate the concern of your parents in thinking that there is no gain in paying rent when you can be accumulating equity. But let me assure you that you can accumulate debts quicker than you can accumulate equity. The number-one cause of financial difficulty for young couples is purchasing a home more expensive than they can afford. You say your father-in-law will make the monthly payments for the first year. What happens after the first year, when you have to make them?

Bear in mind Proverbs 24:27: “Prepare your work outside, and make it ready for yourself in the field; afterwards, then, build your house.” In your case, this means secure the salary that you know will pay for the home and then buy or build one.

Q: My husband thinks we need a budget, but I don’t see the purpose. I manage money rather well and don’t spend more than we make, and I think a budget will be too restrictive. However, I want to be open to the Lord. Are there scriptural reasons to budget?

A: The purpose of budgeting is to free you, not confine you. God expects us to be a participant in planning a budget, not an observer. As Proverbs 16:9 says, “The mind of man plans his way, but the Lord directs his steps.” Therefore, as we apply practical concepts in handling our money, God provides godly wisdom. It should free you from worrying about whether the annual insurance payment will be made, whether you put money aside for taxes on your home, and whether enough money will be available to buy the clothes your children need. If those are not problems for you, you’re among the fortunate few. They are problems for the majority of Americans, and they may well be problems for your children when they have families. If you’re not willing to live on a budget, you will not be able to help them live on budgets. So a budget can be a good teaching tool, as well as a good measure of self-discipline.

Scriptural guidelines for budgeting can be found throughout God’s Word. For instance, Proverbs 27:23 says, “Know well the condition of your flocks, and pay attention to your herds.”

If you don’t happen to have any herds and flocks, God is probably saying, “Know well the condition of your clothing budget, your housing budget and your food budget.”

Furthermore, a budget can be used to develop good communication between husband and wife. It’s one of those issues you can sit down together to discuss, and then come to a reasonable compromise. A budget is really very simple. You have a given amount of money to spend. A budget helps you decide how you’re going to spend it.

Q: We’ve been on a budget for several months now, but invariably we have a problem when an unexpected expense takes away money that we allocated elsewhere. How do we handle these unexpected expenses?

A: There are very few unexpected expenses. If you look at your budget on an annual basis, you will find the same unexpected expenses reoccur: automobiles break down, clothing wears out, teeth have holes in them, children are injured and require medical care, etc. A workable budget must plan for these variables.

For example, if you spend $1,200 a year on clothing for your family, then $100 a month must be set aside for clothes. In the months you don’t spend that money, it’s not a windfall. It’s an expense that didn’t come due that month; the surplus must be saved for future use. At the end of the month, transfer it into a savings account.

In any given month there may be unused money in a category. If you spend it on other things, your budget will never work. Budgeting is a process of sacrificing short-term spending to accomplish long-term goals.

Q: Should a child have an allowance?

A: Proverbs 3:12 says, “For whom the Lord loves He reproves, even as a father the son in whom he delights.” Don’t teach your children to expect allowances; teach them to work and earn money. The term “allowance” implies something is given rather than earned. If God doesn’t provide us with an allowance, and He doesn’t, then we probably should not provide allowances to our children.

If you have a child who demonstrates discipline in handling money and you want to give him or her a gift from time to time, there’s nothing wrong with that. Just be certain that you’re establishing long-term values in your children that will guide them when they are adults.

Q: How soon should my children begin to tithe?

A: First of all, you should avoid the “nickel in the plate” syndrome. When the collection plate comes around, don’t scramble to find your child a nickel to drop in. This teaches nothing about giving. Children learn about tithing by giving of their own resources. I would suggest that a child tithe as soon as he or she has resources from which to tithe.

At the earlier ages, you’re probably going to have to encourage, even insist, that a child give a portion to the Lord’s work. At older ages, 13, 14 or 15, depending on the child, you should begin to allow him or her to make decisions about giving.

Remember that giving is nothing more than an outside indicator of what’s going on inside spiritually. If a teenager doesn’t want to give, don’t force it. Try to deal with the real issue.

To make giving real to your children, get them involved in others’ lives. If necessary, have their tithes go directly to the support of needy families. Your children will begin to see the direct effect of their giving in others’ lives.

We did this early on with our children, and there’s nothing more rewarding than seeing a child receive a warm letter from someone he or she has helped financially. This permits a child to see that giving is one of God’s ways of participating in someone else’s life.

Q: How can a mother teach her children the value of money if their father spends it foolishly and spoils them continually with gifts? Won’t the children learn to imitate the parent who is least disciplined?

A: Yes, sometimes children will imitate the least-disciplined parent because children are enthralled with spending, particularly when they are younger. Many times, however, children migrate toward the disciplined parent, because that person represents security. A permissive parent or grandparent could lose the children’s respect if he or she gives too freely.

You and your husband should sit down together and discuss this clearly and objectively in light of God’s Word. Help him understand that love doesn’t mean giving children all they desire. Scripture says that a person whom God loves, He disciplines, and the same is true of parents. A parent who really loves a child will establish boundaries for giving, not to restrict the child’s freedom, but to teach the concept of stewardship.

If you’re unable to talk about this with your husband, I would suggest writing him a letter about how you feel. Base it on God’s principles of discipline found in Proverbs 13:1, 15:5, 19:18. You might also seek out a professional counselor who could help both of you understand the balance between giving too much or too little. Remember, too, that God rarely puts similar people together. One will tend to be more of a giver, and one more of a saver. Working together, you can reach a better balance than either of you individually.

Q: I work in the lending business. Should a Christian lend money to other people and charge them interest?

A: Christians should be concerned about two areas when it comes to lending money. First is lending to non-Christians and charging them a fair rate of interest. Second is lending to Christians and charging them any interest at all.

In Deuteronomy 23:19, we are instructed not to lend to our brothers at interest. I believe for a Christian to lend to another Christian and charge interest violates a basic principle of God’s Word. We witness to others by our willingness to lend money to our brothers without profit.

No such admonition against charging interest to non-Christians exists. We’re directed only to avoid excessive amounts of interest and to be fair.

If you’re an employee of a company such as a savings and loan or a bank, the money you’re lending is not actually your own. You’re merely a representative or agent for the company. In this case, the authority to make the decisions about charging interest to anyone is not yours. You come under the authority of those for whom you work and are to follow their directions (1 Peter 2:18).

I don’t personally believe a Christian is compromising who works for a company that lends money to others, including Christians, at interest, provided it’s being done honestly and fairly.

However, if you believe that it’s a compromise to work for a company that lends money to Christians and charges interest, I suggest you change professions.

Q: I understand the biblical admonition not to sue another believer, but do you believe it is all right for a Christian to sue a non-Christian for payment of a debt?

A: It would be simple to take the position that, since Paul warned against suing believers in 1 Corinthians 6, it must be permissible to sue non-believers. But I believe that assumption is too broad. Paul stated that suing a brother would bring shame to the church body, but he didn’t imply that suing a non-believer would be acceptable.

In Luke 6:30-31, the Lord delivered a much broader principle. He said retribution is God’s prerogative, not ours. God expects a high standard from us as believers, especially in our behavior toward those who are outside the faith.

We are admonished in 2 Corinthians 6:3 to give no cause for offense in anything so that the ministry might not be discredited. That doesn’t mean you can never collect a debt for fear of being a bad witness. The general principle, however, is that a Christian should not sue an individual over a personal debt when it is within his or her power to forgive the debt (Matt. 5:38-42).

Q: I understand we can prepay our mortgage and reduce expenses significantly. How does this work?

A: During the early years of your mortgage, a small portion of each monthly payment goes toward the principle, while the majority goes toward interest. But any additional money you pay each month goes entirely toward the principle. Therefore, the next month you’re paying off slightly less interest and slightly more principle on the unpaid balance.

Whenever you send an extra mortgage payment, mark your check clearly, “To be applied to principle payment only.” If you do this regularly, you can significantly reduce the number of years you pay on your mortgage and save a tremendous amount of interest.

Q: I’m a Christian, but my husband is not, and I desire to tithe. My husband doesn’t want to. Should I do it anyway? I’ve had counsel from Christians on both sides of the issue. I want to honor my husband, but should I honor him above the Lord?

A: First, remember that it’s not the money you give that is important, it’s your attitude. First Peter 3:1-6 says that a wife is to be submissive, even to her unsaved husband, as she would be to the Lord. Your reward from God comes as a result of your attitude. When you have committed in your heart to give, your reward from God is assured at that point.

I might also offer a suggestion: Ask your husband if he will allow you to begin giving something. Perhaps it’s only $50 per month. Tell him you would like to do this for at least one year. At the end of that year, you’ll stop, and together you’ll determine if you’re better or worse off financially. If you’re better off, then you would like to give more, until ultimately you’re tithing.

Obviously, this is a test of God, but I also believe that God allows us to test Him (Mal. 3:10). Let God prove Himself to your husband. Many wives I have counseled have done this, and found it to be the first step in their husband’s coming to the Lord.

Q: We owe a lot of debts from a business failure. Recently I became a Christian, and I’ve been asking other Christians whether I should tithe while I still owe these large debts. I get mixed answers. What does God expect of me?

A: A farmer always keeps a portion of each harvest as seed stock to be planted next season. If he didn’t, he could never grow another crop. As Christians, our tithes are our seed stock (2 Cor. 9:10). Proverbs 3:9-10 says we are to honor God from the “first fruits.” Therefore, the first portion of everything we receive belongs to God. It doesn’t belong to anybody else, even a creditor.

I have heard Christians say, “I don’t think it honors God to tithe while I still owe a past due debt.”

I could accept that argument if they would do just one thing for me. Write the Internal Revenue Service, and say, “I’m sorry but I don’t think I should pay taxes while I’m in debt. I’ll wait until I get out of debt, and then I’ll pay my taxes again.”

Why do they pay their taxes? Because they fear the government. Proverbs 1:7 says that the fear of the Lord is the beginning of knowledge.

I have also had creditors call and say, “I don’t see why I should take a reduced payment while they’re giving to their church.”

I simply share with the creditors the principle of the tithe – that it’s a commitment to God, not to a church. I also share an observation that those who tithe are almost always better money handlers, and as a result of their commitment to God, they will honor their commitment to their creditors. Rarely does a creditor object after that. In fact, almost everyone respects the commitment, even though most aren’t Christians themselves.

God’s Word says that if we tithe, God will give us the wisdom (Deuteronomy 14:23). If there were ever anyone in the world who needs God’s wisdom in their finances, it is those who are in debt.

Q: Should I ever contribute directly to a needy person rather than through a church or other Christian organization? What are the advantages and disadvantages of doing this?

A: Sometimes it’s proper to give directly to an individual. For example, when you’re trying to teach children the purpose of giving, it’s good to have them help a needy family. This allows them to see the benefits of giving in the lives of real people. If they give only through a church offering, your children may miss this.

A second reason is that you also may want to have a personal ministry in people’s lives. This is evidence of truly caring, as I John 3: 17 says: “But whoever has the world’s goods, and beholds his brother in need and closes his heart against him, how does the love of God abide in him?” Giving directly to somebody demonstrates that you love and care about that person.

But I would be cautious about giving cash. I suggest instead that you pay for what they need, whether it’s utilities, groceries, rent or clothing. Too often a cash gift is diverted or misused.

I also recommend that before you give to anyone, you verify that their needs are real, and not the result of mismanagement. If you don’t know how to provide financial counseling yourself, help them find someone who can. Be certain that what you’re doing is helping them out of a problem and not contributing to their problems.

Q: I have a Christian friend in need, but if I give him money. I’m quite sure he will misspend it. Should I direct how the money can be spent? Would I be better off giving or lending it to him?

A: If you really want to help your friend, see that he gets some financial counseling. Generally, I would recommend that you lend him the money, rather than give it to him. I suggest lending not so you can get your money back, but because that will help your friend establish financial discipline.

Under the supervision of a financial counselor, set up a repayment schedule (without interest), but require that he make regular payments. You should be willing to forfeit the money if it’s not repaid, so don’t lend what you can’t afford to lose.

Q: Should we, as Christian parents, leave an inheritance for our children? What are some guidelines?

A: I believe that inheritance is proper. Generally in the Bible, it was given to adult children before the parent died. According to Jewish tradition, a father would begin to pass along his inheritance to his oldest son when he reached his mid-30s. Eventually, he inherited most of the property that his father was going to give him while the father was still around to show him how to manage it.

This example is found in the parable of the prodigal son (Luke 15:11-24). The number-two son came to his father and asked for his inheritance, and the father gave it. As number-two sons are prone to do, he traveled off to a foreign land and squandered all the money. Then, when he came back, his father was still alive and able to give him direction.

In Ecclesiastes 6:3, Solomon wrote, “If a man fathers a hundred children and lives many years, however many they be, but his soul is not satisfied with good things, and he does not even have a proper burial, then I say, ‘Better the miscarriage than he.'” This man didn’t accumulate enough to even get a proper burial, let alone provide for his children.

The principle of inheritance is scriptural. The problem is that most parents wait until death and then have no opportunity to oversee the inheritance’s use. Whatever you want to give to your children, give it while you’re living, if at all possible. There’s an old cliche, “Do your giving while you’re living, so you’re knowing where it’s going.” Remember that inheritance is not only material, it’s also spiritual.

Q: I understand that as long as our properties are jointly owned, my wife and I do not require wills. The properties will revert to the survivor when one of us dies. Is this correct?

A: If all of your property is held in joint ownership and one of you dies, ownership does revert to the survivor. Depending on the size of your estate, however, there can be significant estate taxes that can only be avoided through good estate planning.

If you were both killed in an accident, for example, then one of you would have died intestate, that is, without a will. All jointly owned assets would be settled by the state, perhaps not to your liking. Please invest the little bit of time and money necessary to get a will for both you and your wife.

Q: My wife and I would like to begin investing, but we find it difficult to generate the money to do so. Can you help us?

A: Saving is always a matter of personal discipline. I once counseled a pastor who had saved more than $250,000 during his 40 years in the ministry. And yet, the highest salary he had ever earned was $10,000 a year.

I asked him, “Pastor, if you were to give counsel to a young couple today on how to develop a surplus of money, what would it be?”

“It’s simple,” he said. “Always spend less than you make.”

The issue is really one of self-control, which the Bible says is a “fruit of the Spirit”(Gal. 5:23). Developing a surplus is not difficult. All it requires is a little bit of money saved over a long period of time and then used wisely, according to God’s principles.

Q: I have some money that I need to put into a retirement plan. An insurance salesman from my church told me that an annuity is a good investment. Could you give me a little information about annuities?

A: First, a point about retirement funds. If you’re putting funds aside for retirement, I recommend that they be placed where you can’t get to them easily. An annuity accomplishes this because of the penalties attached to early withdrawal. If you’re going to put money into an annuity, I recommend that you read all you can about it. Many varieties exist, but there are really only two basic types, fixed and variable.

With a fixed annuity, you pay into the fund for a given number of years. At retirement, it begins to pay back a fixed amount of money each month. The amount you receive does not vary, regardless of economic conditions.

A variable annuity also requires regular payments prior to retirement. But at retirement, it pays back based on the actual earnings of the fund.

The benefit of a fixed annuity usually falls to those approaching retirement, who need to depend on a fixed amount of money each month. The variable annuity is usually more beneficial to the younger people, who can’t project what their money will be worth at retirement. Therefore, they don’t want to get locked into a fixed income. They hedge their investments by basing their future incomes on annuities’ earnings. Over the last 20 years, annuities have become popular investments for retirement planning.

Q: We would like to invest, but we’re not certain where to draw the line between our desire to save and to hoard. Is there a difference, and where does one draw the line?

A: There is a distinct difference between saving and hoarding. Proverbs 6:6-8, the parable of the ant, reads, “Go to the ant, O sluggard, observe her ways and be wise, which, having no chief, officer or ruler, prepares her food in the summer, and gathers her provision in the harvest.” During the harvest months, an ant gathers the food she will need during the winter months. She puts aside only what she’ll need.

I recall an article I read in which an anthill was moved from New England to Florida. During the first year the ants steadily transported and stored food in their chambers. But winter never came, so the next year they cut back on the amount of food they stored. After winter didn’t come again the third year, the ants quit storing food. Their supply matched their need.

Saving is good stewardship, a hedge against future needs. Hoarding is a lack of trust. Basically, the difference is attitude.

Over the years, I have counseled many couples who were undergoing financial difficulties because of job losses. Many of these couples actually had savings accounts, but they were borrowing money to live on instead of using their savings. When I asked why, they said they didn’t want to use their savings because they needed the security. They would rather go into debt than spend their savings. In reality, they were not saving; they were hoarding.

The thoughtless accumulation of money can become consuming greed and pride. During the Great Depression, Bernard Baruche accumulated billions of dollars.

A reporter once asked him, “Mr. Baruclle, I know you’re a very wealthy man. How much is going to be enough?”

He said, “Just a little more.”

That attitude runs contrary to God’s Word, and Christians need to guard against it. What a shame to invest a whole lifetime pursuing worthless goals. “If therefore you have not been faithful in the use of unrighteous mammon, who will entrust the true riches to you? And if you have not been faithful in the use of that which is another’s, who will give you that which is your own?” (Luke 16:11-12).

Make some specific guidelines about how much you need to save and why. Then stick to your plans and don’t allow yourself to get caught up in the attitude of the world.

Q: We just had our first child, and we’ve been looking at life insurance policies and their costs. I wonder, does buying life insurance show a lack of faith?

A: Obviously the Bible doesn’t speak directly about life insurance, but it does address provision for a family. In Ecclesiastes 6:3, as I mentioned earlier, Solomon wrote that a father is responsible to provide for his family through his labor, but even if he dies prematurely, he still must provide.

In the past, his sons took over his business or land and provided for the family. If he had no son, his closest male heir assumed that responsibility. Today, I believe that insurance is a substitute means of providing for our families should a man die prematurely.

I would suggest you use insurance to provide, not to protect or profit. It should only replace the income that would be missing if you died. As you accumulate more assets, your need for insurance should decline.

I don’t believe insurance necessarily represents a lack of faith in God’s provision. It may be wise planning, as described in Proverbs 24:3.

Q: We’re a couple in our mid-20s. We’re just beginning to have a family and are looking for life insurance. Can you tell us the best kind of life insurance for our family?

A: That’s a little like walking into a doctor’s office and asking, “What’s your best operation?” The type of life insurance that’s best for your family depends on your specific needs. Two basic types of insurance are available: term and whole-life.

“Term insurance” means insurance that is purchased for a determinable period of time. Annual renewable term is purchased for one year and must be renewed each year. Ten-year term must be renewed after 10 years, etc.

Whole-life means that the policy is in force for your whole life. Whole-life is also known as cash-value insurance because it accumulates a cash reserve. Generally, I recommend term insurance for most young couples with limited income because of its low cost and because the family needs maximum coverage when the children are young.

The most common argument against term insurance is that you only rent your insurance, you never own it. I find that a shallow argument, because most people don’t accumulate cash reserves in their automobile or health insurance either. Conversely, the argument against cash value insurance is that you can beat the savings if you buy term and invest the difference in a good mutual fund. But in reality, few people actually follow through on their intent to do this.

Each family must decide which plan best fits its needs. No single plan fits everyone, and every agent thinks his or her plan is the best.

Q: We need to buy an automobile, but we haven’t saved enough cash. Is it better for us to buy a new or a used car?

A: The enticement of low-cost financing tempts many young couples into buying a new car. But remember, you don’t get something for nothing. The dealer may offer a low interest loan on a new car, but you’ll probably pay more for the car.

Whether you should buy a new or used car is best answered by the car’s use. If you drive 40,000 to 50,000 miles a year, it’s probably better to buy a new car, or at least a demonstrator. However, if you drive considerably less than that, a used car is usually better. The depreciation on a new car is approximately 25 percent the day you drive it out of the showroom.

Q: I have been on the same job for more than 15 years, but I don’t really like it, and I never have. I’m a driver for a package delivery system, and it’s all I know how to do. Should I change jobs?

A: I certainly can’t answer that question for you. You and your wife should pray about this together and seek God’s direction. But if you’re tied to a job that you dread, you can not be in God’s will.

If you’ll turn this area of your life over to God, one of two things should happen. He will either give you a peace about staying where you are or move you to where you should be. “And everything you ask in prayer, believing, you shall receive” (Matt. 21:22).

Q: One of my greatest expenses as a divorcee is child care. I get very little support from my husband, so I have to work just to meet even our basic needs. Child care consumes nearly half of my take-home pay. At this point, I don’t really know what to do. I would like to stay at home with my children, but it’s impossible. Do you have any suggestions?

A: I wish I could say “go to your local church, present this need, and they will help.” But unfortunately, that’s not the way it is. The church doesn’t know what to do with divorcees. They’re treated rather like lepers were at one time. We feel sorry for them. We would like to help them, but we don’t want to get too close to them.

But my counsel is still to go to your church, present your needs, and ask for help. You must be willing to submit yourself to the church’s authority, which may require that you receive financial and spiritual counseling. That way the church can be assured funds are being used properly and that you are willing to restore the marriage if possible.

You have the right to expect your church to meet this need. Unless God’s people, particularly single parents, are willing to take their needs back to the local church, it will never change.

“But whoever has the world’s goods, and beholds his brother in need and closes his heart against him, how does the love of God abide in him?” (I John 3:17).

Q: After nearly 20 years of marriage, my husband left me for another woman. I’m trying to locate a job and get re-established, but I don’t have any credit history. I can’t even buy a car. Can you tell me how to establish credit as a single woman?

A: First, be very cautious about establishing credit. If you’re not careful, it can get you into a great deal of trouble, particularly during this transition period of your life.

In answer to your question, you can qualify for credit using your payment history while you were married. Obviously, the extent of the credit will be based on your current income, so until you find employment you would not quality.

Let me also encourage you to take your financial needs to the Christians around you rather than incur debts you may not be able to handle. Once you have stabilized your income, then re-establish your credit.

Q: I’m self-employed and don’t have any retirement plan. Would an IRA be the best way for me to save toward retirement? How should the funds be invested?

A: An IRA is a good supplemental retirement plan. But unless you start at a young age, the yearly contribution restriction of $2,000 (currently) limits its effectiveness. It’s certainly better than doing nothing, but because you’re self-employed, you have access to a more flexible plan: the HR-10 or Keogh plan.

The HR-10 retirement plan allows contributions up to 15 percent of your income, or $7,000 per year. Even though you may not be able financially to contribute the maximum amount at a younger age, this flexibility will be very useful from about age 50 on.

You can select from a wide range of investments for either an IRA or Keogh, provided that you invest with a management company that allows you to “self-direct” the use of the funds. Most banks now also offer that option. I would recommend investing in a good quality mutual fund that offers several different investment programs for retirement funds.

Remember that your long-range retirement goals should include not only the minimum amount you feel is necessary, but also the maximum. Once you have reached your pre-established goal – that’s enough. Luke 12:20 says, “But God said to him, ‘You fool! This very night your soul is required of you; and now who will own what you have prepared?'”

Q: I’m in my mid-50s and can free about $100 in a month to put toward retirement. Would I be better off to invest it in an IRA or use it to accelerate my home mortgage? I also have a good company retirement plan that will provide half of my salary when I retire.

A: Assuming that you have adequate savings for current budget needs, I would always recommend paying off the mortgage. Eliminating your mortgage and then using the funds you were paying each month to invest seems a lot more logical. That way you own your home, no matter what, and your retirement income needs decrease by the amount of your payments.

However, if you can’t eliminate the mortgage before retirement, and you plan to sell your home after retiring, it may make more sense not to pay off your existing mortgage. If your mortgage is an older fixed rate, assumable loan, it can be a real asset in attracting a potential buyer.

(The above material was published by Focus on the Family, Colorado Springs, CO.)

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