Financial Rules of Thumb for Clergy (and Really Everyone!)

Life is complicated.  Rules of thumb are easy. 

There are many simple truths in life that are time tested and, when we think about them, they make a lot of sense too.  I can remember in seminary the crash course we were given in my final year on how to handle some of the practical realities of being a clergy person.  This said, years in the ministry and the help of many great colleagues have helped me see that there are many more helpful "rules" of sorts we would all do well to know and follow.  These rules of thumb below are admittedly more on the realm of personal and financial stewardship (and could apply well to clergy and non-clergy alike), but I do hope to have a post sometime soon reflecting also on some practical everyday rules of thumb for life in ministry too. 

Enjoy the list and throw out in the comments any additional thoughts you'd like to offer.  Consider these rules of thumb:

• If you don't have a will, get a will (now!).  This is necessary for all people age 18 and higher.  Don’t put this off.  Recent statistics say that 78% of Americans don't have a will at their time of death.  Without a will, should you die, your wishes for your estate will not be known and decisions will be made by an authority of the government under local laws.  It is unlikely that these decisions will represent your own desires.  This is especially critical if you have dependent children.  With a will, for example, you may chose who will care for your children if you should die.  Without a will, the state will oversee this process which is likely to be very complicated and challenging for your children.  Even more info here.
• Don't keep up with the Jones.  Even clergy can fall for this one.  Sometimes we look around us and see many who seem to be doing so well financially.  The truth in this perception is that some are indeed doing well financially (among those in our churches and in our communities), but for many their presentation is a financial facade with heaps of debt and stress carefully hidden.  God's reminder is that it is he who provides what we need and we are called upon to be careful caretakers and managers.  There is great comfort in living a life of contentment.  Avoid the temptations of comparison living, for in it we might be comparing ourselves to a vast facade and taking for granted all we have of which to be grateful.  For even more humbling insight into the Jones, see here.  Also consider reading The Millionaire Next Door by Dr. Thomas Stanley - it's quite insightful on who are the real Jones (and it's not who you might likely suspect). 
• Make and live by a budget - Especially considering a monthly zero based budget.  As a couple or, if single with an accountability partner, create a zero based budget prior to each month.  This method will consider all anticipated income and determine in advance all expenditures of the income down to zero remaining. This approach invites accountability and discipline in spending and prioritizes short and long term needs and goals.  For a theological thought here, consider that what we are budgeting, in advance, is what God has made possible in our lives.  We are budgeting God's resources and our spending reflects how we discern his priorities in our lives.  Make this an every month practice and watch your financial confidence soar and your financial stress dissipate.  More info about how to make a zero based budget can  be found here.
• Have an emergency fund.  Build a fund in cash (not invested, but remaining liquid) of 3-6 months of family expenses.  This can take time to build, but is absolutely worth the effort.  The emergency fund stands between you and life’s emergencies.  It operates as personal insurance for emergencies (not wants/non-emergencies) and keeps us from financial panic with a financial emergency occurs.  More info here.
• Pay off your debt rapidly with the goal to eliminate all debt. Debt limits financial opportunity and yields financial stress.  In essence, debt is selling our future (at yet a greater cost due to interest) for today's benefit.  Use careful budgeting to avoid new debt and the snowball method to eliminate current debt.  This snowball method focuses all available funds monthly toward the smallest debt and when it is paid off takes that amount and the prior debt’s minimum payment and applies it to the next lowest debt.  This focus continues until all debts are paid off in full.  Being out of debt is incredibly freeing and well worth the effort and sacrifice.

• Invest extra in retirement when you are both out of debt and have a full emergency fund.  The rule of thumb is to invest 15% of income in retirement utilizing the best mix of IRA (Roth or Traditional) and employer retirement options (403b, 401k, etc).  Until becoming debt free and having a full emergency fund, do not invest extra into retirement .  Becoming debt free and having that emergency fund are a critical foundation necessary to best prepare to invest for retirement. 
• Don’t buy a new car or lease any car.  Unless you have a net worth north of $1 Million or greater, the significant depreciation of a new vehicle is too great to afford losing.  It is wisest to purchase a reliable used vehicle in cash.  This way the most rapid loss of value due to depreciation has already occurred and the cost to operate the vehicle still remains relatively low.  Upgrade to a different used vehicle only as cash becomes available within your financial plan to do so.  Leasing yields no equity and is considered, when broken down by cost, to be the overwhelmingly most expensive way to handle transportation costs. 
  Aside: For an interesting insight in how high wealth individuals tend to buy cars on average (spoiler alert, they often prefer to buy a 2-3 year old used cars instead of new), check out this article and see why this rule of thumb is so helpful. 
  For info regarding why leasing is almost always a financial no-no, check this out article. 
• Purchase a home wisely.  A wisely purchased home can be a blessing, but there’s a specific rule of thumb for this endeavor that will minimize risk and make for a comfortable purchase.  First, do not purchase a home until you are debt free and have a full emergency fund.  Personal debt and financial emergencies can make home ownership a nightmare.  The rule of thumb: When personal debt is eliminated and you have a solid emergency fund, consider purchasing a home with a minimum 10% down payment on a 15 year mortgage where the payment will not be more than 25% of your take home pay.  The more you can put down, even better, up to 100%!  This formula counters most conventional thinking among mortgage and real estate professionals, but best minimizes financial risk and purchasing beyond one’s means.  It is better to be in solid financial shape when purchasing a very affordable home than to have financial challenges and buy a home with great financial burden. 
• Focus on net worth as a barometer of financial growth.  One’s net worth is simply the value of all assets minus the cost of all liabilities.  The rule of thumb is that an average expected net worth can calculated using this formula.  Simply take your age and divide it by 10.  Then multiply this number by your current yearly income.  The resulting amount is your expected net worth.  One is considered financially below average if their actual calculated net worth is below their expected net worth.  One is considered financially wealthy if their actual calculated net worth is 3x or greater than their expected net worth. 
  As an aside, wealth in and of itself is not the evil some purport it to be.   There were quite a few prominent wealthy people in the Bible (Abraham, Joseph of the Old Testament, Job...eventually, etc).  The key with wealth is in our motivations - as we understand and build it and then too how we oversee how we use it for the work of and benefit of God's kingdom.  Money is not the root of all evil...but remember that the love of it is. 
• Insurance is critical.  Being poorly insured exposes us to significant and unnecessary financial risk.   Critical insurance needs include:
  • Health Insurance.  Consider a plan with an Health Savings Account (HSA) if appropriate.
  • Term Life Insurance of 12x our annual income (until our net worth allows us to self insure),
  • Homeowners insurance at full replacement value of your home or Rental insurance at full value for your possessions
  • Auto insurance at correct limits based on need.
  • An umbrella policy to cover additional liability coverage for home and auto.
  • Disability insurance for those currently working.
  • Long Term Care insurance into retirement (many experts recommend the financial "sweet spot" to purchase Long Term Care is on your 60th birthday, as your risk of needing this is well less than 1% before this age). 
• Save for your children’s college only when personal debt is eliminated, emergency fund is fully funded AND retirement funding is at 15% personal contribution.  Many families save for college while their financial situation is not in good standing.  There are many ways to help with college funding, but few ways to handle personal financial challenges.  Getting in good financial standing is a critical foundation needed before investing in college costs. 
• Don’t borrow money.  This will seem strange given the above advice regarding purchasing a home, but the home purchase may be the only expectation to this rule of thumb (though buying a home with cash is really great for those who make this possible!).  Purchasing with credit is in effect selling your future with an additional cost of interest.  It also increases personal financial risk, as the debt must be repaid even if your financial situation changes negatively.  It is wisest to wait to make purchases only when you have enough cash to pay for them in full.  This will reduce your exposure to financial risk and provide greater joy in purchasing.  Therefore, consider closing credit card accounts and paying off all debt balances and loans quickly and building cash for purchases using focused budgeting and the snowball method for eliminating debt.
  
  This list is just a beginning and there's many more rules of thumb to consider.  This said, simple rules of thumb can be great building blocks for wise personal financial stewardship.  What rules would you add?
  
  

P.s. For an additional resource to consult for making organized and wise financial decisions, check out FinancialChecklist.com.