Financial Planning

Pres. Abraham Lincoln once you six hours to chop down a tree house of the first hour sharpening the tax time.

Rob West obviously Lincoln believed in planning and his skill at it. No doubt help save the union you will planter especially with your finances. Talk about that first today with Ron blue it's all your calls at 800-525-7000 800-525-7000.

This is moneywise biblical wisdom for your financial decisions yesterday as the founder mentor Ron blue. He's a sought after speaker and author on biblical money management but perhaps most of all, he's a financial planner at heart. Ron welcome back Rob, thanks so enjoy being a part of your program. Thank you for running the well it's always an honor to have you here with us. Ron and there is so much to talk about when you come on the program but perhaps one thing we haven't talked about enough is financial planning that you covered extensively.

Of course in your book, master your money and you start by revealing some key truths in this area so I look for you to begin by unpacking those for us. You know, their goal when you get right down to it, and people will identify with number one no matter how much money you have or how many financial resources you have.

There's always a limit and consequently there's never enough money for everything that's available to spend it on so when you make a financial decision you allocate your financial resources and in reality you're determining your destiny. Maybe easier same or think about them for retirement.

If I don't save for retirement. My destiny is not going to be very good for retirement. My destiny can be much, much better. So dollars gone forever and can never be used in the future for anything else.

Therefore, Rob, I would say that the longer-term perspective better. The potential for a wide decision. If I can think for example about college for my kids when their infants are likely to make it better choice in terms of saving for that most of us are responders rather than planner and we respond to friends. We respond to advertising and our emotions get really involved in our planning and spending may give it to your will simply financial planning is allocating limited financial resources among unlimited alternatives. If you know that you won't get frustrated when you begin allocating resources well that's powerful and you said it was simple. Ron is this advice you just gave was followed by people we wouldn't see the data we see today about the debt that exists the amount of people living beyond their means. It sounds simple, but in fact it's really hard.

We have limited resources. There are more uses of money available, then there is money. Today's decisions determine our destiny and the longer-term the perspective the better potential for wise decisions. Ron you mention financial planning what the real benefits of financial planning and orderly allocation of the limited resources and we realize that God is interested in more than interested. He's the one that provides the resources for us and if we believe that that he owns it. He also can give me some goals so my financial planning done personally, I'm likely to be allocating those limited resources as God would have been limited as allocated and it removed so much of the frustration when I believe that I'm walking in obedience faithfully to what God would have me to do and so the pressures go away a lot of the frustration goes away a lot of the miscommunication between husbands and wives and parents and children goes away when I have a plan.

I have made a lot of decisions and take away the emotional side of money and yes it sure is timeless wisdom coming from God's word shared by our good friend Ron blue today we come back five short-term objectives to financial planning and long-term objectives as well. You want to have a pen and paper handy pause for a brief break more with blue just after this brings us to the moneywise live joining me today. One of my good friends and mentors, founder of kingdom advisors run master money. A classic you haven't read. Master your money.

You need to. It really shares. I think in a way that no one else is captured the heart of God as a relates to financial management and financial planning, and that's really our topic today just before the break, Ron pointed out that financial planning is allocating limited financial resources among unlimited alternatives and given that financial resources are limited and we need to have a planned and Ron you were sharing some principles that go along with that love for you to share just for a moment. What exactly were trying to accomplish when it comes to our financial planning. When I take a vacation. It's not that I am taking a vacation, but I am trying to maybe build memories with my family. I may be thinking about recreation recreation and the money becomes a tool when I buy a car buying transportation. So when I spend money. It is typically almost always to accomplish something else. And money is just the tool that I used to accomplish something else. So we hung up on thinking too much about money rather than thinking that money is the tool and if I think of money is the tool but what I'm really trying to accomplish is maybe ministry maybe it's relationships. Maybe it's recreation could be many, many things that money is just a tool. And really there's there's not many places when you lump them together that you can spend money spent to live your taxes for the future so your money and I think of it like putting in a bucket lifestyle bucket something like that because I think that's really key because financial management can seem overwhelming, limited resources, unlimited alternatives, but when you boil it down, there's really only you point this out in the book.

Five. Short-term objectives to financial planning, which greatly simplifies things and then six long-term objectives. Let's start with the short-term objectives.

What are the spend money money given away money to support my lifestyle which is really all of my expenses, housing and entertainment, recreation, and so forth. I money to repay the debt that I have borrowed and I have to spend money to meet the tax obligations that I have and I should be spending money to say for the future, because you can't have anything in the future if you spend it all in the present really only five live demo grow, live, spend it on what I owe taxes and I'll debt and I spend at the girl.

So those are the only places that ultimately you spend money and as you spend in any one of those five categories you're really saying these are my priorities and interesting exercise to go through if you look at the percentage of money spent in any one of those five categories as to what priority it really is in life you in many cases, you have a choice. You have been back.

Did you have to pay for taxes, but the giving lifestyle and the savings are really the choices that you make and if so if you can minimize the debt and minimize the taxes you get more money. On the other three yes, you have certain commitments like mortgage payments were to be in the category and insurance and so forth. So your priorities dictate how you allocate your money. Among those five choices slips really helpful because as you said, it comes down to two factors a commitment you've already made in your priorities, but so often we hear from folks Ron sinks what should my priorities be what is the right priority order of these uses as a relates to giving lifestyle and savings how to somebody rustle through that you know topic long time on think that the choices are not necessarily sequential. They are simultaneous, and by that I mean we can you give first paper to your dad you say and then you support your lifestyle, but it may be you have an emergency at some starter. You know you have hurricanes like: occur, and that becomes a priority.

You just need to understand that there are limited places that you be spending money and ultimately how you spend money is a priority decision and your priorities are typically of your spiritual belief system so late.

I can look at the checkbook and I can see where my priorities are and I can see rubber band lineup with what God's priorities are. Yes, just say Ron it would be real simple of the Bible said well you lifestyle should be 62.5% of your income doesn't which means we've got to be on our knees asking the Lord for wisdom as we make these decisions.

Let's turn to the long term, and I know you said not only is there. Five. Short-term objectives to financial planning but there's six long-term objectives, meaning really everything you can do with money in the long term is going to fit into one of six categories. What are those a lot of people would like to be naturally independent of the time they retire. Not a long term goal and then paying for college, and caring for aging parents might be long-term goals.

I would put that in providing family needs. Certainly perhaps paying off all your debt really great idea.

People can be out of their mortgage for the time that they retire and long term. Maybe it's a major lifestyle change when I'm 30 years old. Maybe the thought of a vacation condo or credit card or something is lifestyle change ratchet bigger home as children get bigger, that's a lifestyle change would be. Maybe I want to accumulate some wealth in order to maximize the amount that I give to my church or ministry missionaries that I'd like to support charitable giving, and in some cases people want to start their own business and I believe that having saved to start a business. It is a good way to start rather than starting with that so long-term goals that people will say it looks nobody will so there will be just a few that you accomplish those goals. You no longer need my age. My kids for college anymore.

Thank you. You taken something that can seem very complex financial planning, financial management and you've distilled it to some principles and subcategories. It gives us just a real catalyst to move forward with confidence. We always appreciate you stopping by Ron thanks for being our guest today. You can read a lot more about financial planning. In his book Master your money stay with us much more to come. Just around the corner last year.

Most were delighted to have you along with us today as we mind the Scriptures and apply God's time was truth to your financial decisions and choices. Recognizing God owns everything, and therefore, where a manager or steward. So it's our job to carefully and wisely manage everything he entrusted to us according to his wishes. What are those wishes.

Well, his word is where we understand the heart of God related to money management in our role as stewards, we want to be found faithful living simply holding money loosely recognizing that it's a tool to accomplish his purposes, and I think generosity is a natural byproduct of that along with freedom and contentment.

Let's try to find that together they would get some phone lines open. We love to hear from you what's going on in your financial life.

800 525 7000s another call.

That's 800-525-7000 were to begin today in Macedonia, Ohio. Gary thank you for calling Sarah can help you. Hoping that I could get the topic I think of them and what they are yeah well I like them especially right now just because you can get a far better interest rate than you will a savings account but you need to be willing to hang onto it for at least a year and if you redeem it prior to five years you lose three months interest there backed by the full faith and credit of the United States government issued by the US treasury. They give investors Gary a return plus an inflation protection on their purchasing power and because of where inflation is right now were seeing significant interest rate so the composite rate for I bonds issued until Noven skews me until April of this year is over 7%, 7.1, and that the rate applies for the first six months you on the bond and then that the composite is going to change, pegged to inflation they have in a 20 year initial maturity with a 10 year extended period for a total of 30 years so II think it's a great option because you can get far more than you get to me. As I said in an online savings account and you can get access to them.

Treasury direct.gov. You can only put in $10,000 per person in the calendar year. You can get that up to 15,000.

If the 5000 of that comes from a tax refund and it goes directly, but you know, again, given the safety the return and the ability to get it back after year with minimal penalty. I think it's a great option for you. All right, thank you very much. Thank you for taking my call. Happy to do a Gary thank you for listening going sir. We appreciate it.

Let's head to Michigan.

Brian, thank you for your call can help user. While I have a question about the accuracy of monkey hello software addiction technique you feel about it if it's accurate what it accuracy is yeah well I am not a big fan of it it it is a tool and you need to see it is that that can be used one time and then you forget it. I think the idea behind it is that you continue to use it over and over again and updated along the way.

Essentially, this is going to be a predictor of your likelihood for your plan to allow you to achieve your retirement results, i.e. making your money last throughout your entire life and you know it came on the heels of what was used really and is still used today as some seminal work by Mr. Bingen that we talked about where deal.

He came out with research that gave us what is known as the 4% rule that sent me a widely considered, rightly or wrongly, as kind of the ultimate retirement planning tool in some circles, which basically says you can safely withdraw 4% per year from your nest egg over the course of 30 years and not run out of money. If you have a portfolio that's consistent with that approach, but in 2005 investment inverter firms and advisors really begin to move more toward the Monte Carlo simulation is a predictor of again your portfolios. Probability of success, arguing that it would be an improvement over Bingen and that you and I think the challenge is best case outcome would be to assemble a portfolio and withdrawal weight rate that delivered at 70% or better probability of success you know a lot of you folks will say it's perhaps as low as 50%, just in terms of its its accuracy. Again, though it's a tool and I think it ultimately comes down to you know something that can be used alongside other planning vehicles to analyze your strategy, you know, the biggest driver of success is going to be feel what you're willing to do in terms of your withdrawal rate in retirement. Are you willing to adjust your withdrawal rates over time.

You know, as the market ebbs and flows, especially during the income phase where you're distributing the assets in retirement. But I don't have a problem with it as long as you don't see it as kind of the end all and as long as it's updated along the way because you know your results year to year as you get closer and closer retirement is going to give you a more accurate reading and it I think the challenges a lot of folks see that they run the simulation and if they come out and say well it's only 50% probability of success and they think, well, one out of two times to fail in terms of this trajectory reaching my goals.

That's pretty disconcerting, but without some pretty minor tweaks and again, your ability to adjuster withdrawal rate down the road you can get a lot higher your probability of success, so I would say it's not my favorite tool, but it is a tool and I wouldn't have a problem with using it as long as you're willing to update it as you get closer and closer to retirement. Does that make sense Brian couple questions yet over the frequency of updating the dabbing on a yearly basis. Typically, it would be as a part of an annual planning session where that would be updated okay and then your 70% or better that your result at the end of the running simulation software right that's right that's basically what most folks are looking for to say that there's at least a 70% probability of success for the plan, not the reliability of the results that 70% or greater is the target that most folks are looking for land that was more 50% of the time now. I think you know there's a lot of research that will say it's only 50% accurate in terms of that probability of success that is coming out so which study you look at but again I think it's a tool as long as you just understand that going it will talk a bit more if you take a break, but will be right back very clear to you guys live this afternoon around West you host taking your calls and questions on anything financial. Talk about spending plans, debt reduction rep saving for the future or giving one of our favorite topics that you can do so by calling 800-525-7000. Our team standing by. We love to hear from you. Whatever's on your mind today 800-525-7000 and let me mention we are planning a big update to the moneywise app here in the next couple of weeks were adding a major goal setting component where for each of your categories as your managing your spending. Using our money management system you can actually set goals for each of your envelopes were really excited about it will allow you to set debt reduction goals or savings goals right there in the apps downloaded today so you're ready when the update comes out. Plus you can access our broadcast archives or community where you can post questions and get answers from our coaches and access all of our content. You'll find it in your app store to search for money wise biblical finance and you can download it today just before the break we were talking to a great caller who was asking about the Monte Carlo simulation. I'll tell you where we landed off the air. During our break is what I was saying is that the Monte Carlo simulation is a tool most advisors are looking for a 70% or better probability of success, meaning that your plan, the amount that you have your savings rate the annual return you're projecting and your ultimate withdrawal rate in retirement is 70% or better likely to succeed.

But some research says that the reliability of that percentage probability is only about 50% is only half the time. Does it work out that way. The way you improve that, though, is by repeating it every year and making sure you update that regularly. I would also say that something like the Monte Carlo simulation is just a tool, and it's not a replacement for really doing some hands-on retirement planning with a certified kingdom advisor who is a certified financial planner somebody who can really come alongside you and understand what you're trying to accomplish what will your spending look like in retirement. How much do you have today.

What can you save over time. What giving goals do you have and what God's what is God doing in your life you are putting all of that together to do some real planning not just relying on an algorithm in a software package somewhere that's I think where, for sure you can get the best results you want to find a certified kingdom advisor in your area. You can do that on our website@moneywise.org just click find ACK hard-working head back to the phones, Vermillion, Ohio hi Ron, thanks for calling Sir hi Rabbi I was calling in reference to my my white hairs like over $15,000 in credit card debt that she let me know about, but she was thinking about clearing out her 401(k) which even equal the amount of credit card debt such as roughly over $10,000 in the 401(k) and if she was to take it all. Honestly, even with the taxes and I searched the clear but closer to 9000. I think she said something or less so to clear the credit card debt of tooth due to thunderous booking is that even close to the right approach or should she just be looking at a credit card consolidation loan of some kind. It's a great question. I'm not a fan of that approach Ron. I'm assuming you guys are under 59 1/2 is a right correct okay so you have on top of the taxes a 10% penalty. That's expensive money and I think you know the likelihood is that it won't solve the real underlying problem that led to the debt in the first place, which is typically in. It may not be in this case, but typically a result of living beyond your means. So I think really the key. Ron here in getting this paid off, and make making sure it's paid off once and for all, and that the debt doesn't return is to make sure you're living on a spending plan that you've got a clear budget your managing money and making decisions together. Even though there may be one bookkeeper that your setting goals that you have a system to track the flow of money so you're living below your means and you know that gives you, then the margin not only to cover the minimum payments on these, but to really accelerate that payoff with access what you have an emergency fund in place. The alternative to pulling out of the retirement account which, again, I'm not a fan of would not be in my mind. A debt consolidation loan will retake out a new loan in, roll all these together at a lower interest rate, primarily because number one I don't like solving that with more dad number two. Even though the interest rate meet may be lower, it's likely to be a longer payback term and you'll end up paying more over time. So my preferred approach Ron is what's called debt management. It's essentially where you use a credit counseling program to get lower interest rates directly with each of the credit card issuers and through one monthly payment that fits into your budget with those lower interest rates on average folks in debt management pay off these credit cards 80% faster. You will also build it right into your monthly plan which you know doing that, month after month, even though it is not can happen quickly. I think that's can really lead to the right disciplines that Lord willing, will allow this debt to be paid off and never return. My friends are Christian credit counselors.org would be my preferred place that you go there, be delighted to walk with you explain exactly how it works and again because of their relationship with the creditors those interest rates will be reduced and help you paying off a bit quicker but tell me what questions you have the not I was really I was just looking to go in that direction. I appreciate that.

Thank you. Awesome yeah Christian credit counselors.org. Ron and I think that'll be a great solution, though also help you with your spending plan. Make sure you you have that set up in a good system in place to maintain that moving forward… Or we appreciate your call. Crossville, Tennessee, W MPW hi Sadie, I can help you to question just real quick, constrain the credit card.

Credit counselors can get on a credit credit under 5000. Absolutely I think the question is just whether it makes sense and they'll help you evaluate that Sadie to determine whether you should just snowball yourself, which just means you keep all the minimums paid free up as much margin as you can each month in your spending plan and then attack the smallest balance first with everything you have available over the minimum payments and that way you get that one paid off quickly.

Assuming there's more than one card here and then you just can roll right on down the line. That's one way to go. But if you've got anywhere close to $5000 in credit card debt. It probably get a make sense for you to use a debt management program just because of the total interest savings are a great academic a $300 kitchen driver mainly because I been concerned about why bonds are wandering behind on my husband and I are very low income that I hear you talk about why bonds would that be something that low income people can daily and if so where would I go about getting them. Yeah, you know, I think the question is just what is it you're trying to accomplish is this, this, so you looking at retirement savings or you what is the money that you would be looking at moving and I bonds want to start saving for retirement as my husband and I are both comfortable. We had nothing actually.

Nothing saved for any anything I want to start sure. Do you either of you have a retirement plan at work now I'm able to handle that. Yes I'm not able to work were only living off what made yeah I probably look at a Roth IRA as a first choice. You can put in up to 7000 year and I would look at the just a properly diversified portfolio using to start with what are called index funds just so you can own the broad cross-section of the market, even though your 50 think about them. You still have the 15+ years for this money to grow in decades. Beyond that, the Lord Terry's and in your health is good. We'll talk a bit more off the air stay with us will be right thanks for joining us today and moneywise live biblical wisdom for your financial decision West Coast right back to the phone. Cindy is calling from Ohio today hi Cindy help great things for a home equity credit paper). I know how you feel about that and we can get go to sure. Yeah, in fact, I would whenever you seeking a loan, especially when it's one tied to your home can be around for a little while. I'd always you look at the number of options I'd get three bids before I decided which direction I was going to go bank rate.com would be a great resource for you to begin to look for the lenders that have the best loan programs today and that changes over time based on who has what money available to lend and you be looking at both the term the rates. The interest rate and then the cost associated with it and that's can vary significantly from lender to lender. I'd look at your local bank, which you obviously have done, but I'd also look at some online banks because there's no reason it has to be with your bank houses. Money can be used. Cindy are you doing home renovations or improvements actually will have our house and are praying at and thinking about that Carol, our house loan is 6 1/4% and then allowed to penetrate that we got, or any home equity credit like three and that we were even thinking should we pass the house. Will the challenge is to me that's obviously a high rate on that first mortgage, but you're so close to getting it paid off its balance is probably too low to get a new first mortgage. Anyway, gathered the home equity loan is is obviously a lot lower, but it's adjustable given the timeframe here that may actually be a decent option. What were you prove for help because the line out okay and how much are you planning to use well probably maybe 20 okay and how much do you all have available each month to pay toward the mortgage and can apply online, and how much do you have left on the first mortgage 13,000 and 13,000 okay yeah so I think one option would be to roll these altogether. I think the second option would be to just going to continue on this current track your 11 months away from getting this paid off and you get a home equity loan not allied a credit for the home renovations. The benefit there is you won't see you know after an introductory.

Perhaps you won't see the rate begin heading up on that home equity line of credit like you likely will now see a lock that in. You can focus on getting the first mortgage paid off this year and then you know you can take all that money. The monthly payment plus the extra 700 and then to begin applying that to the home equity loan.

So even if it took you in a couple years to get that paid off. And it shouldn't you have the will quicker than that, you wouldn't have to worry about that rate heading north on you, so I'd probably look at that option and again I would look@bankrate.com to find who has the best loan rates and programs right now to see how you can do this with the least cost.

Does it all make sense. You're very welcome.

Thank you for calling, Cindy Thompson, Fort Myers hi Tom, how can help you. I hope you are looking for possible 56 you like the body and I hope my home is okay, cool. I don't have that and about $300 and no doubt okay and you have a good budget time to understand what it would take if you were to retire, what it would take per month to fund your living expenses, it would be about a month okay and what income sources do you have other than the retirement account of roughly 400,000. Okay I my notes here for my producer said you have a small state pension. Would you be able to begin taking that I love but I will be doubled. The down the line. Okay, what did you say your monthly need would be what would be the total monthly expenses you have to cover about 500+ about 6000 and no, no, call 500 okay that sounds low to me. I realize your debt free in your living modestly, and that's great but I'm wondering about those things you haven't allocated for fuel and insurance, and you've got to know the way insurance for your car but homeowners insurance, and just unexpected expenses that come in the perhaps things you don't get a bill for discretionary spending side really want you to file focus in on what that true monthly budget looks like and one of our moneywise coaches would be happy to help you with that because once you give an accurate picture of what it takes for you or what it will take for you to fund your budget and retirement then you know what income you're selling for.

Obviously, delaying retirement means you're going to give this portfolio a chance to continue to grow. If you were to freeze it right now at 400,000 and deploy a strategy not to grow it, but to no produce income where you're focusing on capital preservation and then distribution of it. We I said this earlier, we used your 4% rate of return is a typical rule of thumb that says we should be able to pull 4% a year and make that up with a very conservative investment strategy that would give you 16,000 than a year, about 1300 a month. And the idea would be that you could maintain that $400,000 euro principal balance and pull the 1300 a month. You may think that's gonna cover your expenses. I think it may be tight because I think perhaps there's some things you're not factoring in so you know it. Perhaps the idea here. Tom is I know you'd like to retire early and perhaps your health will force you to do so.

But if you can, I'd probably delay the retirement until you get a little closer to being able to take the state pension so that the two of these together, the real income from the retirement account in the state pension could give you a little bit more flexibility in in terms of covering your expenses and then obviously once you get to where you can take Social Security that will help even more. I just don't want you to do it too early and find that you're really tight you know on your spending plan and see you draw down that retirement account a little quicker than I'd like to see and then you know it ends up being something that doesn't last throughout the rest of your life because you have to pull from the principal does all that make sense though hopefully really on the actual expenses which I'm going to guess That I think that's the key. So you need to start there and figure out what are your actual expenses and then can you meet that you know with the assets that you have and if not, and I think it's gonna be tight you know we need to probably delay it.

Let this portfolio continue to grow over the next few years and at least get to the place where you got your pension to supplement listen all the best to you, sir, as you think and pray through that. We appreciate you listening and calling over to finish today in Georgia. Melinda thanks recall how can help you have 45 And I would like to know what you can pick that I'm not a big risk taker and would you consider this money. Melinda your emergency fund, or is it your mark for some other purpose, and 20 factoring market okay so this is beyond okay and when you say it's just savings to tell me about what other retirement or other investments you have are you contributing to retirement plan of some kind or do you have other investments that worked for.

I have 40 act out the annuity and have a thinking and do you see any other needs for this car replacement or any other kind of major expenses coming down the road that you need to perhaps your mark this 45,004 or is this really longer-term than that okay and what is that time horizon would say to retirement okay alright well you I think. Then the question is, given the 10 year time horizon given that you don't have any other more short-term needs.

Your saving you know in your retirement account. I assume that's invested in a way that's consistent with your agent, risk tolerance, and in time horizon. I think the remaining question here is just the are you willing to take any risk with it. Do you want to put this into the stock market yell and and see it invested or are you looking for something that is more guaranteed in nature.

So I think really the only option then would be and we talked about bonds you can look at that, but you could put in only 10,000 in but that would least get you started treasury direct.gov would be the place to go there.

They're paying a little over 7%. Right now through April, and that would be guaranteed for six months it's backed by the full faith and credit United States government beyond that CDs down the road's rates increase would be an option or another annuity where an insurance company is providing the guarantee. Apart from that, you have to take some risk with the money so I look at one of those three seatings I bonds for perhaps adding to getting an additional Melinda thanks for your call for us moneywise. Love is a partnership between Moody radio and moneywise media.

Thank you so much that Jim Martin can do it without you and I will be back