Our last article launched our Retirement Planning Basics series by covering the Traditional IRA. In todays article, we will discuss another hugely popular retirement vehicle, the 401(k).

Whether you are finishing up a Christian debt settlement program, just starting your career as a recent college graduate with a new job or you are preparing for a Christian retirement, planning for your financial future is wise. First Peter 1:3 tells us that all the power we need to navigate our life — including our financial future — comes through the hope we have through Christ Jesus.

Part of exercising that power is educating yourself about retirement plans and packages before you make financial decisions. This article discusses some basics about 401(k) savings plans.

If numbers are any indication, this plan is one of the most popular retirement savings vehicles today. There are about 50 million individual 401(k) accounts in the United States.

Originally, 401(k) designers envisioned a tax-deferment vehicle purely as a tax break that pushed tax liability to a future date when earnings were used. Today, it is part of a retirement income stream that includes personal savings, pension and Social Security disbursements.

A 401(k) plan is an employer-sponsored plan where workers choose to contribute through payroll deductions. The maximum annual contribution for 2013 is $17,500. Plans are portable, you can rollover the account into a new account without penalties if you change jobs.

There are three distinct benefits of using a 401(k) to save for retirement.

1. Convenience of automatic deposits.
2. Employers match a percentage of deposits — typically 3% to 6% of annual salary.
3. Tax is deferred until you withdraw the money after age 59½ or for a qualified hardship.

As with any retirement plan, there are some drawbacks as well. Just like with the Traditional IRA, if you withdraw money early, you’ll pay a 10% penalty-tax along with tax on earnings. Also, some employers don’t allow early withdrawal except for resignation or termination.

People planning for a Christian retirement need to know how their investments are managed.

Employers typically contract with financial management companies to pool the funds into a basket of diverse stocks, bonds and mutual funds. Employees choose where to invest contributions from a list provided by their employer. Investments earn dividends, but there are many fees associated with a 401(k). Most fees are low — 1% to 5%; however some unscrupulous fund managers charge fees ranging from 15% to 50%. Some employers even negotiate a commission based on employee participation.

Even a small fee can devour your savings. Take this example. Let’s assume John is 40-years old, has a 401(k) balance of $10,000 today, and plans to contribute $5,000 annually until he is 65. With an 8% assumed return on investment, and a 3% fee structure, John will have $272,499 when he is ready to retire. If the fee was only 1.5%, his nest egg would be $342,715 — a difference of $70, 216.

As with any investment, do your research before selecting individual stocks or bonds. Ask about fees and rates. Calculate your tolerance based on your age, job stability and financial situation. Working with a Christian financial counselor can help your assess your finances and establish a solid saving plan for your future.

Whether you are nearing the end of a Christian debt management program or simply wanting to begin planning for your retirement, one of the first things that you will likely be investigating is the Traditional IRA. Today we’re going to discuss the basics of the Traditional IRA and explore why it should be at the top of your list of methods for funding your retirement.

What is an IRA?

Let’s first break down the abbreviation- an IRA is an Individual Retirement Account.

There are several kinds of IRAs, such as a Roth IRA, a Simple IRA, and a SEP IRA. For the purpose of this article though, we are simply going to focus on the Traditional IRA.

For a very simple explanation, an IRA is an investment account that you can utilize to save funds for your retirement with a few tax benefits along the way.

What does an IRA actually do?

The IRA provides you with an account where you can deposit pretax money, currently up to $5,000 annually or $6,000 annually if you are over age 50. The increase is because you may need to save more as you get closer to your retirement. The money in that account can then be used to purchase investments such as stocks bonds etc. This is considered to be tax-deferred, because you will not pay your taxes on the money until you pull it out of the account.

That tax deferment is the primary benefit of the IRA. Let’s suppose you are a single filer and earn $40,000 per year; by todays standards you would fall into the 25% tax bracket. To pay taxes on $5000 (the max annual IRA contribution under 50) at this point in time would cost you 25% of that income, or $1250. The expectation is that when you retire, your income is going to be reduced pushing you into a lower tax bracket. Let’s say that your income has dropped from $40,000 per year to $30,000 per year; you are now in a 15% tax bracket and instead of paying $1250 for that $5000, it would instead be $750. If you are using the IRA to its full capacity and making the maximum annual contribution year after year, this can add up to a very significant tax benefit.

What happens Inside the IRA?

While you are funding your IRA, the money is not just sitting there earning no interest. Within the IRA you are able to purchase investments. Assuming your investments are wise you are likely to receive a return on your investments, and again the income earned on the investments are tax-deferred. Over the years of making your annual contributions and in turn earning a profits from investing those funds, you are not yet paying the taxes on the income.

The difference in the tax rate from when you are in the height of your career compared to being newly retired with a reduced income can cause a major flux in your income tax bracket. As that IRA account grows and the profits from your investments accumulate over the course of say 20 years, the tax savings brought about by being charged at a different tax rate can be very substantial.

What’s the catch?

Based on everything that we’ve shared with you so far it seems very clear that this is a smart thing to do when you are saving for your retirement and, generally, it is! However, there is one very important factor to consider before starting with this type of retirement savings- the early withdrawal penalty.

As is mentioned in its name, the IRA is a retirement account. As such, you cannot access the funds without penalty until age 59 ½. If you do withdraw from the account prior to this point you are going to not only pay the taxes on the amount that you withdraw but also incur a penalty, currently 10% of what is withdrawn. Every situation would certainly be unique, but generally the benefits of an IRA will be lost if the funds must be withdrawn at a penalty.

An IRA is a great investment tool that will provide a vehicle in which you can conduct your other investments. If you have created your emergency fund, paid off your credit card debt (on your own or through our Christian debt relief program) and are ready to begin planning for your retirement, this is one avenue you will definitely want to explore.

Getting out of debt is a big job and requires a lot of sacrifice if you are serious. When most people begin their Christian Debt Relief program they just assume, “Well, no fun vacations for us for the next five years.”. While there will be many things that must be sacrificed, fun does not have to be one of them. You and your family can still have fun, even without an expensive yearly vacation. Here are a few alternatives to traditional family vacations that will save some money and make some lasting memories.

Kid’s Choice Week

If your kids are accustomed to taking a week-long vacation to somewhere exciting, present a “Kids Choice Week” as an alternative. Explain to your kids you will not be going on vacation, but instead, for an entire week every evening will be kid’s choice. Your kids get to choose the meal, the movie, the game the activity. Give each child a night that can be entirely their own to plan for the family to spend at home together. Your kids will love the concentrated time with each other and the feeling of being in charge.

Staycation

This is becoming a much more popular alternative in recent years. If you are in a position to take some time off work, plan a staycation. This is a great option for families that have a little money for a vacation but not really enough for travel expenses and hotel costs. Spend some time finding the most fun activities and attractions that are within driving distance of your house. You may think there aren’t any, but you’ll be surprised what you find once you start looking. Each day of your planned “staycation” you and your family will go experience a different place or activity. It could be an amusement park, museum, hiking trails. A week full of day trips. If you have really young children, you would be shocked at how much fun they might have just staying at home and getting to play with you for a few days. This is especially true for parents that work a lot. Just you being home will seem special to them.

Freebie Weekends

If you really have no extra cash, and you don’t think it wise to take time off from work, plan a month of freebie weekends for you and your family. Each state has loads of free activities offered at national parks, museums and other attractions throughout the year. Simply Google “free fun stuff to do” for your state. Pack a picnic lunch for each outing and all you’ve spent is a little extra gas money. This is a really nice alternative because your family will be looking forward to a new experience all month long.

No matter where you are in your financial journey, those who practice Christian debt management principals will often share similar traits. Perhaps you are doing great with your financial goals and have had the burden lifted off of you. Maybe you’re struggling with your obligations and are in need of a Christian debt relief program. Either way, your personality will most likely change as your financial situation changes.

Consider these common traits of debt-free people and discover if you are already living in the freedom, or take a glimpse at what lies ahead of you on your journey.

Practical:

They tend to understand the meaning of value in every item they purchase. For the individual living on an average American income, practical purchasing decisions are a must have trait for anyone who wants to live a debt free life.

Self-reliant:

Being debt free means that you do not have to rely on credit cards from month to month. A cash-only system means that you are self-reliant, and more importantly, God-reliant in your spending habits.

Patient:

Debt-free people deny instant gratification to continue staying out of debt. The temptation to impulse-shop may arise from time to time, but out of control spending does not exist for those who become and stay debt-free.

Self-confident:

It is easy to get down on yourself when you are struggling financially. Once you are utilizing Christian debt management principals, you will regain your self-confidence by taking care of your debt.

Responsible:

Catastrophes are unpredictable, but in most cases, debt-free people set enough money aside in their emergency fund that they can survive the difficult days.

Charitable:

Since there is no longer a huge credit card bill each month, debt-free people often experience an increased ability to share with others, lifting everyones spirits and helping others in their time of need.

Not materialistic:

Luke 12:15 states, “…‘Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.’” Those who are free of debt acknowledge this and usually live within their means, the way God intended His children to live.

If you read this list and found yourself wanting to be on the other side of the fence, contact a Christian debt relief counselor at Faithworks Financial today so you can start developing these traits in your own life.

It may seem unusual to bring the term “abundance” into a conversation about Christian budgeting and implementing responsible Christian financial planning, especially if you are struggling to make ends meet.

As Christians, we sometimes fail to understand the true meaning of living under abundance. Our culture tends to equate that term with the dictionary version that describes abundance as “an excessive amount of something”. Abundance is better viewed as a sufficient amount for immediate needs, plus a surplus. The amount of food in a well-stocked cupboard, for example, may likely be an abundance as it meets our needs and will not be depleted by our immediate needs. We would not be likely to consider that excessive, though.

An Old Adage Lends Itself to Christian Financial Planning

The old “a penny saved is a penny earned” mindset can be much too easy to forget!

When we find ourselves in a situation where we have unexpected money (we’ve yet to meet such a thing as “extra money”), the perspective from which the blessing is viewed has a tremendous impact on how it is managed. To view the funds as being extra or excess makes it much easier to simply spend on a luxury item. We’ve all probably said it at one time or another- “I only spent $100 at the grocery store instead of $140, let’s eat out tomorrow night!”. Viewing that instead as abundance may allow us to put that money to better use.

A Bible Perspective on Finances

In the book of Matthew, we read the account where Jesus feeds five thousand men with five loaves and two fish, and are amazed at the multiplication factor. This story has a surprise relation to Christian financial planning.

And he directed the people to sit down on the grass. Taking the five loaves and the two fish and looking up to heaven, he gave thanks and broke the loaves. Then he gave them to the disciples, and the disciples gave them to the people. They all ate and were satisfied, and the disciples picked up twelve basketfuls of broken pieces that were left over. The number of those who ate was about five thousand men, besides women and children. Matthew 14:19-21(NIV)

Something that is often overlooked is the fact that the remnants were gathered. There were no unnecessary leftovers.

The twelve baskets of broken pieces remaining after everyone had eaten are not random happenstance. Perhaps the remnants were a blessing for the twelve disciples based on their work feeding the crowd. This signifies that Christ not only provides for immediate needs, but He is an immense provider on a continual basis.

Too often we think of the money that is left after we pay the bills as “extra”, whereas that abundant portion should be used wisely for immediate needs, and future needs that will follow. To put this into practice, when we find that we are under-budget and have unbudgeted monies available, those funds should be put to good use. Whether it be tithed, added to your Christian Debt Relief Program, or fund some other good measure, the important thing is that it be put to good use.

The disciples realized that the people needed to eat. They also knew they could not meet those immediate needs, and they turned to Jesus for relief, asking Him to send them a way to feed themselves. Instead, Jesus provided a way for the people to eat and the disciples to receive a blessing from the abundance. We learn that with Christ, there is abundance, not excess.

If you find that you have an abundance of funds remaining in your Christian budget, consider that to be God’s money. Help build His Kingdom and keep Christian financial planning at the center of your financial strategy.

If your financial challenges seem as impossible as feeding five thousand with a handful of fishes and loaves of bread, allow a Christian debt relief counselor to help you explore a Christian debt relief program with you today.

By budgeting as a Christian family, you’ll be displaying the importance of bringing God into the center of your finances to your children.

Christian financial planning differs considerably from how society at large handles money. You will need to think differently to guide your family into alignment with Christian financial principles.

Where Budgeting As A Christian Family Differs

When finding how to bring God into your finances, some general ideas are clear.

We should focus on being generous, and serving others. Take care to be responsible with our abundant blessings. Living humbly and within our means, avoiding accumulating debts, and being diligent in business are all a part of managing our money Gods way. 

A cornerstone of Christian Financial Planning involves an emphasis on family and faith. In placing our focus on family, rather than material objects, we also have the opportunity to bring our family into the conversation of money. We can also define our treasures as a family. This helps us understand what each family member truly values. 

Fulfilling these responsibilities may seem like a tall order, but it’s worth it! These guidelines will help keep your finances under control. One look at the financial crisis so many are facing today speaks volumes. In some cases (surely not all!) the financial difficulties people face—even those caused by a pandemic—may have been avoided with careful Christian financial planning. 

Involving Your Family In Your Christian Budget

Budgeting is an invaluable financial skill that can help anyone stay out of debt and live within their means.

It will make it much easier to manage your finances to tithe or give, and pay your bills on time. You’ll be able to plan for upcoming expenses and save for future needs. If you don’t know how to start to bring God into your finances by creating a Christian budget, here is a great resource just for you. While often overlooked, it can also be a valuable part of a young person’s Christian financial education.

The Bible states that ” Now it is required that those who have been given a trust must prove faithful.” (I Corinthians 4:2). We are stewards over what God has entrusted to us. If we learn to be faithful with what God has given us today, He will entrust us with more (Matthew 25:21).

Start the Conversation Early

Teaching your children how to budget does not necessarily need to wait until they have a big upcoming purchase like a car or college books. 

It can begin at a very young age by promoting taking stock of what they have, and with self-moderation of treats and toys. Halloween is a great time to teach young children how to budget. Challenge them to see how long they can make their Halloween candy last. It is also a chance to discuss value.

As your children get older, consider offering an allowance. Be mindful and spend time sitting down to help them create a budget for their allowance. This is precisely how you budget as a Christian family. It starts with a conversation and an example. This is a great way to start the conversation about money and help your children learn how to manage their money properly. Encouraging tithing or other giving on their budget impresses their at a young age.

You can even encourage them to start a small business. 

Our seven-year-old son has had a great time offering lawn care to folks in our neighborhood.  He was thrilled to earn nearly $100. He is taking his time to decide what to do with his money. How much to give, where to give it, and how much to save have all made for great conversations. It has been a wonderful experience for him and us, and we’ve had a great time meeting new people in our ‘hood.

Conversations about Budgeting as a Christian Family

One of the most powerful things you can do to encourage good money habits in children is to have open conversations.

Allow them to ask questions. Speak candidly, but in ways that they will relate. Tell them about your own struggles to the extent you are comfortable. Very few people go through life financially unscathed. That’s why there are several Christian debt relief programs for people who are struggling. Discussions won’t eliminate struggles entirely. Instead, they will help them know they have someone to talk to when trouble comes along.

Even consider involving others. Multigenerational conversations about money can be fascinating! Financial concepts change over time. Seeing how these lessons are interpreted by our young ones can be a wonderful experience for all.

Leading By Example 

As a parent, you will be more successful in teaching your teen or young person to bring God into your finances if you follow the concept yourself.

Your example of diligently displaying your Christian financial planning in action will pave the way for your children to follow. For teens, budgeting should be encouraged for any form of income to include allowances, income from part-time jobs, gifts, etc. Through budgeting, your teens learn how to prioritize their spending and plan ahead so they, too, can bring God into their finances, serve others, and be successful themselves.

You and your children can always trust the “God” factor to come through in your lives when you are diligent to follow the financial principles in His Word.

Incorporating Biblical principles into your families financial lifestyle is essential when raising children in a Christian home. This three-part series expounds on the benefits of having of a strong Christian foundation in your finances and how you can pass that heritage onto your children.

We live in a class conscious society that places great value on material wealth and the ‘abundance of things which we possess.’ It seems the lines of division between the “haves” and “have nots” are being drawn increasingly clearer by the day and many Christians are having to make tough decisions on where they want to be.

In all honesty, most people would certainly agree that “having not” has little appeal. However, Jesus had no trouble telling the rich yourng ruler who had come to Him seeking the secret of eternal life to “go and sell all that you have and you will have treasure in heaven, and come follow Me.” (Matthew 19:21). This sure does not seem to place material objects in high regard.

From this and other Scripture that can be related to finance, it’s plain to see that God’s financial system differs greatly from that of society at large. In God’s financial system, the concept of “having” or “not having” is not as important as recognizing what the true “treasure” is to begin with and valuing it above all. In the case of the rich young ruler, his “treasure” was his earthly possessions which he valued most of all. Ironically, his possessions did not bring him complete happiness, satisfaction or peace of mind. Otherwise, why would he go to Jesus for the answers he sought?

The Bible teaches that where your “treasure” is, there will your heart be also (Matthew 6:21). Therefore, as a Christian, it is important to determine early on in life just what your “treasure” is going to be, as your “treasure” will have a big impact on the ethics of your finances at home. If wealth and material gain is your “treasure”, your financial decisions, career goals, business dealings, etc. will center around that purpose and, good or bad, your actions will be geared towards reaching that goal.

If you opt for “treasure in heaven,” it doesn’t necessarily mean you will lack financially. It does mean, however, that you’ll place greater priority on living God’s financial principles of generosity, selflessness and caring for the needs of others in your life.

Your perspective of what is truly valuable in life will determine how your finances play out in your home. Your perspective will have an impact on your family, friends, business associates and fellow employees. Your financial values (or lack thereof) could very well be the basis of the Christian financial education you bequeath unto your children.

We propose that you define your families treasure and lead your finances accordingly. Finances are not often discussed openly amongst families. Now, we are not suggesting that you sit down with your children and offer a breakdown of your income and expenses. We do suggest though, that you demonstrate biblical principals openly. Don’t just say that giving is good, but show your children how to give selflessly.

Make a routine of incorporating your entire family in your giving. Maybe you have decided that a percentage of your income or a particular dollar amount is dedicated to charitable contributions. A great way to involve your children is to allow them to choose the charity. An alternative is to match any amount set aside for donations that your child dedicates in their children’s budget (post coming soon in this series!) in order to show that you value their decision to give freely what God has given to them.

There is nothing more important than adopting Biblical principles into your financial lifestyle and passing those principles onto your children. God’s financial system carries with it a lifetime guarantee. Storing treasures in heaven begins with defining your families treasure, which should reflect your belief in God’s Word and His blessing for your financial supply.

In the next part of this series, we will discuss how to teach Biblical financial princples to our children and encourage them to adopt these principles into their lives.