Money FAQ

A recent survey found that 51 percent of Americans would like to launch a business within the next five years. If you sense that God may be leading you to start your own business someday, there are several steps you should take to position yourself to succeed.

1. Prepare Yourself Financially

It is important to have your personal finances as stable as possible when starting a business. When you no longer have credit card or consumer debts, your monthly expenses are lower. And set aside three month’s living expenses so you have a margin in case you need income from the business during some of its lean months.

This may surprise you: It is preferable to start your business before you buy your home. The Bible says, “Build your business before building your house” (Proverbs 24:27). In other words, create your source of income; then acquire your home.

One of the most common reasons for the failure of start-up businesses is lack of capital—not enough cash saved up. When you begin a business with lots of borrowed money, you invite added pressure to be profitable quickly. Many businesses require several years to become profitable.

Recommendation:

• Be patient.
• Save as much as you need before launching your business.
• Use as little business debt as possible, and pay it off as quickly as possible.

When you operate with little or no debt, you have a competitive edge against businesses saddled with large monthly payments. You also have more financial stability to weather unexpected challenges.

2. Identify a Good Business Opportunity

Research business opportunities for which you are well suited—ones that you think you would enjoy, that you can afford to start, and that meet your personal goals. When you discover one, gain some experience in the business before launching into ownership.

3. Pray for a Mentor

Ask God to provide you a mentor who really understands the business you are considering. An experienced mentor can teach you more in a year or two than you could learn in ten years doing it on your own.

4. Draft a Business Plan

About 80 percent of all business start-ups do not survive beyond the second year. Many fail because they do not have a written business plan. Pray regularly when developing the plan — God is the owner of the business, and you are its steward.

Address these issues when you create a business plan:

• Funding: How you will finance start-up costs—inventory, equipment, buildings, advertising, etc.
• Organization: Choose between a sole proprietorship, a partnership, or a corporation.
• Marketing: Identify your competition and how you will promote the business.
• Employees: Decide how many and what skills they will need.
• Financial projections: Estimate your income and expenses.

5. Set Up Your Accounting

Many start-up businesses fail to keep accurate accounting records, which makes it impossible to track profitability and tax liabilities. Use a business checking account for all business income and expenses, and record every transaction. If you are self-employed, set aside about 30 percent of your net income for taxes and withholding so you won’t be forced to use debt to fund your tax payments.

Parents have the responsibility to teach their children how to handle money God’s way. The Bible says, “Train up a child in the way he should go, and when he is old he will not depart from it” (Proverbs 22:6). And while the best time to start is when your children are young, it’s never too late.

The most effective way parents can train their children is to become MVP Parents—an acronym for the three methods to teach children God’s way of handling money: Modeling, Verbal communication, and Practical opportunities.

Modeling

Children soak up parental attitudes toward money like a sponge soaks up water, so parents must model handling money God’s way. Your kids watch how you spend, pick up on your attitudes toward credit, and observe your patterns of giving and saving. What you do with money must be consistent with what you say about it.

Verbal Communication

Consistently tell your children how God’s practical truths apply to their finances. Natural moments—grocery shopping, the hardware store, waiting in line at the bank—are perfect opportunities to instruct your children on the wise use of money.

Practical Opportunities

Give your children opportunities to apply what they have heard and seen, appropriate for their age. The more hands-on the experience, the more children will learn.

Graduating to greater responsibility. The fundamental strategy is the Little-Big principle: “He who is faithful in a very little thing is faithful also in much” (Luke 16:10). Steadily increase responsibility so that your children are independently managing all their finances—with the exception of food and shelter—by their senior year in high school. By junior year, they should open a checking account and get a secured credit card, learning to reconcile a checkbook and use credit wisely, paying it off in full and on time every month.

Setting goals together is indispensable for great communication. Take time away to enjoy each other and identify long-term goals—what you most want to accomplish as individuals and as a couple. Discovering dreams and setting goals helps you learn more about your mate and how to prioritize spending.

Effective goal setting begins by identifying long-term goals and then establishing shorter-term goals as intermediate steps. The simple act of sitting down together and really thinking through your priorities as a couple is a powerful bonding tool.

For couples who are both followers of Jesus Christ, this is a marvelous opportunity to invite the direction and counsel of God’s Holy Spirit. Pray together and ask, “Lord, what do You want for us? What are Your desires as we seek to set our goals and priorities?”

Writing down your goals together is a powerful but often neglected step that helps clarify and prioritize them. Written goals create momentum, helping you both focus on the priorities that will enable you to achieve your purpose together.

Areas to Set Long-Term & This Year’s Goals

• Relationship with God
• Family and Friends
• Service to Others
• Career / Skills / Education
• Giving
• Spending / Lifestyle
• Saving and Investing
• Debt

A word of caution: don’t be discouraged if you aren’t successful in accomplishing every goal you’ve set for a particular year. When you know your goals, you have a target — and with God’s help, you will make progress.

Cosigning relates to debt. When a lender does not feel an individual is a safe enough risk for credit, another person can cosign on the loan as a guarantor. Anytime you cosign, you become legally responsible for the debt of another. It is just as if you went to the bank, borrowed the money, and gave it to the friend or relative who is asking you to cosign.

A Federal Trade Commission study found that 50 percent of those who cosigned for bank loans ended up making the payments—and 75 percent of those who cosigned for finance company loans did. Proverbs 22:26-27 vividly describes what can happen: “Do not be among those who give pledges, among those who become guarantors for debts. If you have nothing with which to repay, why should he take your bed from under you?”

Proverbs 17:18 reads, “It is poor judgment to co-sign a friend’s note, to become responsible for a neighbor’s debts” (NLT). God wants us to avoid making this sort of pledge, even though it can feel kind-hearted. The risk is too high—never cosign a loan.

Cosigning for Children

Parents often cosign for a child’s first automobile or other credit. Instead, model the importance of not cosigning, and train children to plan ahead and save for the purchase of their first car.

What to Do If You’ve Already Cosigned

Proverbs 6:1-5 gives urgent advice (NLT): “…if you have trapped yourself by your agreement…quick, get out of it if you possibly can!…Now swallow your pride; go and beg to have your name erased. Don’t put it off. Do it now!” Do whatever it takes to get out, quickly.

Your credit score (FICO score) determines whether you can get credit—and whether you get a decent interest rate on a mortgage, car loan, or other credit. Without good scores, an apartment application may be turned down, and scores can even affect car insurance premiums and job offers.

Often only husbands have credit in their names, leaving wives without a solid credit score if he dies first. Each spouse securing a credit card in their own name, paid on time and in full every month, helps solve this.

The FICO score ranges from 300–850, with the average around 680. Scores above 700 indicate a good credit risk; scores below 600 indicate a poor risk. A low score can lead to much higher interest rates—on a $200,000 mortgage, a three-point difference can cost $400 more per month, or $144,000 over the life of the loan.

Late payments, non-payment, bankruptcy, foreclosure, repossession, and collections all harm your score. To improve it, pay bills on time and reduce total debt; scores typically begin improving within about three months.

Credit Report

Everyone should get a copy of their credit report once a year to check for mistakes or identity theft. You can order a free copy every twelve months at AnnualCreditReport.com. The free report does not include your credit score; the three main credit agencies sell that separately.

There are three simple rules to follow when dealing with creditors.

1. Communicate, Communicate, Communicate

It is best to run toward your creditors, not away from them. Always take the initiative in keeping your lenders informed—it is almost impossible to negotiate with a creditor you have ignored. Communicating sooner rather than later tells them you are responsible and serious about resolving the problem.

2. Offer Lenders a Written Plan

Most creditors respond best to a request backed by a written copy of your budget, a list of your debts, and a proposed repayment plan indicating how much you can pay each month. Present a realistic plan that demonstrates you are willing to make sacrifices to pay the debt.

3. Exercise Integrity

Always be completely honest with your lenders. Leviticus 19:11 says, “You shall not steal nor deal falsely, nor lie to one another.” The Lord loves and cares for you, and your honesty gives Him maximum freedom to work on your behalf.

After home mortgages, car loans are the largest debts most people carry—more than 70 percent of all cars purchased in this country are bought with borrowed money. Car debt is one of the biggest roadblocks to true financial freedom, because unlike a home, a car depreciates the moment you drive it off the lot.

Escaping the Auto Debt Trap

1. Decide to keep your car at least three years longer than your car loan.
2. After your last payment, keep making the payment—but pay it to yourself, into an account you’ll use to buy your next car.
3. Buy your next car with cash. The saved cash plus your trade-in value should be enough to buy a low-mileage used car without any debt.

In theory, consolidating several higher-interest loans into one lower-interest loan makes sense—lower monthly payments and just one payment to track. You have many options: a personal loan from your bank or credit union, rolling credit-card balances to a low-rate card, or borrowing against home equity.

There is one huge downside, however. If you haven’t solved the problems that put you into debt in the first place, you’ll end up worse off—about two-thirds of those who borrow against home equity to pay off credit cards run up more credit card debt within two years. Couples should not consolidate until they have changed their habits: hate debt, start paying it off, spend less than you earn. Then consolidate.

Credit card companies make a great deal of money charging high interest, and people spend about one-third more when using credit cards rather than cash. The average household with an unpaid balance carries about $10,000 in credit card debt.

Snowball the Plastic

In addition to making minimum payments on all your credit cards, focus extra payments on the smallest balance card first. Once it’s paid off, apply that payment to the next smallest, and so on—that’s the snowball in action. List your debts smallest to largest, and celebrate every payoff.

Perform Plastic Surgery

Cut up the cards you don’t really need—fewer credit cards makes life simpler. Keeping the cards you’ve had longest helps your credit score. Opt out of telemarketing calls and credit card offers by mail through the National Do Not Call Registry and the opt-out mail service.

Lower the Interest Rate

There is a lot of competition among credit card companies for your business. If your rate is high, call and ask them to lower it—about 75 percent of the time, they will. Another option is transferring the balance to a lower-rate card, confirming there’s no transfer or annual fee first.

Home equity loans are simply additional mortgages, using the equity in your home as collateral. There are two main ways to tap it: a home equity loan (second mortgage) or a home equity line of credit (HELOC).

They’re attractive because lenders often charge lower interest and the interest may be tax-deductible. But don’t take one without understanding the risk—unlike unpaid credit card debt, failure to pay a home equity loan could cost you your home.

Home Equity Line of Credit

Think of a HELOC as a giant credit card—you can borrow whenever you want, up to the credit limit, with payments based on the amount borrowed. The major downside is temptation: just like a credit card, the tendency is to use it too often rather than spending carefully.

College loans are one of the fastest-growing areas of debt, with the average senior graduating with about $20,000 in school loans. The objective: graduate (or help your children graduate) with as little school debt as possible, and pay it off as quickly as possible.

What Parents Can Do

Consider saving options such as State-sponsored 529 Plans, State-sponsored Prepaid Tuition Plans, Coverdell Educational Savings Accounts, and Roth IRAs. The earlier you begin saving, the better—time is your friend through compounding interest.

What Children Can Do

Work. When children are old enough, have them begin working to save for college—the sooner the better, including part-time work during the school year and summer jobs.

Help reduce the cost of college. Attending a community college near home for the first two years is typically less expensive, especially if the student can live at home. Explore grants and scholarships, and if your child is considering military service, all branches offer educational benefits.

Paying Off School Debt

For people with more than one school loan, loan consolidation can reduce your interest rate and lower your monthly payment. Even if you can’t consolidate, set the goal of paying off all college debt as soon as possible.

Lotteries and gambling of all types are sweeping our country, and internet gambling is exploding. Each year one in four Americans gambles at a casino. Sadly, more than 6 million Americans are addicted to gambling, with heartbreaking consequences for their loved ones.

Although the Bible does not specifically prohibit gambling, its get-rich-quick motivation violates the steady-plodding principle: “Steady plodding brings prosperity, hasty speculation brings poverty” (Proverbs 21:5). We should never participate in gambling or lotteries—even for entertainment, and even for one penny—and should not support an industry that enslaves so many.

A gift obviously benefits the recipient—the church continues its ministry, the hungry are fed, missionaries are sent. But when a gift is given with the proper attitude, the giver benefits even more: “It is more blessed to give than to receive” (Acts 20:35).

Increase in Intimacy

Giving increases our affection for Christ. “Where your treasure is, there your heart will be also” (Luke 12:34). Mentally give each gift to Jesus Christ, and your heart will automatically be drawn to the Lord.

Increase in Heaven

When we give, we invest treasures in heaven we will enjoy for eternity: “Store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal” (Matthew 6:20). Every time we give, we make a deposit to a heavenly account that is ours to enjoy forever.

Increase on Earth

“One gives freely, yet gains even more…A generous man will prosper” (Proverbs 11:24-25). When we give, we should do it with a sense of expectancy—anticipating God to provide an increase, though we have no idea when or how. Remember: the advantages of giving come only when you give out of a heart filled with love, not merely to get.

Before the Old Testament Law was given, Abraham gave a tithe (ten percent) of the spoils to Melchizedek (Genesis 14:20), and Jacob promised the Lord a tenth of all his possessions (Genesis 28:22). Under the Law, a tithe was required, along with various free-will offerings and special provisions for the poor.

In the New Testament, the tithe is neither specifically rejected nor specifically recommended—what is taught is giving in proportion to the material blessing one has received, with special commendation for sacrificial giving. A fixed percentage is systematic and easy to compute, but for many Christians the tithe should be the beginning of their giving, not the limit of it.

How Much Should We Give?

First give yourself to the Lord, and earnestly seek His will for you in this area. A good approach: tithe as a minimum, and then give over and above the tithe as the Lord prospers and directs.

God’s attitude in giving is summed up in John 3:16: “For God so loved the world, that he gave his one and only son.” Because God loved, He gave—He set the example of giving motivated by love.

It’s crucial for us to give with an attitude of love. “If I give all my possessions to feed the poor…but do not have love, it profits me nothing” (1 Corinthians 13:3). In God’s economy, the attitude is even more important than the amount—Jesus rebuked the religious leaders in Matthew 23:23 for tithing precisely while ignoring justice, mercy, and faith.

The only way we can consistently give out of love is to give our gifts to the Lord Himself. If giving is merely to a church, a ministry, or a needy person, it is only charity; giving to God becomes an act of worship. Stop and examine yourself—are you giving with an attitude of love?

An affordable home follows two rules of thumb:

1. Save at least 20 percent of the purchase price for the down payment, avoiding expensive PMI insurance.
2. Total housing expenses should be 30–40 percent of gross income, and should never exceed 40 percent.

That 30–40 percent includes all housing expenses: mortgage payment, real estate taxes, utilities, insurance, and maintenance (estimated at 1–2 percent of home value each year). If combined expenses exceed 40 percent of income, reduce spending in other categories.

In areas where housing is extremely expensive, there are only three things to do: save, pray, and wait—save for the down payment, ask the Lord for an opportunity to buy affordably, and continue renting until He does. Be careful with lenders who care more about closing the deal than what you can truly afford.

All of us make daily decisions about whether to handle money honestly. Hundreds of verses communicate the Lord’s desire for us to be completely honest: “The Lord loathes all cheating and dishonesty” (Proverbs 20:23, TLB); “Lying lips are an abomination to the Lord” (Proverbs 12:22).

God wants us to be completely honest for several reasons:

We Cannot Practice Dishonesty and Love God

Two of the Ten Commandments address honesty (Exodus 20:15-16), and Jesus said, “If you love Me, you will keep My commandments” (John 14:15). When being dishonest, we behave as if the living God doesn’t exist and is unable to provide what we need.

We Cannot Practice Dishonesty and Love Our Neighbor

Dishonest behavior violates the second commandment—”Love your neighbor as yourself” (Mark 12:31). When we act dishonestly, we are stealing from another person; the victim is always a person.

Credibility for Evangelism

Honesty enables us to demonstrate the reality of Jesus Christ to those who do not yet know Him. Our actions speak louder than our words (Philippians 2:15). Handling money honestly, even at a cost, can open doors for the gospel.

Confirms God’s Direction

“Watch the path of your feet and all your ways will be established” (Proverbs 4:24-26). Choosing to walk the narrow path of honesty eliminates the many possible avenues of dishonesty.

Inheritance

Parents should try to leave an inheritance to their children: “A good man leaves an inheritance to his children’s children” (Proverbs 13:22). But inheritances should not be dispensed until heirs have been trained to be wise stewards—“An inheritance gained hurriedly at the beginning will not be blessed in the end” (Proverbs 20:21). Consider sprinkling distributions over several years and selecting trustworthy people to help supervise the finances of young heirs.

Wills

It is important to prepare financially for your death. As Isaiah told Hezekiah, “Set your house in order, for you shall die” (2 Kings 20:1). One of the greatest gifts you can leave your loved ones is an organized estate and a properly prepared will or revocable living trust. If you don’t have a current will or trust, make an appointment with an attorney to prepare one.

The Bible provides four primary guidelines for investing.

1. Be a Steady Plodder

Spend less than you earn and regularly invest the surplus. “Steady plodding brings prosperity, hasty speculation brings poverty” (Proverbs 21:5, TLB). Nothing replaces consistent, month-after-month investing.

2. Avoid Risky Investments

God warns us to avoid risky investments (Ecclesiastes 5:13-15). Pray, seek wise counsel from your spouse and others, and do your homework before investing.

3. Diversify

Since the perfect investment doesn’t exist, diversify rather than putting all your eggs in one basket. “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur” (Ecclesiastes 11:2).

4. Count the Cost

Every investment has costs—financial, time, effort, and sometimes emotional stress. Consider all the costs before deciding on any investment.

When and Where to Invest

Consider your goals, timeframe, and tolerance for risk. The more time you have, the more you can afford to invest in stocks, mutual funds, or real estate. If you need money in less than five years, favor cash equivalents (money market funds, CDs, Treasury notes). For goals longer than five years, consider mutual funds, stocks, bonds, and real estate—each with its own advantages, risks, and tax considerations. The name of the game is to be a steady plodder: consistently add to your investments and allow them to compound.

Scripture discourages business partnerships with those who do not know Christ: “Do not be bound together with unbelievers; for what partnership have righteousness and lawlessness…Therefore, come out from their midst and be separate, says the Lord” (2 Corinthians 6:14-17).

Be careful about entering into any partnership, even with another Christian—consider only people you know well, whose commitment to the Lord you have observed, and whose strengths and weaknesses you understand. If, after prayerful consideration, you decide to form a partnership, commit your understandings to writing, including a way to end the partnership. If you can’t agree in writing, do not become partners.

Our culture promotes the goal of retirement and ceasing all labor for a life of leisure. Is this biblical? Numbers 8:24-26—the only reference to retirement in Scripture—applied specifically to Levites working in the tabernacle, who at fifty could assist but not perform the regular work themselves.

While people are physically and mentally capable, there is no scriptural basis for becoming unproductive. Don’t let age stop you from finishing the work God has called you to accomplish—Moses was 80 when he began his 40-year adventure leading Israel.

The Bible does imply that the type or intensity of work may change as we grow older, shifting to a less demanding pace as an “elder seated at the gate,” using experience and wisdom gained over a lifetime. If you have sufficient income apart from your job, you may choose to leave work to invest more time serving others as God directs.

Most people in America are not consistent savers. The Bible encourages us to save: “The wise man saves for the future, but the foolish man spends whatever he gets” (Proverbs 21:20, TLB). God commends the ant for saving (Proverbs 30:24-25)—even though small, ants store up food for the future.

Joseph saved during seven years of abundance to survive seven years of famine (Genesis 41:29-30). That’s what saving is all about: not spending today so you have something for the future. The most effective way to save is to make it automatic—when you receive income, first give to the Lord, then save. An automatic payroll deduction is even better. We recommend saving ten percent of your income, though this may not be possible right away—begin the habit, even if it’s only a dollar a month.

Life expectancy is growing and fewer companies provide pensions, and Social Security’s long-term funding is uncertain. Don’t rely solely on an employer or the government—you need to invest for your own retirement.

A simple rule of thumb: first, take advantage of all employer matches (it’s free money); second, invest in a Roth IRA. Roth contributions aren’t tax deductible, but they grow tax-free, and after age fifty-nine-and-a-half, all withdrawals are tax-free—a real advantage if income taxes rise in the future. Check contribution limits, which are based on age and income, with your tax preparer.

What a couple spends on lifestyle can have a massive impact on their finances and relationship. Differing expectations, if not reconciled, can damage or even destroy a marriage—it’s crucial for couples to agree on a lifestyle that is affordable and helps them achieve their long-term goals together.

Advertising is one of the biggest obstacles to unity in lifestyle, creating discontentment and turning wants into “needs.” Paul wrote, “I have learned to be content whatever the circumstances…I can do everything through Him who gives me strength” (Philippians 4:11-13)—written from prison. Contentment isn’t instinctive; it must be learned.

Ask, for each spending category: Can we reduce this spending? Do we need this item? If we need it, can we get it less expensively? The objective is to reduce spending so you can give more, pay off debt faster, and save more.

Comparison

Comparing your lifestyle with others often leads to poor financial decisions. Jesus taught, “For not even when one has an abundance does his life consist of his possessions” (Luke 12:15). Think of possessions as tools to help you accomplish what God wants—not a facade to impress others.

Spend to Bless Your Mate

Ask, “What can I do with our finances to be a blessing to my spouse?” As you develop this mentality, you may discover you enjoy buying something for your spouse more than for yourself—a practical application of “It is more blessed to give than to receive” (Acts 20:35).

Complex describes most step families—more children, more grandparents, more in-laws, custody issues, and often emotional baggage. But God loves and cares about all families, including step families, and wants them to succeed. If complexity and lack of trust describe the challenges, then patience, communication, and honesty describe how to overcome them.

Merging a stepfamily is more like a marathon than a sprint—like cooking with a Crock-Pot instead of a microwave. This is especially true with finances, since anyone who has been single for a while is used to making financial decisions alone.

Communication

Do not carry the baggage of hurts and difficult financial experiences with a former spouse into financial discussions with a new spouse (Philippians 3:13). Couples should discuss support obligations, retirement plans, inheritance plans for children, and expectations for blending finances well before and during the marriage.

Unifying Finances

While most couples benefit from a single joint checking account, some stepfamilies do well starting with “yours,” “mine,” and “our” accounts—especially for security, as trust in fully unified finances is built over time.

Children

Children entering a stepfamily may feel loss even as parents feel a fresh start. Make your spouse your top priority, love both sets of children equitably, never speak badly of an ex-spouse in front of children, and take a unified approach when an ex-spouse handles money differently with the kids.

Financial Obligations and the Ex-Spouse

Child support money is legally for the benefit of the child. Make every effort to be faithful with support payments even if a former spouse doesn’t use them wisely (1 Timothy 5:8). Review insurance beneficiaries, titles, deeds, and wills to reflect your current situation, and remember that joint debts and past joint tax returns can carry shared liability even after divorce.

What is the biblical perspective on paying taxes? Jesus was asked this directly and responded, “Then give to Caesar the things that are Caesar’s” (Luke 20:22-25). Romans 13:1, 6-7 adds an important responsibility: “Let every person be in subjection to the governing authorities…you also pay taxes, for rulers are servants of God…Render to all what is due them: tax to whom tax is due.”

It is permissible to reduce your taxes using legal tax deductions, but we should be careful not to make unwise financial decisions simply to avoid paying taxes.

Despite what many believe, work was initiated for our benefit in the sinless environment of the garden of Eden—work is not a result of the curse. “The Lord God took the man and put him into the garden of Eden to cultivate it and keep it” (Genesis 2:15). The very first thing the Lord did with Adam was put him to work.

Work is so important that Exodus 34:21 commands, “You shall work six days,” and Paul writes plainly, “If anyone is not willing to work, then he is not to eat” (2 Thessalonians 3:10)—a principle for those who are able but choose not to work, not those who cannot.

One of the primary purposes of work is to develop character. A job is not merely a task to earn money; it’s intended to produce godly character in the life of the worker.

All Honest Professions Are Honorable

Scripture gives dignity to all types of work without elevating any honest profession above another—David was a shepherd and a king, Luke a doctor, Lydia a retailer, Daniel a government worker, Paul a tentmaker, Mary a homemaker, and Jesus a carpenter. In God’s economy, there is equal dignity in the labor of the mechanic and the company president, the pastor and the secretary.