The Self-Reliance Approach versus a Common Approach to Finances
The most common approach to finances looks something like the following:
- We receive money.
- We pay for our current needs and wants.
- We pay tithing or save a little, but only if we have money left over.
The Gospel of Jesus Christ teaches us that there is a better, more self-reliant approach to financial stewardship:
- We receive money.
- We pay the Lord first.
- We pay our future selves second.
- Then we pay for our current needs and wants.
Paying tithes and offerings, for example, may result in a temporary loss of money, but it comes with a promise of many blessings. President Dallin H. Oaks of the First Presidency has said, “The payment of tithing is a test of priorities” (Tithing, Ensign, May 1994). Heber J. Grant has taught, “[To] the men and the women who have been absolutely honest with God [and] who have paid their tithing, God has given the wisdom whereby they have been able to utilize the remaining nine-tenths, and it has been of greater value to them, and they have accomplished more with it than they would if they had not been honest with the Lord” (Personal Finances for Self-Reliance, 2017).
Financial Stewardship Success
Following the principles on this map will help you manage your finances in a way that can help you find great peace. This lesson has already discussed paying tithes and offerings. The rest of the lesson will give you some helpful information on the other steps.
Protect Yourself from Financial Hardship
In the Old Testament, we learn that Joseph warned Pharaoh of the seven years of plenty that would happen before the seven years of famine. Pharaoh could have ignored Joseph’s warning, but instead chose to take his advice by storing up as much grain as possible. He and his people would then have a storage of wheat during the years of famine. This simple step of slowly building up a supply of wheat literally saved his entire kingdom.
Like this example, your financial stewardship imposes upon you the responsibility to take certain steps during years of plenty to protect you and your family from financial hardship when it comes your way.
Create an Emergency Fund
Hard times are sure to come. Some may be of your own making, but often they come because it’s just the nature of this fallen world. As Adam and Eve were warned before leaving the Garden of Eden, we should remember that “Cursed shall be the ground for thy sake…thorns and thistles shall [the earth] bring forth unto thee…[and] by the sweat of thy brow shalt thou eat bread, until thou shalt return unto the ground” (Moses 4:23–25).
Because you cannot predict when your own personal thorns and thistles might appear, it is crucial that you begin today to prepare for them. An emergency fund is one such way to do that.
Financial advisors generally urge people to put away the financial equivalent of 3–6 months worth of total living costs for emergency situations. While such a reserve is definitely the end-goal, starting small with a one-month reserve is a great start.
Answer these questions to see what you remember from reading the text above.
- In the self-reliant approach to finances, what is the first thing you do after receiving money?
ANSWER - What biblical story is cited as an example of preparing for financial hardship?
ANSWER - How much of a financial reserve is generally advised for emergency situations?
ANSWER
Acquire Adequate Insurance
If you can, adding insurance can be another layer of protection for you and your family. Research these three types of insurance. Check if they are available to you.
- Health Insurance—this can provide you and your family protection from the heavy financial burden of medical expenses.
- Life and Disability Insurance—this can provide you and your family with protection from the financial burden of sudden death or loss of income due to disability.
- Property Insurance (Homeowners, Renters, and Automobile)—this can provide you and your family protection from the financial burden of damage to your automobile or to the property you own or rent.
Not all forms of insurance are the same. Careful prayer, study, and consideration should be given before acquiring its different forms. For more information on things such as common insurance vocabulary and guiding principles for selecting insurance coverage, feel free to review the entire chapter on Protecting Your Family from Hardship in the Personal Finances for Self-Reliance manual or talk with your local stake president about enrolling in your stake’s self-reliance Personal Finance course.
Eliminate Debt
Think about the following questions: How much debt do you have? What are the interest rates? How much do you owe and how long will it take you to pay it back? Knowing the answers to these basic questions is vitally important to your success in understanding your current debt reality. A simple way to gather and assess this information is to create something called a debt inventory chart like the one you see below:
| Creditor | Balance | Minimum Payment | Actual Payment | Interest Rate | |
|---|---|---|---|---|---|
| Debt 1 | Credit Card #1 | 4,000 | 97 | 97 | 17% |
| Debt 2 | Credit Card #2 | 6,500 | 168 | 168 | 19% |
| Debt 3 | Car | 5,000 | 145 | 145 | 3% |
| Debt 4 | Student Loan | 18,000 | 300 | 300 | 5.5% |
| Debt 5 | Mortgage | 170,000 | >1,050 | 1,050 | 4.5% |
As the table above shows, a debt inventory helps you know all the important information about what you owe. If you have debt, make a debt inventory for yourself. It will help you see clearly the realities of debt and the ways it can delay the achievement of your desired financial goals.
The Personal Finance for Self-reliance handbook says, “We have been counseled to pay down our debts as quickly as we can. “If you incur debt…work to repay it as quickly as possible and free yourself from bondage” (True to the Faith, 2004). There are several ways this can be done, but most financial experts generally recommend that at least the following three actions be taken.
Action 1: Pay Extra Toward Your Debt
The longer you have a loan, the more interest you will pay. If you pay extra towards debt, you will save money on interest. Try it!
- Review the following link When will my loan be paid off?, to see how much interest you would pay on Debt-1 above if you made the minimum payment. (Because this calculator is on the internet, you can use a web browser to translate it if you wish.)
- Then calculate it again with 100 more added to the current monthly payment. What happened? The interest paid goes from 2,051 to 750. That's a big saving!
Action 2: Decide Where to Pay Extra
Look at the table below and prayerfully decide which option is best. Consider the advantages and disadvantages of both.
| Method | Advantages | Disadvantages |
|---|---|---|
| Highest Interest First | Eliminates most expensive debts earlier. | Could take longer to reduce the number of creditors. Delayed psychological wins. |
| Lowest Balance First | Reduces number of creditors more quickly. Reduces number of minimum payments more quickly. Provides quicker psychological wins. | Could be more expensive since you aren't paying off the debts with the highest interest first. |
Action 3: Use the rollover method
In this method, once a debt is paid off, you apply the money you were paying to that debt to the next debt, and so on. Try this method by going through the following steps:
Step 1: Open the financial calculator (How soon could I pay off all my debts?). (Because this calculator is on the internet, you can use a web browser to translate it if you wish.)
Step 2: Enter the information below. Note how we are adding an extra 100 to the actual payment of Debt-1. Note that the total actual payment each month for all debts is 1,860.
| Creditor | Balance | Minimum Payment | Actual Payment | Interest Rate | |
|---|---|---|---|---|---|
| Debt 1 | Credit Card #1 | 4,000 | 97 | 197 | 17% |
| Debt 2 | Credit Card #2 | 6,500 | 168 | 168 | 19% |
| Debt 3 | Car | 5,000 | 145 | 145 | 3% |
| Debt 4 | Student Loan | 18,000 | 300 | 300 | 5.5% |
| Debt 5 | Mortgage | 170,000 | >1,050 | 1,050 | 4.5% |
Step 3: Scroll down to the bottom of the financial calculator, adjust the debt ordering drop-down menu from the shortest to the longest payoff period and adjust your interest earned on savings to 0%. Then click Calculate. The results should look something like the information below. Note that when you use the Roll-Over payment plan, you save over $35,000!
Results
While keeping your payment level at $1,860 you could reduce your total debt payments (principal and interest) from $303,322 to $267,406 and be out of debt in 12.0 years instead of your current projected 20.9 years. This represents a reduction of $35,916 and 8.9 years. Further, once all debts have been paid off, you could invest the same monthly payment amount at 0.00% and accumulate a savings account balance $198,648 over that same time period.
Save and Invest for the Future
Once debt gets eliminated by the “rollover method,” the next logical step is to roll over those same payments that had been going toward paying off debt to investing in your future. As you save and invest, follow these three basic principles.
Principle 1: Save Money
One of the easiest and safest ways to invest your money and in your future is to put some away in a safe place such as a savings account. As Elder L. Tom Perry has taught, “[Consider] pay[ing] yourself a predetermined amount of money into savings…It is amazing to me that so many people work all of their lives for a grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing” (“Becoming Self-Reliant,” Nov. 1991). Watch how Sedrick saved money against impossible odds: Sedrick's Journey (02:32 mins, "Sedrick's Journey" Transcript).
Principle 2: Seek Education
Another way you can invest in yourself and your future is by obtaining an education. You are already doing this by being enrolled in this PathwayConnect Program! In a talk called "A Prophet's Counsel and Prayer for Youth," delivered in January 2001, President Gordon B. Hinckley wisely taught, “The world will in large measure pay you what it thinks you are worth, and your worth will increase as you gain education and proficiency in your chosen field.”
Principle 3: Set a Retirement Goal
As you learned earlier in this lesson, investing is “putting time, effort, or money into something and expecting some type of a return” (Personal Finances for Self-Reliance, p. 184). One of the reasons you may want to invest is to create a way for you to eventually retire from work. While there may be government or social programs in your area to help support you during your retirement years, you will likely need to supplement those programs with some of your own savings in order to cover all of your expenses. Note in the image below how investing at different interest rates affects the balance. The longer you invest, the more you can make. If you can, start saving or investing now. Here is a calculator that can help you do some initial planning: How much should I save for retirement? (Because this calculator is on the internet, you can use a web browser to translate it if you wish.)
Disclaimer: The savings and investment content in this lesson is intended to be an introduction only, and not a replacement for professional financial advice specific to your circumstances. Examples are given for explanatory purposes only and are not to be interpreted as tax, legal, or investment advice.
Continue to Give and to Bless Others
After working hard to provide for yourself and your family, giving to and blessing the lives of others is a continual example of your faith and priorities. Blessings come to those who seek the Kingdom of God first (3 Nephi 13:33).
Answer these questions to see what you remember from reading the text above.
- What is a debt inventory?
ANSWER - What is the debt roll-over method?
ANSWER - What are the three basic principles advised for saving and investing for the future?
ANSWER
Use a Budget
One of the pillars of the Financial Stewardship Success Map is a budget. A budget is essentially a plan. Using a budget, you plan how you will use your money for a certain period of time. Following a budget is freeing in that it will help you and your family take control of your temporal life, avoid many of the financial dangers of the world, and protect your family from potential hardship.
President N. Eldon Tanner once noted, “I am convinced that it is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money. Money can be an obedient servant but a harsh taskmaster. Those who structure their standard of living to allow a little surplus, control their circumstances. Those who spend a little more than they earn are controlled by their circumstances. They are in bondage" (October 1979 General Conference). Do the following two things before you start building a budget:
- Figure out what your net income is. This is what you actually take home and can spend after things like taxes are taken out.
- Classify your expenses as either fixed or variable. Generally, fixed expenses don't change much from week to week or month to month. An example would be rent or a motorcycle payment. Variable expenses change. An example of this would be food purchases. You have much more control over variable expenses.
Balancing a Budget
Balancing a budget can sometimes be a difficult task. As you start to put your new budget together, you may find that you have more expenses than net income. If this is the case for you, know that you are not alone. Take heart and understand that this is a problem you can work through. There are essentially just two basic ways to fix this problem.
- Spend less money. This sounds simple, but it can be very difficult to achieve if you are not willing to change.
- Earn more income. In addition to cutting out useless spending, there is also the option of earning additional income. You are already on a great path toward this outcome. As you complete certificates and eventually degrees, you have very real potential to increase your income. It is important to remember, however, that career advancement takes time and considerable sacrifice. It seldom happens overnight. It is something to strive for along with your goals to spend less money.
Sticking to a Budget
Sticking to a budget can be difficult. As Elder Joseph B. Wirthlin has taught, “Those who live safely within their means know how much money comes in each month, and even though it’s difficult, they discipline themselves to spend less than that amount” (Earthly Debts, Heavenly Debts, Ensign, May 2004, 42). The rest of this section gives four principles that can help you stick to a budget.
Principle 1: Set Realistic Goals
It is no secret that goal-setting can be a powerful tool to help us maintain a healthy long-term perspective as well as get to desired destinations. As you look over the chart below and answer its accompanying questions, try to imagine what your own financial goals are for your future. Why are you setting them? What do you hope to achieve? What high, mid and lower-level goals might enable you to get where you want to be in terms of your financial stewardship?
Answer the questions below. The first question to which you answer no represents what should be your current financial priority.
- Do I pay tithing?
- Do I have a one-month emergency fund?
- Do I have health insurance or some other access to medical care?
- Am I free from consumer debt, like credit cards and car loans?
- Do I have a three- to six-month emergency fund?
- Ami I contributing to a retirement savings fund?
- Am I working to eliminate mortgage and education loans?
Principle 2: Find and Use an Effective Budgeting System
You can use a spreadsheet like Microsoft Excel to create a budget. You will practice this in this week's Application Activity. There are also other methods you can try on your own, like the following two:
- Digital Systems. If you use a bank, the bank has digital records of your income and expenses. Many times, banks also have ways for you to categorize these elements so you can track these budget categories in real time.
- Envelope System. This approach to budgeting involves withdrawing a certain amount of money each pay-period to cover necessary expenses. No debit or credit cards can be used. You set and follow your budget by and paying for all needed items with the cash from that envelope. To learn more about the envelope system, please watch the video called The Envelope System (02:28 mins, "The Envelope System" Transcript).
Principle 3: Hold Yourself Accountable
Much of your success with goals and your budget is completely dependent on your ability to follow-up and follow-through. The best way to ensure appropriate follow-up is to council regularly with your family or on your own. Consider successes and failures and set goals about how those failures can be solved in the near future. Stay accountable!
Principle 4: Counsel with the Lord
Even as we desire to seek the will of the Lord and turn our financial stewardship over to Him and His purposes, it is important to remember that there will be a process of learning involved. You may sometimes make mistakes. Because you are being asked to change deep habits, you may find yourself making an unwise purchase despite your best attempts to stop. You may even find yourself on the receiving end of a financial crisis beyond your control, such as loss of employment or property.
Take your concerns to the Lord and pray for guidance and inspiration and then make adjustments to your budget and financial goals. As the Lord has promised, “[He] will go before your face. [He] will be on your right hand and your left, and [His] spirit shall be in your heart, and [His] angels round about, to bear you up” (D&C 84:88). He supports you in your financial stewardship and will do all He can to help you become who you are meant to be.
Answer these questions to see what you remember from reading the text above.
- What tool is described as a plan for how you will use your money for a certain period of time?
ANSWER - What are the two basic ways to fix a budget deficit where expenses exceed net income?
ANSWER - What method involves withdrawing cash each pay period to cover necessary expenses, with no debit or credit cards allowed?
ANSWER
W05 Gathering Prep
What will you do this week, in preparation for the gathering, to exemplify the Learning Model principle of “Teach One Another?” If you are confident with the math content up to this point, offer to help someone in your gathering group this week. If you do not understand something, ask questions at your gathering. Don’t be afraid to speak up.
After reading this lesson, ponder the following questions. If desired, record your thoughts in a learning journal.
- What are the core differences between the Common Approach and the Self-Reliant Approach?
- Why should payment of tithes and offerings take priority over the payment of living expenses?
- How does the self-reliant approach to budgeting help you to become a better steward over your finances?
- What is the state of your current budget? Are you spending more than your net income? In what areas could you decrease spending?