This post is based on a presentation I recently gave at a joint Priesthood/Relief Society meeting. It sets out some basic principles for the management of personal and family finances as set out by the Brethren. In preparation for the presentation I did an internet search to find out what guidance other organisations, particularly churches, gave on personal and family financial management. It was interesting to find that such guidance was often unclear, muddled or patchy. As in so many things, the clearest and most coherent counsel comes from the Brethren. In 2007 , the Church produced a pamphlet, with an introduction from the First Presidency, entitled ‘All is Safely Gathered In – Family Finances’. It gives us some very clear and concise principles for managing our finances. My presentation is based around these principles. You can find the pamphlet at:
I will address each of the principles in All is Safely Gathered In, but first I want to give some context.
This chart, produced by the Bank of England compares the total amount owed by UK households and total disposable income from 1990 to 2013. The blue bars represent the total disposable income of everyone in the UK. The purple bars represent the total debt of all households in the UK. Note – this is not the money that the Government owes – it is the personal borrowings of each individual household. The graph shows that in 1990 total disposable income was greater than total debt. Since then disposable income has increased steadily but debt has increased even more quickly and now stands at just under 1.5 trillion pounds.
This chart shows the UK bank base interest rates since 1945. It demonstrates that the low rates enjoyed in recent years are extremely unusual historically and are not expected to last much longer. Most experts expect an increase in rates some time this year. Increased interest rates will mean higher mortgage payments, higher rents, higher costs of borrowing generally and increased inflation. If rates were to rise to 3%, some experts predict a deep and prolonged recession, a collapse in the housing market and a huge increase in personal insolvencies.
The average outstanding mortgage debt at October 2014 was £116,167. During 2014 a property was repossessed every 26 and a half minutes (even at the current low interest rates). If interest rates rise, many people will find that they cannot meet their increased mortgage payments and the repossession rate will increase.
Credit card debt
The increase in debt consists of an increase in mortgage debt and also an increase in personal consumer debt – a large part of that being credit card debt.The average credit card debt per UK household at October 2014 was £2,303. It would take over 25 years to pay this off at the minimum monthly payment. People often take out a credit card with the intention of paying back the outstanding balance each month and thus avoiding interest charges. However, 58% of credit cards are charged interest. The average rate of interest is 18.06%.
J Reuben Clark gave some great advice about interest in 1938:
‘Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you. ‘ (in Conference Report, Apr., 1938)
Message from First Presidency in 2007
The First Presidency counseled:
- “We urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt”.
- “If you have paid your debts and have a financial reserve, even though it be small, you and your family will feel more secure and enjoy greater peace in your hearts.”
In the Duties and Blessings of the Priesthood Manual we read:
Neither wealth nor poverty is an indication of individual worthiness. Some great men of God have been rich and some have been poor. The amount of money we have is not important, but rather how we obtain and use it. Using money to provide for the temporal needs of our families, for example, is not only proper, but is a commandment from God (see 1 Timothy 5:8). The commandment to provide for our families is easier to obey when we learn and apply the basic principles of wise money management. (Lesson 21: Managing Family Finances)
Principle 1 – Pay tithes and offerings
Successful family finances begin with the payment of an honest tithe and the giving of a generous fast offering. The Lord has promised to open the windows of heaven and pour out great blessings upon those who pay tithes and offerings faithfully (Malachi 3:10 and Isaiah 58: 6–12). (All Is Safely Gathered In)
Everything that we own or earn comes from the Lord. Tithing is the rent we pay the Lord for our space on the earth. When planning our finances it should be our first priority.
In the UK, if we pay tax, it is possible to pay our tithes and offerings by Gift Aid. The effect of this is that the Government gives us tax relief on our tithes and offerings and pays that tax relief to the Church as tithing. So if, for example your tithes and offerings amount to £1000 you would pay £800 to the Church and the remaining £200 would be paid to the Church by the Government on your behalf. It is perfectly legal and above board and you are still a full tithe payer even though only £800 has left your bank account. If you are a tax payer and you are not taking advantage of this opportunity you are throwing money away!
If you are a higher rate tax payer you get even more of a benefit as you are entitled to tax relief at the higher rate of tax. This is achieved through an increase in your tax allowance meaning that you pay less tax in the future.
For further information on how to pay by Gift Aid and a Gift Aid Declaration form email email@example.com
Principle 2 – Avoid debt/ get out of debt
Spending less money than you make is essential to your financial security. Avoid debt, with the exception of buying a modest home or paying for education or other vital needs. If you are in debt, pay it off as quickly as possible. (All Is Safely Gathered In)
Elder Joseph B. Wirthlin taught: “All too often a family’s spending is governed more by their yearning than by their earning. They somehow believe that their life will be better if they surround themselves with an abundance of things. All too often all they are left with is avoidable anxiety and distress” (“Earthly Debts, Heavenly Debts,” Ensign, May 2004, 42).
The debt cycle begins when you spend more than you earn. When you are not living within your means, you must borrow to plug the gap between your income and your standard of living. At first, you borrow a little money or you put a bit on a credit card. It’s not much after all and you know that you can easily pay it back. However, because you have not addressed the gap between your lifestyle and your income you keep spending more than you earn. You dig yourself deeper and deeper into debt each month. Soon you have so much debt on your credit cards that most of your income is going to service the minimum repayments and there is no money left for other important items, such as tithing, fast offerings, food, clothing or housing costs. This debt cycle can continue for only so long. Soon, you can’t get any more credit, and just the interest becomes more than you can pay each month.
For advice on how to fight back see my post:
Top tips for avoiding debt
- Take time to think through purchases – Don’t buy on a whim or due to pressure from a salesperson or any one else (spouse, child). Ask yourself – Is it a need or just a want? If you really want something, sleep on it for a night. You may find it doesn’t seem as attractive the next day!If you’re tempted by an impulse buy, work out how long it would take you to earn that money in hours worked. So if you get paid £10 an hour and it costs £300, that’s an extra 45 hours you’ll need to work to fund it, taking into account tax.
- Avoid consolidating short term expenses into long term debt – Consolidating your loans to reduce payments doesn’t help you change the spending habits that got you into debt and it greatly extends the time required to get out of debt.
- Avoid remortgaging to finance “toys” or lifestyle – Don’t jeopardise your home for lifestyle.
- Pay as you go..and if you can’t pay don’t go.
- Don’t gamble on interest only mortgages – Without a good plan in place for paying off the capital amount an interest only mortgage is a ticking time bomb. Don’t go into an interest only mortgage hoping that at some future date you will miraculously have the money later to pay off the loan. Better to resize your desires to what you can afford to pay back.
Principle 3 – Manage your money before it manages you
President Spencer W Kimball said that every family should have a budget. A budget is a tool that helps you to achieve what you want to achieve. It could be saving for a holiday, for a mission or for retirement. It could be getting out of debt or just surviving without going into debt.
President Gordon B. Hinckley stated:
In managing the affairs of the Church, we have tried to set an example. We have, as a matter of policy, stringently followed the practice of setting aside each year a percentage of the income of the Church against a possible day of need. I am grateful to be able to say that the Church . . . is able to function without borrowed money. If we cannot get along, we will curtail our programs. We will shrink expenditures to fit the income. We will not borrow. (Gordon B. Hinckley, “To the Boys and to the Men,” Ensign, Nov. 1998, 51.)
What a good model that is for our family finances!
Steps to using a budget
1. List all your expenses – go through your bank statement and list everything you spent money on. Look at the cash you withdrew from the cash machine and write down what you spent it on. This exercise will also help you to review your spending habits. Do you really need to buy a newspaper? Do you really need all of those channels on your TV? How much are your phones and electronic devices costing you? Look at your shopping habits – are you buying lots of food that you then throw away because it has gone out of date? You can avoid this by shopping to menus?
2. Prepare a budget – use this information to prepare a budget showing all of your income and expenditure. There is a simple pro-forma in the ‘All Is Safely Gathered In’ pamphlet.
Don’t forget to pay the Lord first – make sure that you include your tithes and other offerings in your budget.
Plan to save – if you save what is left there won’t be anything left! So decide on a fixed sum or percentage to save and build that into your budget. BYU suggests that we should save 10% of our income,
Then adjust your spending to fit your income. Don’t forget to take into account irregular or annual payments such as road fund tax, birthdays, Christmas etc.
3. Implement your budget – discipline yourself to keep to the budget you have set. You will sleep better at night.
4. Compare your budget and your actual expenditure – at the end of the week or the month review how well you did. You may find that there were some items of expenditure that you forgot about – build them into the next budget. If you kept to the budget – pat yourself on the back and then keep keeping to it!
Within a family setting, this will only work if both husband and wife are committed to it – family finances and budgeting should be a joint responsibility. Marvin J Ashton wrote:
New attitudes and relationships towards money should be developed constantly by all couples. After all, the partnership should be full and eternal. Management of family finances should be mutual between husband and wife in an attitude of openness and trust. Control of the money by one spouse as a source of power of authority causes inequality in the marriage and is inappropriate. Conversely, if a marriage partner voluntarily removes himself or herself entirely from family financial management, that is an abdication of necessary responsibility. (One for the Money)
Principle 4 – Build a reserve
‘Gradually build a financial reserve, and use it for emergencies only. If you save a little money regularly, you will be surprised how much accumulates over time.’ (All is Safely Gathered In)
As mentioned above, save a specific amount. Aim to build up an emergency cushion of 3 months essential obligations (mortgage, fuel, Council tax etc). Save for missions, weddings, education, a deposit on a house, retirement. Shop around for the best rates of return but be careful to avoid get rich quick schemes. If something seems to be too good to be true, it is because it is too good to be true.
Principle 5 – Teach family members
Teach all of these principles to your children. Teach the principles of hard work, frugality, and saving. Teach children that there is no money tree and help them to make decisions in keeping with their understanding. Stress the importance of education and teach young marrieds to manage their own expectations.
- Principle 1: Pay tithes and offerings
- Principle 2: Avoid debt / get out of debt
- Principle 3: Manage your money before it manages you
- Principle 4: Build a reserve
- Principle 5: Teach family members