Let's Talk Life Insurance

In my Financial series, I talked about the importance of having insurance, especially health, but life insurance is another one of the crucial insurances to have.  A husband that doesn't provide life insurance for his family must not care for his family's future because in the event of his death, he has left them with nothing.  A Godly husband will make sure his family is taken care of in the present and future - especially upon his death, right?  If he doesn't, he is knowingly leaving them with no financial security and a life of hardship upon his death - that just doesn't sit well with me.  This is my opinion of course but in reality - all husband's plan for their family's future upon his death - he either plans for them to have something or he plans for them to have nothing! 

What kind of life insurance should you buy?  Only term life insurance is a good investment, anyone that tells you different is probably trying to sell you whole life insurance or they have been duped by it and are too afraid to admit the truth.  Term life insurance guarantees for a specific term - whether it is, 10, 15 or 30 years.  If you have health problems, it will cost more, so a wise way to purchase life insurance is when you are young and healthy.  Here is a scenario for a family starting at age 20:

Age 20 - purchase 15-year term life insurance

Age 35 - purchase 30-year term life insurance, which will cover you up until retirement age of 65

If you follow the above plan, you will probably get the best rates and you will be covered until retirement age of 65.  You don't need life insurance after 65 if you prepared ahead of time by investing in retirement.  If you didn't invest and have little or no retirement - well, get ready to fork over a good chunk of your pay for life insurance because it will cost a lot at age 65.  The goal is to insure with life insurance until retirement and then live off your retirement, which will be yours and your wife's end-of-life living.

Most healthy adults can get the standard rates but if you want preferred plus rates, you will need to make sure you are in optimal health before applying.  I recommend before your renewal at age 35 in the scenario above, that you do several things to ensure you get the preferred plus rate.  Why?  Well, preferred plus will save you a substantial amount of money and lock in that rate for 30 years!  You will save on average $10,000 by just being in optimal health and qualifying for the preferred plus rate.

Follow these tips to have a good chance at getting the preferred plus rate:

1. Pray - believe me as we know from experience - GOD CAN DO ANYTHING!!!
2. Be at a normal weight for your height - if you aren't, strive to get there before applying or at least make sure you are within a few pounds over
3. Go on a low-salt, vegetarian diet a week or two before your exam - this will ensure, in most cases, a lower blood pressure and good blood sugar results
4. Cut out stress well in advance of your exam - stress can raise not only your blood pressure but other important things in your blood which could prevent you from getting a preferred plus rate
5. Get a lot of sleep the night before - sleep as much as you can (9+ hours) before your exam, this really does make a difference in all your blood results and BP

Buy from a reputable, long-standing company that has a good chance of being around in 30 or so years.   A lot of people realized in the past financial crisis, that their "cheap" life insurance was not worth it as they lost their policies when their life insurance companies failed.  I would recommend spending slightly more for a good company that won't likely fail - preferably a mutually-owned company.

Some may wonder how much should you invest in for life insurance?  If you are starting out in your 20's, you could think of it one or two different ways.  You could say, well, I'm young and I probably won't die before we renew our next policy at 35, so I will go with a low amount now.  Then, when you reach 35, raise it to a level that suits your family's needs.  Or you might say that you want to ensure as much as you can since your wife and kids will be left alone for many years, so you will get a large policy.  Some men, don't want their wives to ever think about working, so you will need to purchase a large policy.  Others, just want the house and bills paid and then the wife will find a job in a few years, so they will choose a lower amount.  It is up to the husband and wife but I think the best option is for the policy to ensure the wife will never have to worry about money or working and so she isn't a burden to her children.

Policies usually range from as low as $10,000 to a million or more.  Do the calculations and find out what it will take to live on for how many ever years.  Most people can get by with $250K by investing it and letting it grow and living on a small amount each year.  Others, prefer to go higher with a $500K to $1M policy to live in comfort and also invest.  Of course larger amounts cost a lot more, so base it on what you feel is best for your family and how healthy (or not) you are.

What about your wife and children?  If the husband will suffer a substantial loss in the event of his wife's death, then he should insure her life as well.  You will want to get small policies on your children for, God forbid, their burial and funeral expenses.  Hopefully, that will never happen but if it does, you will be glad to know it didn't ruin the rest of your life financially and you can just rest and mourn.

If you are unable to afford life insurance, ask yourself if that is really true.  Most people can give up a few luxuries like smartphones or lattes and afford a policy.  Do you care about your future and your children's future?  How will you pay for the burial and funeral expenses of your spouse?  If you are a homekeeper, then what will you do for work if your husband dies?  Where will you put your children and how will you pay for daycare?  Why not alleviate all that stress and the hard work, that will be the rest of your life, and ensure your future?  No one should have to worry about money when also mourning the loss of a spouse - Be WISE!

Living Debt-Free Series - Part 2

In Part 1 of this series I shared with you how to stay debt free and steps you need to take to ensure that you are not reliant upon credit/debt.  In this part of the series, I will share ideas and tips on how you can live within and even below your means.

To live within or below your means follow these basic ideas:

                Within Your Means                                       Below Your Means

1. Pay 10% Tithe and Give Offerings       Pay 10% Tithe, Give Offerings + Extra
2. Housing at 35% or below income         Housing at 25% or below of income
3. Save on Utilities as you can                 Cut costs drastically; Cut luxuries
4. Keep car maintained & plan trips         Same but also stay home more
5. Keep insurance costs low                     Same but consider HD plans
6. Buy discounted personal items            Get creative and make your own
7. Plan meals, Shop sales                       Cut down your meat, more homemade
8. Shop clothing sales                               Buy used, shop yard sales, trade
9. Eat out only a few times a month          Don't eat out, do free things for recreation

Some of you may be wondering why I had giving more under "Below Your Means" column - well that is simple - what you give comes back to you and it really is true!  The saying goes that if you never send a ship out, it can't come back to you.

For housing, it really is up to the family in what you want.  Do you want a larger house and then not save as much and spend less in other areas OR would you rather have a smaller or lower-priced home and be able to save more, do more and have other things?  With a larger home, comes higher utility costs of electric and gas, so you have to remember to factor those in as well.  Also, you need to think about property taxes and homeowner's insurance when counting the cost of your larger home.  You can usually save significantly with a smaller home and still be comfortable.

Other than the varying electric and gas utilities that I talked about, there is water, sewer, garbage, phone, internet and cable.  Water is based on usage, so it is easy to save there - just stop using so much and find ways to cut down.  I wash all my dishwasher loads on the lightest setting to save costs - it really doesn't matter as the lightest still gets everything just as clean as the highest but at a much lower cost in water and electricity.  Garbage can be saved by only using one can and you can do this with a large family by also having a recycling container.  You can cut phone expenses by just having a landline phone and a Tracfone for emergencies when out.  We only spend $120 a year for a cell phone and then my husband's employer provides him with a free cell phone for work that he can use to call me a few times a day.  These days you can go without cable because you can pretty much find cheaper ways to get your shows online.  We never did have cable but we think internet is a necessity in today's world and we like the highest speed, so we found a great deal by negotiating the costs.  I was able to negotiate the costs down and lock in the rate for a year.  Then every year, I have to call and negotiate again and it is a hassle but after it is over, we have the rate locked in for another year.

With transportation, you need to plan your trips that would give you the most cost-effective use of gas.  If you run an errand everyday, you will be wasting a lot of gas.  Why not plan your trips into one day a week?  Also keeping your vehicle maintained will help keep it running longer and thereby save you money on repairs.  Study Consumer Reports and learn which used cars have the best reliability so that you won't have it in the shop all the time.  Staying home more obviously saves you more in gas and wear on your vehicle.  We drive an almost 12-year old car and it only has 102,000 miles on it!

I've already discussed in detail on how to save on various medical plans in this post.  Basically, save as much as you can and costs will vary depending upon risk level.  The best is usually an HSA high-deductible plan.

With personal items in your budget you can save a lot by simply making your own or using generic products.  I used to buy a lot of things I didn't really need and since cutting them out - I don't even miss them, except for my Satsuma Body Shop body butter.  I tried cutting my husband's hair but I was never successful but I do cut my son's hair to save money.

Food is one area you can really save a lot of money in if you are willing to sacrifice.  You can eat meat everyday but you will spend more unless you stretch the meat or use the meat as a condiment rather than the main dish.  We prefer to save meat as a 2-3 times a week thing and save the extra money.  You can also save by buying in bulk things like flour, rice, spices/herbs, beans, etc.  You can also save by making a lot of homemade items and that also saves on health costs as you are healthier by eating no or less processed foods.

With clothing you can shop for the best bargains or you can buy used and/or make your own.  I shopped yard sales last summer and got name-brand pants and tops for 50 cents to a dollar.  I wish I had gone this summer but I didn't get out to search for the next size up, so now I'm trying to find ways to get the most bang for my buck.  I had saved my "skinny" clothes and now my 10 year old daughter can fit into them - so guess who won't be buying much clothes for the next 8 years or so?

With recreation or fun money it really is up to you how much you want to spend.  You can limit eating out or not eat out at all.  You can only do things that are free for family recreation or do low-cost things.  You can buy used books or just use your library.  It really is up to each family how much they want to spend and then you go from there to find things that work with your budgeted amount.

Living Debt-Free Series - Part 1

Upon the heels of my Financial Budgeting 101 series, I wanted to do a series about Living Debt-Free and give you tips and ideas on how you STAY debt free.  If you have something to share, please leave a comment to help me and others!

#1 Task for Staying Debt-Free  - The first step to living debt-free is to make sure that you have an emergency fund!  If you don't do this, then you probably won't STAY debt-free for long because things break, cars need repairs, kids get sick and on and on and if you don't have money set aside to pay for these things, then what will you do?  Borrow or put it on a credit card and pay interest.  Many financial advisors recommend you have 6 months worth of living expenses (not income but expenses) saved up in a savings account somewhere that you can get to easily in the case of an emergency.  This will help ensure you staying debt-free when trouble shows up at your door and it will.

#2 Save for future purchases - If you plan on buying a big-ticket purchase in the future, which most people do, then you need to have a fund to save for it since you are no longer using credit and paying extra with interest.  Most people need a car these days and if yours is older, you probably should start saving up for a newer one.  Save until you get enough and then go shopping with cash!  Not only will you save on all that interest, but you will get a reduced price by paying cash and if you can trade-in your older car, you will save even more.  Say goodbye to car payments with interest and hello to saving and buying a car with cash!  You will feel awesome when you ride that car off the lot knowing it is PAID FOR!

More things that you can save for are:  electronics (computers, gadgets, etc.), furniture, school supplies or homeschool curriculum, vacations, appliances, and whatever else is a big purchase that needs time to save for.

I will give you an example of a car fund and how it would work to save up for one.  Say your goal is to purchase a newer car in 3 years.  A good, reliable used car for $12,000 is your goal and your current car will have a trade-in value in 3 years of about $3,000.  Subtract the value of your trade-in from the price of the newer car and that leaves you with needing to save $9,000.  Now you know you will need to save $250 a month and you will be able to shop for a $12,000 car - which could very well be a much higher car but you can negotiate that down to $12K easily when paying cash!  Say, you just want to spend $8,000, so subtracting your trade-in, you only need to save $5K, which is only $139 a month.  No interest to pay, just the price of the car - now that is freedom!

#3 Insure Everything - This is one area you must do in order to stay debt-free.  You can't predict the future but you can insure that you are covered when something tragic happens.  This includes health insurance, home/renter's insurance, auto insurance, life insurance, disability insurance, identity protection and anything else that you need to insure that has the potential of bankrupting you or ruining your financial life.  Trust me as I know personally what it feels like to be WITHOUT insurance and a crisis happen - we have paid our share of medical bills because of our lack of health insurance a few years ago.

For those that think you can do without life insurance, well you CAN but are you sure you want to?  What if your husband dies today.  How would you pay for his funeral?  Or better yet, WHO wants to think of how they will pay during that time?  You will be grieving and you sure don't need the extra burden of financial ruin.  It isn't just the funeral either, how will you support yourself or your children?  What will you do until you find a job?  How will you pay for child care?  And on and on.....  These are things a lot of people don't think about until something like this happens and then they spend the rest of their lives thinking about it. 

Same thing goes for disability insurance in the event that your husband becomes disabled and can no longer work.  Disability from Social Security is barely enough to even live on, much less support a family!  The rest of the insurances are really no-brainers, I mean if you go without home/renter's, auto, identity protection or health insurance - you are just one crisis away from debt and/or bankruptcy.  Insure everything!

#4 Live Within or Below Your Means - Most people agree in living WITHIN your means, but how about living BELOW your means?  If you live below your means, you can save a whole lot more.  Whatever you do, always live within your means and not above!!  If you make $50K net - live on $40K and throw the rest in savings.  Then, if one day you get the urge to go to Italy - hey, just GO!  Or you could live on the $50K and have a bigger house, nicer car and more luxuries if that is what you choose.  I prefer to live below our means because to me, that Italy trip sounds pretty sweet!

Part 2 is here where I give you ideas and tips on living within and below your means:
https://frugaladdict.blogspot.com/2014/09/living-debt-free-series-part-2.html

Family of 4 Health Insurance Options

I've found that a lot of people do not actually know about the various ways to afford healthcare that are available today and meet the law requirements.  I will start out with the obvious ones that most people know about and then share with you some others that are available to Christians.  I'm just going to talk about the ones that I'm personally familiar with - if you know another option that is better, leave a comment!

1. Traditional Health Insurance - this is your basic health insurance that has a premium, deductible and then copays or coinsurance.   These plans are usually the highest of all the ones I'm going to talk about today.  They are also usually NOT the best choice as your total yearly costs are the most expensive.  You can purchase these online, through the exchange (what a joke) or they are normally offered from your husband's employer and given at a reduced rate and you can pay your premiums with pre-tax dollars in a payroll deduction.
2. Health Savings Account High Deductible Health Insurance (HSA) - these health insurance plans require an HSA (Health Savings Account) and are generally the best option when you look at total yearly costs.  The plan itself can have a high deductible ($3K or above) and then you pay a certain percentage up until your out-of-pocket limit.  You can set aside money to pay your medical bills through the HSA and it is pre-tax and stays tax-free if you pay only approved items with your HSA (medical, dental, etc.) and your premium is also pre-tax through your payroll deduction.  Most of the time employers offer this option along with the first one and this one is the least expensive as premiums are way lower and when compared to the yearly costs of the first plan, this one wins. 
3. Christian Sharing Medical plans - these are plans only offered to Christians and are very affordable.  You pay a set amount each month depending upon age and/or family size, then you either only pay up to a certain amount of your bills a month and anything over is paid for by others OR you set your deductible and premium and once the deductible is met, you pay nothing.  These plans would be good for those who don't get a discounted plan from their employer or for those that don't foresee any medical needs of substantial amounts in the upcoming year.  The downside is that you pay your monthly premiums with after-tax dollars.

Let's look at a typical employer-given health plan:

1. Traditional - $6,000 annual premium; $1,000 deductible then plan pays 80%; $12,000 out-of-pocket limit
2. HSA plan - $3,500 annual premium; $3,000 deductible then plan pays 90%; $6,000 out-of-pocket limit

Now let's compare those rates with Christian sharing medical plans:

Family of 4 monthly premium -  $405

Yearly premium amount - $4,860

Responsible for bills up to $300 a month then plan pays 100%

OR

Family of 4 monthly premium of $10,000 deductible plan - $184

Yearly premium amount - $2,208

Plan pays 100% after $10K deductible

OR

Family of 4 monthly premium of $2,500 deductible plan - $500

Yearly premium amount - $6,000

Plan pays 100% after $2,500 deductible

Taking these plan scenarios, let's see what a medical crisis looks like within a year of these plans:

Worst Case Scenario - $55,000 medical bills

What you pay max for this year:
Traditional -  $19,000
HSA plan - $9,500 (can all be pre-tax dollars)
Christian sharing #1 - $8,460 (if bills are over $300 each month)
                                    $5,160 (if bills happened in one month)
Christian sharing #2 - $12,208
Christian sharing #3 - $8,500

You can see that the Christian sharing #1 is the cheapest option for a $55K scenario with the traditional plan costing the most.  However, most large employers give a portion to your HSA, so if they gave $1,000 towards your yearly costs, that would make the HSA plan comparable to the cheapest Christian sharing plan at $8,500.  You should also factor in the cost of using after-tax dollars to pay the Christian sharing plans and how the other plans will decrease your taxable income.  This can make a difference at tax time by putting you in a different tax bracket and you could factor in those numbers depending upon your personal situation to get a true cost.

When you choose a plan for your family, you can either plan for the worst case scenario or take the risk with a high-deductible plan and save on costs.  Let's say you want to take the risk, everyone is healthy and you don't foresee any medical bills (besides office visits) for the upcoming year:

No Medical Bills Scenario

What you pay max this year:
Traditional - $6,000 + office visits you pay
HSA - $3,500 + office visits you pay
Christian Sharing #1 - $4,860 + office visits you pay
Christian Sharing #2 - $2,208 + office visits you pay
Christian Sharing #3 - $6,000 + office visits you pay

The cheapest option would be the Christian Sharing #2 that has a very low monthly/yearly cost and a very high deductible, but this is risky business, you don't know if you will get in a car accident or someone will get very ill or need to be in the hospital.  If you take this risk, make sure you have the money in an emergency fund just in case!

In my opinion, the HSA high-deductible plan through your employer is the best option as it is the least riskiest but still gives you a great deal and you can pay all of your medical bills and your premium with pre-tax dollars and that also brings down your taxable income!

Notes - I didn't include Flexible Spending Account (FSA) plans because I have no experience with them and because you lose the money at the end of year if you didn't spend it.  The HSA is by far the better choice if your employer offers it as the funds roll-over from year to year.

Financial Budgeting 101 - Index of Posts

I've had a lot of response and traffic to my budget post of a family living on $40,000 a year.  I realize that this is an area that we need more help in and though I'm not a financial expert, I sure know the way to deal with your finances is by following Biblical principles.  I hope this is a series worthy of your time and may you be able to gain insight in bettering your financial future.

Here is an index of the posts in this series:

1. Our Financial Story - here I will tell you our family story and how we learned the hard way financially
2. The Why and How of Budgeting - this is where I tell you why you should budget and how to do it
3. Our Family Budget - I will show you our budget in percentages on how we divide our money
4. Budget scenarios - I will share with you various financial scenarios on varying incomes/expenditures
5. Summary - this is where I sum up the entire series up and share printables for you to utilize

*After this series, I do plan on doing a "Living Debt Free" series, which will give you ways to cut back, save and make your financial dreams a reality!

Summary of Financial Budgeting 101

I hope you all enjoyed this series on financial budgeting, here is the summary of what we talked about a few more things I wanted to share.  I'm also including a link to my Scribd account that has free printables for budget planning.

I shared with you all our financial story and how we learned many lessons the hard way that brought us to where we are at today.  Thankfully, we were able to pick up the pieces and put them back together again and this time do it correctly.  We are still working towards our financial goals but have learned enough to share with others what not to do!  Thanks to Dave Ramsey, we have learned how to really have financial freedom and live like no one else.

Credit can be tempting because it gives you immediate access to what you want, even though you don't have the money for it.  Using credit is actually a sign of immaturity - just like a child wanting it NOW - think about the girl in Charlie and the Chocolate Factory, sadly, that is most adults today too.  They want the clothes, shoes, purse, car, house, trips and all that NOW - so they put it on credit and then spend today paying for yesterday's desires.  BREAK THE CHAINS!!!!  As Christians, we shouldn't be bound up by debt.  Christians should be the ones that can show control (temperance) and hold off on purchasing things until we have the money to pay for it.  We should be the ones living modestly within our means and showing the world that you can be content with the things God has blessed you with - not with what Wells Fargo or Discover has chained you in.

I showed you why and how to do a budget and then even shared scenarios on how a family of 4 could live on low-middle incomes.  I also shared you with our family budget and how we manage living on one income while still giving to God, saving for the future and insuring our lives from financial crisis.  Most of the time the reason we fall into debt is because we don't have a plan for crisis situations.  You NEED an emergency fund, not a credit card.  You can't afford to pay interest and you can't afford to be without an emergency fund.  Why would you pay Visa $6,500 for borrowing $5,000?  You could have had that $5K in savings and kept your additional $1100 in interest.  You can give me $6,500 and I will give you $5,000 - sure, be that stupid - someone is making money off of your stupidity and your immaturity and lack of self-control!  As Dave Ramsey has said, you have Discover-ed bondage.

Plan.  Think ahead.  Don't think that nothing will happen to you.  Be mature - wait, have self control, be modest in your lifestyle by living within your means or even BELOW your means!  If others can do it - why can't you?  Do you need to re-prioritize your life?  Start now! 

Here are some free printables on my Scribd for budgeting:

*Links expired, I plan to upload and update soon.

NEW! Budget Worksheet
Monthly Budgeting Expense Worksheet
Bills Due Worksheet
Another Monthly Budget Worksheet

There may be situations where you fell into the pit of credit because you didn't have the emergency fund saved up yet.  At least you are aiming for the future, so don't get discouraged!  You have to climb and fight your way out but you WILL get there!

Family of 4 Living On $30,000, $40,000, $50,000, and $60,000 a Year NET

I've showed you our family budget and now I would like to show some budget scenarios for a family of 4 to give you an idea of how all this works.  To make it easier, I'm using these annual incomes and considering that they are AFTER-tax incomes.  Generally for a family of 4, you would subtract $5,000 in taxes - factoring in state tax and the child tax credits.  That will give you a nice buffer.  So if you make $35,000, budget for $30,000 and so forth but as the income goes up, so do the taxes but I'm keeping these incomes low so that shouldn't be an issue.  Also, don't forget that your retirement contributions are pre-tax, which lowers your taxable income.  That is how I make these average monthly incomes work.  If you have an HSA account with your insurance plan, you will lower your taxable income even more!  But that is another topic in itself.

*I'm going to estimate that these families have a fully-funded emergency fund of $5-10K, so that they can purchase a higher-deductible medical plan.  They are also paying for disability, life and car insurance and have no car payments.  These would be ideal scenarios.  Imagine how much they would save if they had paid-for mortgages!  But in the meantime, let's assume they have a mortgage on a small, 2 or 3 bedroom home.  If you are wondering what each expense category covers, refer to my budgeting post here.

Family of 4 Living on $30,000 a Year - Average Monthly Income of $2,500

Income 
$30,000 after taxes

Expenses
Charity = $350
Savings = $320
Housing = $700
Utilities = $180
Food = $280
Personal = $130
Transportation = $230
Medical = $230
Clothing = $40
Recreation = $40
Debt - 0

This family has a high-deductible Medi-share plan to save on premium costs and they have their emergency fund fully funded to pay for any medical crisis that may happen this year.  Or, this family can get medicaid coverage because they are in poverty.  If they do that, they can then budget the medical money into other areas.  Their savings amount goes to fund their retirement and savings account.  They have to live in a very small home because they are living within their means.  They keep their costs down and consumption to the basics until they can pay off their mortgage.  Once they pay off their mortgage, they can either increase the other areas or add more bulk to their savings.  They find free things to do as a family and only reserve $40 for eating out or having friends over for dessert.  They shop consignment stores for clothing or the mom sews.  Many families live on this income and they make it work but it isn't ideal for sure but it can be done.  There is just NO room for debt! 


Family of 4 Living on $40,000 a Year - Average Monthly Income of $3,333

Income 
$40,000 after taxes

Expenses
Charity = $420
Savings = $600
Housing = $850
Utilities = $213
Food = $300
Personal = $150
Transportation = $250
Medical = $400
Clothing = $50
Recreation = $75
Debt - 0

This family does as the family above by saving 15% of their income for retirement but they will obviously give a larger portion and have a larger retirement.  They are also saving extra for misc. purchases that they choose to save for.  They can afford a higher housing cost than the $30K family but with that comes higher utility costs.  They spend more on food and personal items because they can and they also pay for a lower-deductible Christian sharing medical plan than the prior family but it costs more a month.  They are able to spend more on clothing and recreation but not so much as they can splurge yet until they pay off their mortgage.

Family of 4 Living on $50,000 a Year - Average Monthly Income of $4,167

Income 
$50,000 after taxes

Expenses
Charity = $510
Savings = $712
Housing = $1050
Utilities = $300
Food = $450
Personal = $200
Transportation = $320
Medical = $400
Clothing = $75
Recreation = $150
Debt - 0

This family is doing everything the prior families are doing with funding their retirement with 15% of their income and saving extra for whatever purchase they have on their list at the time.  They decided to get a larger home and with that comes an increased housing cost and utility cost.  They spend more on food and personal items but they decide to keep the same plan as the family before with a Christian sharing medical plan.  They still are frugal in their clothing expenses but decide to spend more in recreation because they like to go on field trips to the zoo or museum and this also increases their transportation costs as they use more gasoline for these outings.

Family of 4 Living on $60,000 a Year - Average Monthly Income of $5,000

Income 
$60,000 after taxes

Expenses
Charity = $600
Savings = $1425
Housing = $1050
Utilities = $300
Food = $500
Personal = $200
Transportation = $300
Medical = $400
Clothing = $75
Recreation = $150
Debt - 0

This family can live comfortably at this income as they are funding their retirements as all the previous families but they are also saving a lot more for other purchases.  They could also pay off their mortgage incredibly early by living on the lower income levels.  They can spend more in housing but they choose not to, so their housing and utility costs remain the same as the previous family.  They like to spend more on food and clothing but they keep their recreation and transportation costs about the same as the previous family so that they can fund their annual vacations and other big purchases.  They also keep the same Christian sharing medical plan to keep their costs low.


If you make more than $60,000 a year, it might be a good idea to live off a lower income and build wealth.  Set up your 6-month of expenses emergency fund, fully fund your retirement, pay off your mortgage, etc.  If you could live off the above scenarios and save and/or invest the rest - you could retire very early or even save to travel the world.  The possibilities are endless and it is in your favor.

Many families live in the $30-40K range and they have more than 2 children!  So tell me how a couple living on $50K can't seem to make ends meet?  I know families with upwards to 9 children that make it on very small incomes WITHOUT GOVERNMENT ASSISTANCE and they live well and are happy.  God can make any budget work - God and the biblical principles of the bible!  Do what the Word says and be content with what you have and enjoy the showers of blessings that God pours on you year after year!  I call it basking in His bounty!

Notes
If you aren't debt-free and don't have a fully-funded emergency fund, then you would have to tweak other areas of these budgets to accommodate for higher medical and debt payments.  You can easily move money around the different categories as it suits your family.  If you want a larger housing cost, you will have to lower other categories.

I've seen budgets that did NOT work on paper but somehow every month God provided - don't lose hope, aim to do right and God will help you!

The Why and How of Budgeting

What is a budget and why do we need one?  A budget is simply a way to keep track of where your money goes.  The Google definition is: an estimate of income and expenditure for a set period of time.  The reason why it would be good to have a budget is simply so you can SEE or find out where your money is being spent.  You don't really know unless you see it on paper - exactly what goes where.  If you want to get anywhere in life financially, you need to name every dollar!

Now onto how you do a budget.  There are some numbers you will need to find out before starting your budget, so write these down in a place you can refer to whenever you need to readjust your budget.

1. Income - how much money is coming in to your home in any given month.  If you don't know, look at your pay stubs or take the hourly pay and multiply it by 160 hours for a typical 4-week month.  Include any child support or any miscellaneous incomes into this number.  
2. Expenses - this is anything that goes OUT or that you pay for, how often (weekly, bi-weekly, monthly, etc.) and if they are regular or just a one-time expense.  

Generally, you would do a budget each month but if your income and expenses are quite constant, you could probably get by with only doing a budget quarterly, or 4 times a year.  If you are like me and love to crunch numbers, well - you will be doing one quite often.

Here is a list of common expenses that almost everyone will need to budget for, I'm using the general categories that Dave Ramsey uses:

1. Charity - this is where you would include tithe, offerings and any other giving.
2. Savings - this isn't just what you hope to save in a savings account, this also includes retirement plans and other investments.
3. Housing - includes rent or mortgage payment (and all that entails like property taxes, homeowner's insurance, etc.), renter's insurance and repairs if you own.
4. Utilities - phone, internet, garbage, water, sewer, electric, gas
5. Food - pretty self explanatory
6. Personal - this is a catch-all for the needs, things like haircuts, toiletries, homeschool purchases and whatever else you feel that you need to purchase.
7. Transportation - these are things to do with transporting you and/or your family that are needed like car insurance, gasoline and maintenance.
8. Medical or Health - health insurance, dental insurance, medical bills, prescriptions, contacts, etc.  I also include disability and life insurance in this category.
9. Clothing - budgeting a certain amount every month but you don't have to spend it each month, you can save it like we do and shop for clothes once or twice a year.
10. Recreation or Fun money - whatever you do to have fun that costs money.
11. Debt - all debt you have that is outstanding - car payments, credit cards, loans, etc.

Once you have your total income and total expenses written down, it is time to get down to crunching the numbers.  You will also want to know how much taxes are taken out each month.  I do our taxes each year, so I've calculated a certain amount that we claim and I know our tax rate, so I deduct that percentage from our monthly income. 

You only want to budget your total income MINUS your taxes - that will be your NET pay.  So starting with you net pay, subtract your expenses.  If you have money leftover, you need to place it into one of the categories and if it isn't needed - put it in savings in some form!  You should have what is called a zeroed-out budget - give every dollar a home.

Dave Ramsey recommends a certain percentage of your income towards each category and I did a pie chart to show you what this could look like:

Charity - 10-15%
Savings - 10-15%
Housing - 25-25%
Utilities - 5-10%
Food - 5-15%
Personal - 5-10%
Transportation - 10-15%
Medical - 5-10%
Clothing - 2-7%
Recreation - 5-10%
Debt - 0%

Our Financial Story - Financial Budgeting 101

 What better way to start this series than to tell you our financial story.  I will begin at the beginning of our marriage about 15 years ago when we were both working.  We had money rolling in and we were 20, we didn't budget and had no idea where that money went every month.  Once I started staying at home, we only lived on my husband's pay and it was a big shock to us to say the least!  There were times we didn't even have money in the bank and just prayed we would make it to the 1st or the 15th!

We moved a lot in town from apartment to apartment because I was never satisfied where I was and I gave my husband a hard time about it.  He let us move those many times because he wanted me to be happy.  Here I was, supposedly a "Christian" wife and discontent with everything my husband tried to provide for us.  Needless to say, our marriage wasn't going very well either.  We had our first child 3 years into our marriage and we had no money to pay the medical bills.  So, we applied and qualified for medicaid and my pregnancy and c-section were covered.  However, after I had the baby, I was no longer covered and sickness came off and on throughout the years and so did medical bills.

Years of discontent fueled reckless spending.  We never could get ahead because I was literally the millstone around my husband's neck that drained our finances and him!  We ended up with massive amounts of medical debt, credit card debt and a car payment that we could not afford to pay.  There was seemingly no hope.  Then, I decided that I wanted to leave Alaska because it was Alaska that was making me so miserable I thought.  I told my husband I was going to move to Washington with or without him.  I prayed for $20,000 and God gave it to us through an inheritance we didn't know was coming to us (why I don't know, I sure didn't deserve it!).  So my husband reluctantly decided to move us to Washington in 2006.  We paid for the move and I was able to secure him a job before we even moved.  Everything looked great but God didn't call us to where we were and I was about to learn quite a few lessons on never doing that again!

Upon getting a higher-paying job in WA, we had the choice of whether or not to buy health insurance.  I didn't want our money used to pay for something we didn't NEED as I was better, I mean who NEEDS health insurance anyway?  That is only if you have cancer and things like that - we were young and we would be fine.  Shortly, thereafter I ended up in the hospital for 13 days and we ended up with $40,000 worth of debt.  In the meantime, I had rededicated my life to God and gotten "right" and started being a submissive wife to my husband.  I no longer let my discontent rule our lives, however God was going to teach us a lesson that we wouldn't forget.

We had wanted to apply for financial assistance to pay the $40,000 medical bill but I remember when praying about it - God distinctly told us NO!  We were going to pay this debt and we were going to learn some lessons.  When I called the hospital billing to tell them we were not going to apply for assistance but pay this debt ourselves, they had an interesting story to tell.  Someone came in and wrote off $26,000 of the bill.  They don't know who, no one authorized it and they don't do that and she was perplexed and after talking with others in the office - no one knew WHO or HOW but it was someone with administrative privileges and we didn't owe $26,000 of the bill!  We still had a lot more left to pay though, that along with more credit card debt and a car payment had us back in the chains of debt.

We came across Dave Ramsey and read his book and my husband decided that we were doing this - we were going to be debt-free and never use a credit card again!  We were also going to pay for insurance because we didn't want to go through what we went through again.  We did the gazelle intensity and ended up paying close to $81,000 in debt OFF by 2011.  We were finally DEBT FREE!!!!!  We drive a paid-for car, we have no debt, we buy only what we can afford and our medical bills are paid with money we set aside in an Health Savings Account (HSA) that is tax-free.  We learned our lesson and so thankful we did!

We have had medical bills since then but thankfully, they are small in comparison to what they would have been had we not had health insurance!  We haven't touched a credit card in 5 years and don't plan on ever doing so.  We decided to live by biblical principles not just in our lives but also finances as well.  God has only blessed us and during times where we should have sunk under the weight of financial distress - God lifted the load off of us!  We didn't need Discover or Visa - we had God now and He is the only master we want to serve!

Budget For a Family Living On $40,000 a Year

A good modest income in the area that I live in is around $40,000 or $20.83 hourly wage and most families make less than this.  For a typical family with children, this gives you an estimate of $35K after taxes, so you need to budget for that amount. I did figure in a state income tax since most states have it and also figured in the tax return and/or deductions/credits for children.

Always give God his 10% first!  I'm estimating costs here and these may vary depending upon location and other factors.  This is just to show you an average budget for a family living on this amount a month with no debt.

*This is not my family's budget or income, I'm simply providing estimates for the average, lower-income family.

Budget - $35,000 = $2,917 a month

Monthly Budget for $2,917 (after taxes)
Tithe -$334
Offerings - your choice but estimating $50
Savings - $100

Housing
Rent - $730
Renter's Insurance - $15

Utilities
Electricity - $100
Water - $25
Garbage - $25
Phone - $30
Internet - $60

Personal
Food - $275
Toiletries - $120
Life Insurance - $10

Transportation
Gas - $250
Car Insurance - $80
Maintenance - $100

Medical
Health Insurance - $350
Dental Insurance - $60
Medical Bills - $100

Entertainment & Clothing
Fun Money - $75
Clothing - $25

Debt
ZERO!

You can see that in recent years, health insurance has risen so high that it is almost impossible for families to afford it at all.  With this budget, I estimated total medical costs at $510, which is actually cheap insurance, so you have to pay deductibles and co-pays throughout the year and that can eat up your savings.  Obamacare jolted prices upward, and they are becoming to where there is no way a family can afford to pay for them and this brings up the question about is it ok to use medicaid?

At this income you are putting in savings $1,200 a year + any interest.  That comes out to about $6K in just 5 years and $12K in 10 years.  If you live in an area like mine, which I blogged about here, you would have to put most of your "savings" into your rent or cut expenses elsewhere if possible.

Having an emergency fund set up should be your first goal and it is generally recommended that that should be $1,000.  Then a savings for 3-6 months in the event your husband loses his job or becomes disabled and the rest you can invest.  If you don't put aside 10% for these things or live so that you can do so, you will find yourself turning to a credit card or other debt.  Stay chain-free and build wealth!!  I recommend Dave Ramsey's Total Money Makeover for anyone who is unsure how to budget, save or is in debt.

Can God Provide Housing?

In our area, several years ago, you could find a decent 3 bedroom for under $900 but as the years went by, the rent went way up. Now, it would literally be a miracle if you found a 3 bedroom rental for under $1100. Families with more than 2 children, have to have a 3 bedroom because the laws in our area deem it so with rentals. It is either 2 per room or if you have a boy and a girl, they each must have their own room. This means that most families with children NEED a 3 bedroom home to meet the law and live comfortably. Some landlords ignore these rules and allow more in a 2 bedroom or a boy and girl to reside in the same room but most do not.

The recommendation from financial experts is that your housing costs should be less than 30% of your gross income but Dave Ramsey recommends it only be 25% of your take-home pay.  So let's do an example of an average one-income family who has a modest income of $40,000 a year.  30% of that would be $1000 a month that you can afford for housing or according to Dave Ramsey's guidelines, 25% of take home pay would give you $730 a month for housing.  So for a family making $40K a year, they should stick within a $730 - $1,000 a month for housing.  With those numbers, you can see how a typical family can't afford the rent in my area, so they have to pay more and save less, or not at all.

It is now cheaper to buy than rent, in my area, when you look at monthly payments.  Some are finding that they have to buy in order to have a place to live because they can't afford $1100+ in rent but can pay a $700 mortgage, which after property taxes and insurance, comes out to still be under $1000.  However, putting yourself in debt and literally setting yourself up for financial distress when something in the home needs repairing or breaks, is destroying peace in many families.  Also, if you can find a home that cheap in our area, it probably means it is old or in a part of town that isn't desirable.  Rent will most likely only go up from here as landlords are still trying to make up for their bad decisions on purchasing homes when homes were way over-priced in my area several years ago.

Thankfully as a Christian, we can know that even though rent is going up and laws are making it hard for many families with children - we have God as our ultimate provider and he isn't fighting against families!  Now more than ever, we can see the mighty hand of God at work in His provisions, even in housing.  God will supply your need but maybe not your want - some don't live within their means on purpose because they WANT something that they just can't afford and they create situations of hardship.  Yes, God does sometimes give you your wants too but He will always give you your NEEDS.

He provided my family a place several years ago that seemed too good to be true at the price and size of the rental, but it was really true (and good!).  Even if our landlord chooses to raise our rent, God will still make a way for our family - whether it is more income to pay the higher rent or providing another place for us.  God CAN provide housing for His people and their families and He WILL if you let Him lead!