Jason McKnight

Here is part 3 of 5

A penny saved is a penny earned (June 2010)

This is the most fun item in our series on Godly financial stewardship and management of his resources: savings. If you have children in high school, college, or their twenties, please have them read this. Two months ago we dealt with an overall framework and the most important tool in getting a handle on finances: keeping a daily record of every cent spent, for 2 months or so, simple, accurate diagnosis. Last month we dealt with debt; how to recognize trouble, how to stay out of it, and how to get out of it.

What is the purpose of savings? What is the biblical rationale for it? What types of savings are there? And how do we do it? Let’s dive into these questions.

The purpose of savings is to be prepared. If you think about it, it’s that simple. Be prepared for some costs or outlay in the future; retirement, a trip to Disney World; a car or child’s college; a new stove. You save up for all sorts of things. The point of savings is to be prepared.

In fact, Proverbs 21:5 says this, “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.” The general principle of life (the proverbial truth) is that diligence—i.e., preparedness—leads to abundance, extra or savings. Poverty awaits those who don’t give any thought to saving for the future. Verse 20 says a similar thing: “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” The wise don’t devour everything they receive (or earn), but they keep some aside… to be prepared.

Let’s walk through the various types of savings and how we can work toward them. Keep in mind, the purpose is to be prepared for what God brings our way. We don’t save to “get rich” or “accumulate”.

Saving for Expenses:  Expenses that occur randomly or annually, instead of every paycheck. We must hang on to some of our paycheck to pay for the car insurance, homeowner’s insurance, Christmas gifts, vacations, car repairs & registration, etc. How much are each of these? Have a line-item in your budget for each one, and then every pay day, transfer that total amount into a special “future-expense savings account”, and keep a list of how that money breaks down.  For example, you are saving $100 for Christmas each month, $180 for homeowners’, $75 for car repairs. After 3 months, you have to pay $120 to fix your car. Make sure it comes out of the “car repair” section of your records for this “future-expenses” bank account. Don’t leave this money in your checking… too tempting to spend on a great sale for patio furniture or something!

Emergency Savings: in our day and age, we need a minimum of $1,000 in the bank to get us through a crisis—a rock hits your windshield and you need to pay the deductible, the dryer gives up the ghost, an unexpected hospital bill. We’ve got to have $1,000 available. Why? So that we don’t have to go into debt in a crisis situation.

By the way, a line of credit against your home’s value is NOT emergency savings. It’s emergency debt. Do not use that as a “quick source of cash” for the needed new dryer. Plan well and build a cushion.

How do you accumulate that $1,000? First step is change your budget, and put away $100/month into a savings account. If your income will not allow for that, take a longer term approach to building it up. One friend suggests the following: start packing a lunch and hold that $5-7/d; build $10 or 15/wk into your family budget; use your tax refund, bonus, raises or other gifts.  The good news is that once you have topped your emergency cushion, you can use that $10/week or $100/month to pay down debt or save for other things.

Savings for college, cars and the medium term: This is a 2-10 year horizon. Last month I passed along my father-in-law’s advice on saving in advance for cars by making a monthly car payment to yourself. I guess we need to consider the same thing for college (those of us with children not yet there). As a couple, you need to decide how you are going to help your children pay for college. It is not necessarily your responsibility, but it is a great gift to them. I think every college student should help pay their way (summer jobs, semester jobs, etc.). It’s wholly appropriate for Dad and Mom to sit down with Freshman and say, “you will be responsible for $2,000 each year through jobs” and then show them how much you are going to pay. College is about training them for life in the real-world. You can give them an education in finances almost worth more than the sheepskin!!

In the meantime, how do you as parents save for it? Monthly or quarterly contributions to a 529 college plan are a great tool (or even just to your own savings account). You will be surprised how far $50 or 100/m will go over time. Be careful about the plans you use—weigh risk, return and horizon, as well as management fees. College savings are a great place to use raises, bonuses, tax refunds, and the like. Also, many grandparents are willing or able to help (does not take parents off the hook!). One friend’s parents kept the inheritance they received from their parents to pay for my friend’s college costs.

Retirement & Long-term Savings – There is no doubt that each of us is going to have expenses in retirement, even if we don’t have jobs. That’s the reason we need to save now. Remember, savings is about being prepared. In this case, prepared for the day when we are no longer earning an income. We get to live off the “precious treasure and oil” in our houses (Pr 21:20).

The world has missed the boat on retirement savings. They advertise them so that we can do what we want in our retirement years, playing golf in Florida every day, and living like kings. Not so. We may retire from work (ie, no income), but we don’t retire from ministry! It seems to me that it’s only by 60 or 65 that we have enough wisdom to minister effectively. I think of all the “retired” folks at Grace and marvel - they are the cream of the crop. The Lord ages folks beautifully in Christ (like a fine wine?).

Some principles for those of us still working: you are not saving enough! Increase the amount that you put away. Increase it with each raise; give more, save more, then give yourself a living increase.  

Long term savings is the 2nd check you write each month (after giving). Make sure you put money aside before you start paying bills. There won’t be any left over at the other end! Adjust your lifestyle now, so that you can be prepared then.

One Final Note: There is one final reason to save: so that you can be prepared to give when God taps you on the shoulder. Imagine that God would include you in His kingdom work in such a simple way—giving back to Him what is His. Did you know that “giving” is really “long-term investing”? Every gift we make to the Lord and His work is “storing up treasure in heaven”—ie., retirement planning on the ultimate level (Mt 6:20). Twice in the last 2 years God made it very clear to Susan and me that we should give something extra, something in addition to our monthly giving to GFC, various ministries, and Prepare the Way (building fund). It’s His money, after all. He let us know that we need to give a special gift at two different times. They were scary gifts relative to our income and assets. But, they were at His leading. We only rejoice that we can be part of supporting the Kingdom.

I hope you take seriously the help here to grow in being prepared—in savings, short-term, medium-term, long-term and ultimate-term. I know that God will lead you and fill you as you live into his principles. It may take months or a couple of years to get where you need to be… but keep at it. God blesses obedience, and his blessings seem to have a way of compounding over time (like savings compound!).

No Comments yet »