One of the hardest things about investing your money is deciding who to listen to for advice. There’s a myriad of financial advice-givers out there, both paid and free, and fueled by the internet it’s really easy to find them all.
(more…)Tag: investing
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Best of 2005
Note: I’m on vacation this week. My family has a rule for daddy– It’s not a vacation if daddy brings a computer. Each day this week I’m highlighting my favorite post from the adammclane.com archives. These are oldies but goodies.
Check Out YMX!
Hey, a buddy of mine and I launched a website lately for youth workers to connect up. This is filling the forum void left behind since YS closed their forums back in June.
Anyway, check it out at ymexchange.com
This changed everything. As I look back on the last several years, no event changed my life more than creating Youth Ministry Exchange.
For years the youth ministry world was pretty self-contained. There were a limited number of players and it seemed impossible to get your foot in the door anywhere.
So we created a new door.
Within a month we created massive traffic for our new business. We had some sense that what we were creating was important– but the truth is we had no idea what we were doing. We were even afraid to call it a business. We didn’t have any of the legal stuff done. We never had a business plan. We never spent $1 on marketing. And the two original owners have STILL never met. 3.5 years later I was sitting in an office at Zondervan signing paperwork and waiting for a bank transfer as we sold Youth Ministry Exchange, LLC to Youth Specialties. It’s mind boggling.
How in the world does a guy go from being a no-name youth pastor at a church of 150 to shaking hands and receiving a check from the CEO of a major publishing company in 3.5 years? Simple: Looking at closed doors and building an open one to walk through.
Investing $72 in an idea changed my life.
Want my advice? If you have an idea that you are absolutely passionate about… do it. Do it now. The idea and the opportunity are never going to get better than they are today. But invest less than $100. If it’s a good idea it won’t make a difference if you invest $100 trying it out or $100,000. (Donald Trump may be good, but that guy has led his company into bankruptcy three times! Never finance an idea with debt. Pure and simple.)
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Getting Started in Investing, Part 4
Free money! How often do you hear that phrase? Not very often. But generating free money in a bank account is essentially what investing is.
I’m surprised how many people are scared of the whole topic. Among people under 30 in ministry there are three groups.
1. I’m too young to worry about savings and retirement. These folks are typically focused on their mountain of college debt. And in their minds they shouldn’t save anything until they pay that off.
2. I don’t know anything about investing so I just don’t do it at all. Essentially, this is who this series is for. This group of people plead ignorance or try to pretend it is all too complicated for them.
3. I’m in it to win it. These folks understand the basics of investing and know that starting young means more free money down the road.
It’s all about the interest. Do you remember back to 5th grade where we learned about compounding interest? The teacher would say, “if you put $500 on a credit card with an APR of 22% interest, how much would you owe at the end of 12 months? Essentially, investing is the same process in reverse. The earlier you can put money away the sooner interest will start compounding for you.
This is critical for those in ministry. We have to start earlier than our peers since we will make less over a lifetime than those in other industries! Fortunately for us, there are some great tax benefits that help us save for tomorrow today.
401k, 403b, 529, Traditional IRA, Roth IRA, Education IRA… where do I start?
The basics: Essentially, all of those accounts are going to allow you to defer when you pay taxes on your savings. Theoretically, you could save for retirement with a savings account. Three problems with that. First, the interest rate generally stinks. I’ve never seen a savings account at a bank offer more than 4% interest. Second, you can get to that money way too easily. This is long-term savings so you don’t want to be able to access it with your ATM card. Third, each year you will pay taxes on the interest you earn. A retirement plan of any variety is going to allow you to earn a higher rate of return, the money isn’t readily accessible to you, (unless there is an emergency) and will allow you to defer paying income tax on interest until you withdrawal.
401l/403b: These are essentially the same thing. These are retirement plans for “regular employees” of either for-profit (401k) or non-profit (403b) companies. The great news is that 99% of the time you can invest in 401k/403b through payroll deduction, the money will go into the account pre-tax, and your employer will likely match a certain percentage of your investment. For instance, if they match 100% up to 5% of your income and you make $1000 per week… they would take $100 out of your check and give you an additional $100… depositing $200 per pay period into your account. ($4800 per year) With a 100% match you make 100% interest on day one! There is no better investment on the planet. To not accept this offer of free money is foolish. Since it is payroll deduction you won’t even miss the money. Typically, if you enroll in the program and do nothing else they will automatically select a very conservative mutual fund for you, guaranteeing a small return with minimal risk. Remember, by putting in a little you get free money automatically on the first day. Even if your employer only matches 50% up to 4% of your income… that’s still better interest than you will get anywhere else. The bad news is that you won’t be able to touch that money until you are 59.5 years old. Technically, you can withdrawal early but that will come with some nasty penalties. It is important to understand that money invested in your 401k/403b has almost nothing to do with your employer. Sometimes they will allow you to buy stock in the company through your retirement plan (never do that) but otherwise you are putting money into a bank. This means that the savings belong to you. If you change jobs the money is still yours. (We’ll just not talk about vesting right now to keep it simple) We’ll also talk about investment choices another time. For now, keep it simple.
IRA: (Individual Retirement Accounts) For some reason this one is scarier to people. It shouldn’t be as it is way more fun! This is the most obvious retirement savings option for those church workers who are “self-employed.” These savings are not pre-tax, but when you file your return you typically reap the same benefits so it all works out. Most people end up with an IRA because they change jobs and want to withdrawal money from their previous employers 401k/403b program. (Called a rollover) Kristen and I did this in 2002 to consolidate about five 401k programs, it was simple and pain free. Unlike a 401k, an IRA is going to depend on you depositing money into the account. If you are absolutely unwilling to make any choices, find a broker and have them set it up for you. Any U.S. citizen can have an IRA (or IRAs). Essentially, it is just a savings account that allows you to purchase investments. Technically, you can invest in all sorts of things with IRA money. But the most common things people invest in with an IRA are stocks and mutual funds. While your employer doesn’t typically match your investment most churches I have worked at will include retirement savings in your contract with them. So, each quarter or month they will give you a check for the agreed amount of money and it is up to you to invest that money. I use E-Trade for my IRA and they allow me to transfer money from my savings account to my IRA. But even writing a check to your broker or mutual fund is a snap.
Which IRA do I want? Unless you have some serious cash, you want a Roth IRA. There is an investment cap for how much money you can put in every year, I’ll be honest, as a youth worker you don’t have to worry about that.
529/Education IRA plans: A 529 is basically a 401k for your kids college education. You make an investment and they manage the funds. When the time comes for your kid to go to college, the college withdrawals the money from the account. If you invest in your state’s 529 plan there may be state tax benefits for you. Typically, the money can be used at any college that is accredited. So if you plan on sending your kids to an non-accredited training school or Christian college… this may not be the best option for you. An Education IRA is basically an IRA for money dedicated to your kids college. (You manage the investments.) So if grandma dies and leaves your kids $10,000… this is your best bet to allow it to earn interest without paying taxes.
Kristen and I don’t believe it is our responsibility to fund our kids college. But we do have a 529 plan for them with the intention of helping out a little. (Books?) We make a simple investment each month… the same dollar amount since Megan was born… and it adds up really fast! We have a few thousand bucks in that account already and it was completely pain free. Also, we’ve always taken the small checks for their birthday’s ($10, $20) and added that to their monthly investment. We still give them the money (of course!) but we want them to know later on that grandma and grandpa invested in their education and every little bit counts.
The key to all of this is starting now. It’s all about compounding interest to make your small investments today work for you later. (Remember 5th grade!) If you are 22 and just out of college…. this is the right time to get started! If you are 32 and haven’t gotten started… get on your horse and get it done.
Still got questions about this stuff? Ask a question in the comments and I’ll hunt down the answer.
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Getting Started in Investing, part one
I’d like to let my youth ministry friends in on a dirty little secret. While pay has dramatically improved for youth workers in the past two decades the most consistent reason people leave youth ministry once they reach their mid 30s and above is mounting financial pressure. In other words, there are some glass ceilings on the personal income side of things that will eventually cause you to look for higher paying work in the church or not in the church if you don’t plan ahead. Plan ahead and you relieve the pressure bit by bit. Don’t plan ahead and that pressure builds and leads to a catastrophic failure.
Here is a short list of those pressures:
– Housing expenses skyrocket: That rental gets old, doesn’t it? Buying a house can be great when you land in the same place for 10 years or more. But buy and sell a house a couple of times when you change jobs and you’ll quickly see that’s a bad strategy for financial security.
– Retirement savings becomes important: Most churches either don’t offer a retirement plan for their associate staff or it is extremely inadequate. Even if you are in a denomination that pays into a pension fund… getting ordained in order to get vested in that fund can be more costly than the pension you’d earn in the long run! (And with many mainline denominations tanking financially, you really need to wonder if that money will be there in 30 years.)
– Kids get more expensive as time goes on: When you first have babies you think diapers and formula is a blow to your budget. Just wait! Eventually those kids will need braces, outgrow clothes every two weeks, want to go to camp, need a car of their own, and gulp… want to go to college.
– Medical insurance won’t cover it all: Again, when you are young and/or first married this doesn’t seem important. But with premiums soaring churches are cutting back on benefits. So as you age into needing good insurance chances are your church is increasing co-pays and other out-of-pocket expenses.
– Pressure to keep up with your peers: There’s only so long you want to live like college kids. Eventually, you are going to want grown up furniture, go on nice vacations, and have a little extra something here and there. I don’t mean that you’ll get more materialistic as time goes on… but you just get sick of scrounging.
If you do nothing, eventually these pressures will leave you with no other option but to leave the ministry. You can do everything right in the 9-5 activity of working at your church. But if you don’t have a plan to address these mounting pressures, it will sneak up on you and the pressure will grow so intense that you may have no other option but to leave the job you love for a job that pays better. If the choice is lose your family or lose your ministry you will chose lose your ministry 100% of the time, right?
My goal for this series is to encourage those in youth ministry– you don’t have to bail out!
If you want to join along I will help you with a few basic strategies that will lessen these pressures. My hope is to help you stay in youth ministry longer. While things like soul care and youth ministry strategy are super important for staying in it for the long haul… I’m going to help you deal with the dirty little money secret that could eventually knock you out of ministry.
Part two: Dealing with debt and savings
Part three: COLA- and I don’t mean Pepsi or Coke.
Part four: 401ks, IRAs, 529 and other numbers that are important
Part five: Outside income opportunities