IRAs for Dummies

Whether you love or hate your job, there is one certainty when it comes to your employment; it will end. That’s right, at some point, sooner or later, everyone will retire. But, did you know, nearly half of Americans are worried about not having enough money when they retire? That’s disheartening. But one of the things you can do to prepare for the inevitable is to take advantage of tax-favored, government sanctioned, saving arrangements such as IRAs.

What exactly is an IRA? Well, its an acronym for Individual Retirement Arrangement (the “a” does not stand for account) and they are tax-favored personal savings arrangements, which allow an investor to set aside money for retirement. When Congress passed the provisions for IRAs into law in 1974, they instantly became popular, and over the years IRAs have become a viable investment strategy that has enormous potential for building wealth to be used in retirement. Now there are different variants such as traditional IRAs, Roth IRAs, SD-IRAs, SIMPLE IRAs, and SEP IRAs, that allow virtually anyone who earns an income to start preparing for retirement.

IRAs act as investment accounts for individuals, but they are held by custodians such as Fidelity, Merrill Lynch, Charles Schwab, Edward Jones, etc. (you get the picture). These custodians are legally obligated to manage an investor’s account although they have no decision-making power. Custodians also help to ensure that all investment actions are in accordance with the law and, they provide the proper paper work to be filled with the IRS (Internal Revenue Service). In other words, custodians work to make sure investors stay out of trouble!

IRAs have a lot of advantages that make them extremely popular. To list a few:

* For starter, IRAs have tax benefits. The investments within an IRA may grow tax-deferred (meaning the taxes are to be paid at a later date) or tax-free depending on the type of IRA. But, in either case, both are advantageous to the investor.

* Secondly, IRAs can be used to hold many different types of investments. Cash, stocks, bonds, mutual funds, and even some types of real estate are also qualified investments according to the IRS which gives investors options (and options are always a good thing) and the potential to reduce the amount of taxes owed in many areas. But other items like life insurance plans, antiques, collectibles, and coins cannot be held in an IRA.

* Thirdly, there is no limit to the value an IRA nor is there any limit to the number of IRAs a single individual can own. A individual can have one IRA that grows to be work worth billions, or several small IRAs.

* Fourthly, there are a number of ways to fund an IRA. An IRA can be funded with cash contributions or other qualifying plans such as 401ks and other IRAs can be “rolled over” into a single IRA for consolidation purposes.

* And lastly, there are no income limits for anyone who wants to contribute to an IRA. Whether you make $20,000/year or $2 billion/year in earned income, this is an investment option for you!

As great as IRAs are, they also have some limitations. Some being:

* The annual allowable cash contributions are relatively low. The federal limit is $5,500 annually for people under 50 and only $6,500 for those 50 and older.

* The investments inside IRAs CANNOT be used before the owner is 59 ½ years old. Investments withdrawn before 59 ½ are subject to taxes and a penalty for early withdrawing. In other words, the investments that are being grown for retirement (remember what the “r” stand for in IRA), MUST stay in the IRA.

* Only the owner of an IRA can contribute to an IRA.

This Money Matters article is not meant to be a “Complete D.I.Y. (Do-It-Yourself) Guide to IRAs”, but more like a “IRAs for Dummies” article. There is more to know, and I highly recommend you learn more in your quest for financial freedom.

In Ecclesiastes 11:1-2, Solomon, the author says, “cast your bread upon the waters: for thou shall find it after many days. Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth.” As it relates to investments, Solomon is speaking to the wisdom of diversification. In other words, “don’t put all your eggs in one basket”. IRAs are very popular and are an effective method for preparing for retirement. They also offer some diversity to a retirement portfolio. With retirement coming, wouldn’t you want to be as well prepared as possible? An IRA could be another stream of income in your golden years! I encourage you to use Godly wisdom and prepare for retirement. Do some investigating, and see if an IRA makes sense for you. God Bless

An Introduction to the Stock Market

Did you know the stock market has been around for over 400 years?  The first stock market was established in 1602 in Amsterdam, and the first American stock exchange was formed in Philadelphia in 1790.  And being stock exchanges are such a large part of the American economy, I figured it was worth mentioning.

To understand stock exchanges, you, first, have to understand stocks.  Stocks, or shares, are simply small piercing a company.  When companies such as Walmart, or Home Depot, issue shares or stock, they are in a sense, are selling part of their business.  They, in turn, take the money they raised from selling shares and use it to build their business.  As their business grows, the company hopefully becomes more valuable.  And as the company’s value grows, the value of each share increases.  Thus, the possessors of the stock have the shares have the potential to make money from the increasing value of the company.

You might be asking, ‘How do the investors, those who have the stock or shares, make money?’  The answer is simple.  As the value of a company increases or decreases, the demand for stock in the company, or a piece of that company, follows.  A company that is doing well, or is anticipated to do well, will generate “excitement” and the shares of stock can be traded or sold for a higher price.  This trading usually takes place at a designated location called an exchange or a market; like the New York Stock Exchange (NYSE) or the NASDAQ.  And to make sure there is no cheating by companies and investors, there are lots of government agencies like the SEC (Securities and Exchange Commission) that provide ground rules to regulate trading.

There are literally thousands and thousands of companies that issue stock to raise money; some are very large and some are smaller.  Very large companies like Microsoft, JP Morgan Chase, and Exxon-Mobil are very influential to the economy, and the values of these companies are tracked and monitored through what is called an index.  Although an index such as the Dow Jones, or the S&P 500, or the NASDAQ, is often used to portend the trend of the nation’s economy as a whole, they are quite different.  For example, the Dow Jones only tracks 30 different companies!  It includes entities such as Apple, Coca-Cola, Johnson & Johnson, Verizon, Walmart and a host of other mega-companies.  The S&P 500 is different.  The S&P tracks 500 different companies!  It will also track companies such as Apple, Coca-Cola, Johnson & Johnson, but will include businesses Apple, Facebook, Macy’s, Netflix and many more.  Being the S&P monitors so many different companies that span so many different segments of the American economy, it is often thought to be a better indicator of the nation’s economy over the Dow Jones.  The NASDAQ index is even broader.  It tracks over 3,300 different companies, funds, and stocks.  The NASDAQ is not limited to US-based companies, which makes it more of an indicator of the global economy.


Money Matters-High Interest Rates on Investments

Very few people save their way to becoming wealthy. Instead, people who have gained a measurable amount of wealth tend to invest their money into appreciating assets that, over time, are worth more. Appreciating assets such as real estate, stocks, mutual funds, bonds, CDs (certificate of deposits), annuities, and a whole host of other opportunities are purchased with the expectation that their value will grow and increase the buying power of the money invested. With so many different options, it can be quite overwhelming when attempting to grasp all the information available for each investment opportunity to know which is right for you. So how do you know what a “good” investment is?

Any investing advisor worth their salt would advise any investor to consider a few factors such as the risk, volatility, liquidity, and history of the investment to evaluate the quality of an opportunity. But, of all the metrics used, one of the most popular is the interest rate or the “return rate” of the investment.

When it comes to investments and their earnings, interest rates can be simply be defined as the rate of increase of the value of an investment. Basically, it’s a measure of how hard your money is working to make more money! The higher the interest rate, the harder the investment is working, and the more money the investment is making. If an investment has a negative interest rate for a period of time, it actually lost value over that period. Inflation is a great example. Inflation can simply be defined as the rate at which money loses value over time. As time passes, money is worthless and it cost more money to buy the same items. Money loses its buying power. I know nobody likes to lose money! But the reality is all investments are subject to inflation and all investments will have times where they have negative returns. It’s just something that happens.

What is a good interest rate for an investment? It depends on your goals. Consider the following information in an example to demonstrate the power of high investment return rates.
• CDs have averaged 3.73% returns in the last 30 years.
• Bonds have averaged 4.3% returns in the last 30 years.
• Stocks have averaged 11.5% returns in the last 30 years.
• Inflation has averaged 2.6% over the last 30 years.

Assume a $10,000 investment in made in either CDs, bonds, or stocks 30 years ago.
• A $10,000 investment in CDs would grow to almost $28,922 today.
• A $10,000 investment in bonds would grow to almost $33,904 today.
• A $10,000 investment in stocks would grow to almost $234,948 today.

All three investments look fantastic, right? Well, maybe until you consider inflation. Remember, inflation devalues money and reduces buying power. Inflation has averaged -2.6% for the last 30 years. Because of inflation, the $10,000 invested has been devalued. So now, 30 years later, it takes more than $21,111 to have the same buying power as the $10,000 had 30 years ago. So, $21,111 has to be subtracted from the investment returns as an adjustment because of inflation.

• The buying power of the investment in CDs is reduced by $21,111 to $7,811.
• The buying power of the investment in bonds is reduced by $21,111 to $12,793.
• The buying power of the investment in stocks is reduced by $21,111 to $213,837.

By investing in CDs and bonds, money was made, but it was not impressive considering it took 30 years. But if we look at stocks that have a higher return, the story is different. Even considering inflation, the buying power has still increased to almost $214,000! Now we are building some wealth! This is more than 27X better than the investment in CDs and more than 16X better than investing in bonds.

The whole point of this Money Matters article is to demonstrate the effect a high-interest rate has on the growth of an investment. But a high-interest rate is not the only factor that should be considered. You should think about risk. Although stocks offer high return rates, they also are at high risk. And, on the other side, CDs offer the very low returns, their return rate is guaranteed. I’m not saying investments that have low returns are “bad” investments, but you do have to curb your expectations. If you are looking to grow wealth, CDs and bonds are probably not going to get you to want to be.

A good investment portfolio will have a mixture of investments, and subsequently, the investments will have different return rates. Regardless of your investment mixture, it’s important to understand where, and how, your money is invested. There is no need to try this by yourself! It’s just not wise. If you want to invest, I highly, highly recommend getting a trained professional to explain your investment options and the consequences of each. The bible says, “Wisdom is found in a multitude of counsel” (Proverbs 11:14, 15:22, 24:6), so get professional help and become the best steward you can be! God bless!

Money Matters-Ingredients in a Recipe of Financial Success

The best cooks use the right ingredients, with the right proportions, to make the best meals! They have mastered the art of getting all the ingredients to work in concert to bring out the most flavor in their dish. Each ingredient adds something extra, that when mixed with the other ingredients, enhances the entire meal. A strong financial plan is no different. Because money affects just about all aspects of our lives we need several different financial ingredients to address different financial needs throughout our lifetime.

Just as a chef knows what they want to make in the kitchen, you should know where you want to go financially. In other words, you should have a vision. The vision you have will give you a target to focus on and provide some directions to your finances. Your financial vision should be too great to just keep it in your head! Write it down! When it is on paper, it is tangible and you can be held accountable for it! And when it is on paper, you can make a budget, or a recipe to detail how you and God are going to accomplish your vision!

All good financial recipes have an element of savings. If you want to win with money, you MUST be a consistent saver. There is no way around it! According to a recent GoBankingRates survey, 69% of Americans have less than $1,000 in savings, and 34% have no money whatsoever. Sporadically, putting money away from time to time is too unstructured and it makes hard to set goals and properly track progress; it throws your recipe off! Consequently, the amount of money you can save is directly related to the money you spend. You MUST get your spending under control and work to eliminate debt in your life. The less debt you have, the more you can save, and the more financially successful you will be!

Many times when financial plans are talked about, insurances are left out of the discussion. Insurances have only one job; to protect the insured. That’s it! They are not meant to be investments (meaning they are not meant to make you money). Insurances cost money, but they help protect your financial future. Did you know medical bills are reported to be the number cause for personal bankruptcies?! When you couple this with the fact that an estimated 40% of Americans rack up debt resulting in medical bills, it is easy to see how not enough money and inadequate insurance coverage can ruin your financial plan.

Every good and complete financial recipe has some form of investing. Although investing may not be an ingredient you add right now because of debt, it needs to be added to your recipe at some point if you ever hope to make progress financially. Investing is the best way to put your money to work. You work hard for your money. Investing allows your money to return the favor! There are many different types of investments with some of the more popular ones being stocks, mutual funds, real estate, and when you include retirement investing you have to consider 401ks, TSPs, IRAs, and the like. Investments create wealth and over time, these investments have proven to be worth more than they cost making them valuable assets in your financial plan.

And the final ingredient in our discussion is a transitioning plan. Building wealth can take a long time. It can even take generations. But all the hard work, saving, investing, and wise decision making can be wasted if it is not properly transferred to the intended beneficiary. This where wills and trust add value to your financial recipe. Wills and trusts allow an estate to be managed in your absence; they help transition your hard-earned wealth as you wish. They help eliminate family feud as they layout specific instructions on how to handle an estate.

The ingredients in this article are not an exhaustive list. There is a lot of details not mentioned that need to be vetted to ensure you are making the best choice for you and your family. Savings, eliminating debt, investing, and estate planning are good money management practices and, at some level, are part of a strong financial plan. So, it’s time to do some reflection on your own financial plan. And we can help you with that! Financial Peace University is being offered at the church again! It will be starting on August 8th (which is a Wednesday night) from 6pm-7pm and will run for 9 consecutive weeks. Registration is open now in the bookstore! If you have any questions, you can email us at Come on out and join us. Your financial future cannot wait any longer!

Money Matters-Crock Pots vs. Microwaves

Anybody that knows anything about cooking knows a crock pot is a must-have in the kitchen. A crockpot is a counter cooking kitchen appliance used to simmer and slow boil foods (the operative word here is, slow) at low temperatures. It is a great way to get the most flavor out of meats! Cooking with a crockpot is usually pretty simple. Just add water, the meat, the seasoning, and the vegetables. Put it all in the pot, turn it on, and wait. You should check on the meal from time to time, and make small adjustments, be there is not a lot to it.

Microwaves are very different from crock pots, but they are also a must-have in any modern kitchen. Microwaves heat up foods by using high-intensity radiation waves to excite the molecules in the food. As the molecules get excited, they move. And this movement creates heat which warms the food. Whole meals can be put together on a plate or in some plastic or ceramic container and the microwave can be used to heat them up; taking them from frozen to editable in just a few minutes.

Crock pots are slow and deliberate while microwaves are seen as the quick and easy option. When it comes to building wealth, we should be crock pots and not microwaves. Building wealth is not meant to be a fast process. God gives us directions as it relates to wealth building but they are not meant to be a formula that takes us from rags-to-riches overnight! Building wealth comes from consistently making smart decisions over a long period of time. I know there are examples in the bible where situations turn from the worst in a blink-of-an-eye, and that speaks to the awesomeness and omnipotence of God. And we take those stories, as we should, and use them for encouragement and as fuel to power through the tough, and often unpredictable, situations that happen in life. But we have to ask ourselves, ‘is that how it is supposed to be on a regular basis? Are we to live in a state of desperation our whole lives waiting for God to rescue us?’ Absolutely not. We are to live victoriously. And we can start to live victoriously by consistently making victorious decisions. Financially speaking, if we steadily save and invest and constantly avoid debt we will prosper. I guarantee it because the bible says so!

So, what does the bible say about “instant wealth”? Proverbs 13:11 says “Wealth gained hastily will dwindle, but whoever will gain little by little, will prosper.” Proverbs 28:20 says, “A faithful man will abound in blessings, but whosoever rushes to be rich, will not go unpunished.” And Proverbs 20:21 says, “An inheritance may be gotten hastily at the beginning, but the end thereof shall not be blessed.” These are just a few but, nevertheless, strong warnings against “instant wealth”. But why is God so concerned about quick riches? It’s not the money that concerns Him! Money, in and of itself, is amoral; meaning it is neither good nor bad. Money is just a tool. The same money that is used to do something harmful, like buy drugs, can be used to do something good, like feed the homeless. The money doesn’t care! It is the character of the one who manages the money is what concerns God. Money in the hands of the immoral is spent immorally, and money in the hands of the responsible is spent responsibly. God wants his people to have good financial character, and good character does not come quickly or easily. It is forged over time through consistency.

Just as food that has been carefully prepared and slow cooked for hours is so much more flavorful than food that is cooked in the microwave, our financial future will so much more filling if we take the slow and steady approach vs the get-rich-over-night method. It just takes time to build wealth. I know we want it now, but God has warned us against the “quick buck”. The sooner we accept that obtaining wealth is a process and not an event, the sooner we can get started moving toward rightfully possessing what God has decreed as ours! I don’t know about you but I’m ready to get cooking. In next months article, we will discuss the ingredients we want to include our financial recipe. So, get your mind right and get over the fact that is going to take some time. We have work to do and wealth to build. Be blessed.

The Freedom of Being Debt-Free

There is a certain freedom experienced when you choose to live debt-free. It seems like when I talk to people about being debt-free, a very common response I get sounds something like the following: “Well, I’m not debt-free, but I’m good with money.” This common response calls me to dig a little deeper so I inquire a little harder and ask, “What do you mean, by ‘you are good with money’?” And in response, I hear, “I mean, I can pay my bills”. Debt is so common in our society we don’t think anything of it; as long as we can pay the bills. Unfortunately, that has become the new hallmark of financial fitness. This is a popular ideology adopted in our culture today, and if it is not corrected, it will have generational consequences. But before we dive into that, let’s see what the bible says about debt.

Proverbs 22:7 says, “The rich ruleth over the poor, and the borrower is servant to the lender.” It is interesting that the Bible uses such strong language when the writer chose to use the word “slave”. I don’t want to be a slave to anybody or anything! Thanks to Jesus Christ, by the way of Calvary and the 13th Amendment, I am not a slave to anything or anybody (if I choose not to be). However, when we choose to “put something on credit”, or finance a purchase, and yes, even take “same as cash” offers, we chose bondage. We make ourselves servants or, to stick with the strength of the biblical language, we choose slavery. Why would you choose bondage?

Poor choices, unabated, grow into poor behaviors which are perpetuated to the next generation. That is how generational curses get started. I know some people might not believe in generational curses, but they do exist. Everybody knows of a group of people or a family that seems to struggle with a vice whether it’s poverty, alcoholism, or gambling; and that same vice is present in multiple generations. Are they cursed? Are some of the hurdles they face the result of poor decisions being repeated generation after generation? If this is the case, they are choosing to be cursed; they are cursing themselves. Some curses can be broken simply by making better life choices.

And so it is with money choices. If you choose debt, (i.e. credit cards, finance charges, etc.) you are choosing to live under a curse; the curse of being obligated to man.

Being debt free means I am choosing to possess the freedom available to me. I am choosing to go against “the normal” practices and “conventional” ways of handling money. I am choosing to prioritize my financial obligations over my wants. I am choosing my fiscal responsibilities over my exaggerated desires. I am choosing to save money to make purchases, although it may take longer, instead of settling for the quick option of credit. I am choosing to sacrifice now, so I can win this money game later. I am choosing a little pain for my later gain. I am choosing to handle my finances biblically and be a good steward. I am choosing to be obedient to the order of God to owe no man but to love him (Rom. 13:8). I am choosing liberty over slavery.