During my years of full-time pastoral ministry, I participated in the occasional seminar on financial planning offered through my denomination. I learned about the church-sponsored benefit and pension plans, saving for retirement, and about socially responsible investing. I was encouraged to learn more and plan for my particular situation by contacting an advisor and checking out the related website.
All of that was helpful, but it was also mainly focused on the church pension plan, and understandably so. But there’s a lot more to financial planning than that. So when I heard that my friend, Russell Sawatsky, had started Money Architect Financial Planning, I invited him to give an overview of personal finance tips for pastors and other church workers. Some of the tips below are uniquely Canadian, but the general principles apply to anyone. I find the list a helpful financial health check up, and perhaps you will too. Thank you, Russell, for sharing your expertise!
10 Personal Finance Tips for Pastors
and Other Church Workers
by Russell J. Sawatsky
Pastors and church workers, like everyone else, must manage their finances. Some financial matters come around like clockwork, such as paying your utilities, mortgage, or rent. Other factors mean attending to investments, insurance, taxation, your plans for retirement, and getting the paperwork in place for the day you die.
Over the years as I transitioned from working for the church to working in finance, I became acquainted with some of the practices that can help or hinder you in your financial journey. People often think that financial planning is mostly about setting up an investment plan—“Here are the mutual funds I recommend”—but there is so much more to it than that. While hardly comprehensive, my goal with this ten-point summary is to bring awareness to the range of concerns associated with your personal finances.
1. Watch your cash flow
Cash flow is a jargon-y term for your income and expenses. These days, most people have computers with spreadsheet software that makes tracking cash flow easy. Furthermore, most financial institutions allow you to download a formatted list of your transactions, making information all that much easier to obtain. The main advantage with a spreadsheet is that you can filter the data to better clarify how your money is being spent.
2. Track your net worth annually
To figure out your net worth, add up all that you own and subtract all that you owe. Written differently: Assets – Liabilities = Net Worth.
Net worth gives you a snapshot in time regarding your financial health. If your cash flow is positive, over time you should see your net worth increase.
3. Set up an emergency fund
There are many demands on our money. For the most part, they are recurring expenses: rent or mortgage payments, utilities, food, insurance, etc. You may be managing just fine, but what happens if you lose or leave your job, especially if you receive only minimal severance, or none at all?
An emergency fund won’t make the pain of a job loss go away, but at least you know you can take the time to look for different employment. How much should you set aside? The rule of thumb is three to six months of household living expenses. If you set aside a small amount each month, treating it like a bill that must be paid, eventually you will reach your target.
4. Watch out for bank fees
Most banks charge a fee to have a chequing account. However, there are online financial institutions available that will pay interest on your deposits and do not charge fees. If you prefer to stay with your present bank or credit union, you may be able to obtain a fee waiver if your account exceeds a certain minimum balance. If that is not an option, review your account behaviour over the last several months to see if you might be paying for a costlier premium account when you only require low-cost basic services.
5. Pay down your credit card
Pay off your credit card each month. Credit cards routinely charge in the neighbourhood of 19 percent interest. For example, if you pay $90 per month to pay down a $3000 debt, it will take you four years and cost you almost $1300 more in interest.
Scholars have observed that credit cards create relatively little “pain of paying” because handing over plastic feels less like real money than cash. This insight has led some people to avoid credit cards. Instead, they use debit cards or pay in cash because their account balance is affected immediately.
If you prefer to keep using credit cards, consider setting up automatic payments so that the full balance owed is paid from your bank account every month.
6. Recognize compound interest as a double-edged sword
“Compound interest is the most powerful force in the universe.” – Albert Einstein (attributed)
Although Einstein might not have said it, compound interest can still have a powerful impact on your life.
Imagine that you have gone to your local financial institution to arrange a loan. The contract stipulates the following:
- Loan amount: $50,000
- Term of the loan: 60 months (5 years)
- Annual interest rate: 5 percent, compounded monthly
- Monthly payments: $943.56
- Total interest paid: $6,613.70.
Let’s turn that around. Imagine that you are debt free and receive an unexpected inheritance which you decide to invest. The terms are as follows:
- Investment amount: $50,000
- Investment maturity: 5 years
- Annual interest rate: 5 percent, compounded annually
- Total interest earned: $13,814.08
Why does the investor earn so much more than the borrower pays? The scenarios are slightly different. In the borrower’s case, payments are made on a monthly basis, slowly decreasing the principal owed. In the investor’s case, the investment is not paid back until the end of the five-year term, so the investor is earning interest on both the principal ($50,000) and the accumulated interest. Interest is earned on interest, also known as compound interest.
7. Establish a will and powers of attorney
If you are married and/or have children, you should have a will. Every province regulates the disposition of the estate of a person who dies intestate (without a will). However, those regulations may not result in a situation that you and your loved ones would want. Get everything worked out so that in the event of an unanticipated death, the legal aspects—including who will become the guardian of your orphaned children—can be taken care of with a minimum of effort.
Everyone should also have a power of attorney for property and a power of attorney for personal care (called a representation agreement in British Columbia). The first one is used to take care of your financial affairs if you are no longer able to do so yourself. The second type, for personal care, allows someone to make decisions on your behalf with respect to health matters. This is a grave responsibility. Your appointed attorney may have to decide whether you should receive continuing life support in the event of a life-threatening injury.
Note that a will is effective after you die, whereas a power of attorney ceases once you have died.
8. Make sure you have the benefits you need
While life insurance is generally appropriate, relatively few have disability insurance. Statistically, however, you are much more likely to be temporarily disabled by disease or injury than you are to die. If you work for the church, or anywhere else, you should have disability insurance.
9. Automate everything
Instead of budgeting, determine what you routinely spend and automate those payments. That can include utilities, property tax, and credit cards. Consider automating your savings: monthly payments to your Registered Retirement Savings Plan (RRSP), Tax Free Savings Account (TFSA), Registered Education Savings Plan (RESP), and your emergency fund. Many churches and other charities also facilitate pre-authorized monthly donations. After those expenses are taken care of, the balance is yours to use as you see fit.
10. Consider drawing down your RRSP or Registered Retirement Income Fund (RRIF) sooner in order to defer the start date of your Canada Pension Plan (CPP)
If you are nearing retirement you may want to defer CPP until after 65. You get a bump of 0.7% per month delayed, or 8.4% per year. If you anticipate that you will live past your mid-80s, this could be a good strategy. Although not as good as deferring CPP, deferring Old Age Security (OAS) past age 65 also yields a bonus of 0.6% per month or 7.2% per year. Both CPP and OAS are inflation-adjusted.
Russell J. Sawatsky is a fee-for-service, advice-only financial planner. Born and raised in Chilliwack, BC, Russ spent ten years as a missionary in Japan and four years as a pastor in London, Ontario. He was subsequently employed at a discount brokerage for fourteen years before founding Money Architect Financial Planning in 2019. Russ is a graduate of the British Columbia Institute of Technology, Columbia Bible Institute (now College), Canadian Mennonite Bible College (now University), University of Winnipeg, and Associated (now Anabaptist) Mennonite Biblical Seminary. He holds the following financial credentials: Canadian Investment Manager, Certificate in Advanced Investment Advice, and the FPSC Level 1 Certificate in Financial Planning. Russ and his wife, Etsuko, have four adult children. They are members of Valleyview Mennonite Church, London, Ontario.
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Great tips!
Yes, great tips for couples and singles too. Thanks for stopping by!