I recently read an article by a banking group called Mission Management and Consultants, LLC , who are mortgage bankers and project finance specialists. They work with nonprofits and schools in their financing needs.

According to their article, historically there were four components that bankers and underwriters would look at in determining a borrower’s fitness for a loan:

1. Income of the borrower (ability to pay the new loan)
2. Equity in the project (how much are they putting down, what % of the project is being financed)
3. Stability of the Leadership of the organization (how long has leadership been in place, what is the turnover rate for leadership, etc.)
4. Stability of congregation (if a religious organization) or enrollment (if school)

After all that has happened in the economy, the article talked about bankers using a fifth component – Liquidity when looking at credit approval. Liquidity is a measure of cash on hand. Based on their requirements, they like to see at least 4-6 months of operating reserves in place.

Although individuals are not companies or nonprofits, these 5 components are not bad measures for us to use – especially if we are thinking about taking out loans for cars, projects, etc.

• Is our income adequate to service our current debt without that debt being a burden?
• Are we putting enough down on the project? I would never recommend putting 0% down. I think the old rule of at least 20% down is still a good guideline. If you can’t do that, you may want to rethink going ahead.
• How stable is your family situation? Is divorce on the horizon? Are there major changes coming – a new baby, sickness or death of a loved one? These life events need to be factored in.
• How stable is your work environment? Is your industry prone to layoffs? Your company stable?
• Do you have an adequate emergency fund (liquidity)?

Although these are not all the factors, it is a good place to start to evaluate your current financial situation. With these 5 factors in mind, how are you financially?

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Children are expensive. And as my children are getting older (7, 8, and 9) and they start doing extracurricular activities, it can get very expensive. But so far my wife and I have been able to keep the costs down – some of that is through diligence, some of it is because of the kindness of others.

For instance, when our girls were a little younger they had an interest in ballet. Well, ballet can cost $25 or more per week per child. With three girls that would be $300 a month, which is pretty serious money. However, my wife was reading our local free paper and saw an advertisement for a ballet school not far from us, and the name of the instructor rang a bell. She called up, and here it was a classmate from college. They reconnected, and out of kindness she let our girls come for free!

Last Fall one of our girls wanted to try horseback riding. My wife found someone willing to trade services – horseback riding for homeschool evaluations. So we swapped and everyone was happy.

Our oldest girl wanted to try soccer. We looked and looked. Everything was multiple practices, games on Sunday (occupational hazard – we cannot do anything on Sunday since I am a Pastor). Finally, we saw in our local free paper that there was going to be a noncompetitive soccer “league” for boys and girls that only met once a week on Saturdays for about nine weeks – and it was only $35!. We were thrilled, my daughter was thrilled.

Finally, our middle daughter wanted to try piano. Again, Piano can be expensive. So we asked around, and we continued to ask around, even asking friends of friends. We came across a lady who loves piano, who has been giving lessons for years, and she only charges $20 a month (yes that’s right – $20 a month!) for weekly lessons. This women loves piano and she wants others to learn to love the piano also and she doesn’t want cost to be a barrier. Our daughter had her first lesson last night and this lady was fantastic – definitely the right choice.

All of this to say that if you are willing to work hard, keep your eyes and ears open and really search, you can find activities for your children that do not cost an arm and a leg. And everyone will be the richer for it – your children for the experiences, and you in your pocketbook!

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We live on a hill, and our driveway goes down hill from the street to our garage. So everyday now for the past four or five days, the wind blows the snow down the driveway to the bottom toward the garage doors where it melts in the sun then freezes into ice before I get home. So now I have an ice skating rink at the bottom of my driveway!

So yesterday I had to go and buy more snow melt – 100 lbs of it! This was definitely not in the budget. My arms are tired, my back is tired. My wallet is tired. I am so ready for Spring. Even my girls yesterday were talking about how they can’t wait for Summer – when children are tired of snow you know you have had enough!

So this afternoon (I have a 1/2 day) I will do battle once again with the elements and see if I can get my driveway semi-cleared so we can park back into our own garage.

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Pharaoh of Egypt had a dream of the future. Joseph had the plan for the future. In Genesis chapter 41 we learn about Pharaoh having a dream – fat cows and ugly cows, plump ears of grain and thin grain, with the ugly and the thin eating up the fat and the plump. Joseph understood – there would be seven years of plenty followed by seven years of famine. So Joseph had a plan to gather a fifth of all the food of the good years and store it for the lean years. Joseph in essence set up an emergency fund. In verse 37 of chapter 41 we hear Pharaoh’s reply to Joseph’s plan – “Now the proposal seemed good to Pharaoh and to all his servants.”

I think Joseph’s proposal is good for all of us. Although we cannot know the future, that does not mean that we should not have a plan for both good and lean years. Part of that plan should be to have an emergency fund for lean times, and some savings for retirement when working income may be little or nothing.

Maybe you won’t be a hero to Pharaoh and a nation like Joseph, but by saving some money for a “rainy day” you just might be a hero to your family!

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Our house has gremlins, I swear it! Last night right as I was getting ready to heat my leftovers for supper, the microwave broke! Of course we called to see what it would cost to fix it- between the fee for the service call and the parts, better off to buy a new one!

So the tally of broken items is now at five:

1. Well Pump
2. Two Windows
3. Water Heater
4. Water Treatment System (Kinetico)
5. Microwave

Our emergency fund has taken quite a beating! Once again I will be going over our budget to see if we can scrape a few more dollars out to save (and to pay bills). We sure have done our part to help the economy – can someone else do their part now?

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As part of my work at the church I do volunteer financial counseling.  A while back I met with an individual who had concerns about their finances – they just couldn’t get all their bills paid, had some credit card debt, and wanted me to look over their finances. So I went over to their place and we took a look at what was going on in their financial life.

One of the first things that I did was try to get an understanding of their monthly income and expenses. This way I could see quickly where they were financially – did they have enough money to meet expenses or were they digging themselves into a financial hole? Basically it is just putting down on paper what their “budget” is.

When I finished calculating their monthly income and expenses, I had to tell them that before taking money out for groceries (they weren’t sure how much they spent on that) they were already spending more per month than they were earning per month!

So I went over their spending and found a few areas they could trim. One of them was their T.V. expenses. They were spending over $100 a month on satellite and accessories. So I suggested that they cut back.  They just looked at me. So I repeated that they didn’t have any money in their budget for groceries so they had to choose between eating or watching T.V. Again, no response. I wrapped up the meeting as best as I could and thanked them for their time and willingness to have me come over.

This person was asking me for help. They knew that their finances were in trouble. But when it came down to choices, they were not willing to change their lifestyle, even if that meant no food! Financial choices are hard to make.

Budgeting is a simple concept, but it is very hard to do. We (and I include myself) do not like to deny ourselves. We want things, and we want it now, sometimes regardless of the price we will pay later. Living on a budget is not for sissy’s. It is hard. But the rewards are worth it.

P.S. The actual story above is true, but the events & situations have been modified to protect the identity of everyone involved.

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In January of 2009 we refinanced our mortgage, lowering our interest rate from 5.5% to 4.75%. So how did we do last year? We lowered our outstanding balance from $144,100 to $140,901. Our mortgage payment is $751.70 (interest and principal only). To that we paid an extra $110.30 per month for 10 months (beginning in March). So we paid an extra $1,103 last year. Plus, our credit card, instead of cash back pays our mortgage, so from that we paid an extra $225. We paid a total of $3,199 off in total principal last year in basically 10 months. Not bad.

Hopefully this year we can make an even bigger dent into that principal. I would love to pay this off in 15 years and save all those “pennies” in interest, but we would have to drastically increase our payments. Since banks aren’t paying any interest right now, I would rather get a 4.75% return on my pennies (savings on the interest from the loan) than the 1% the banks are giving. However, right now we have to focus on our emergency fund and get that built back up first since our “water” emergencies have drained our fund. After that is built up, maybe we can shift focus.

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As we usually do at the beginning of each year, my wife and I have been discussing some goals for this year. In light of our recent emergency expenditures (replacing 2 leaky windows, new well pump, new hot water heater)  our goals have been greatly reduced! We have realized that our emergency fund is just not big enough. So our goals for 2010 are pretty simple:

1. Refund and build up emergency fund
2. Increase our home maintenance budget
3. Finish hallway and bathroom project (fix drywall, seal, skim coat, paint)

Pretty short list! But I want to be very focused and the #1 goal is going to take most of our financial effort. If we have too many goals we would probably not make any of them – better to succeed at a few than fail on a lot!

What are your financial goals for 2010?

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If you’ve been following this saga, you know that at first we had too much water coming through a window (window was rotting and needed replaced) and not enough water coming through our well (well pump died).

Last night water stopped coming through our faucets, etc. I checked downstairs and our filtration system looks clogged again – we just had it thoroughly cleaned 10 days ago so there is a definite problem. So once again we need to call in a repairman to see if we can get this thing fixed.

The water is stopping up and the money is pouring out! Although we haven’t received all the bills from the various breakdowns in the past month, I think we have emptied our emergency fund. It is now time to seriously cut back so we don’t have to go into any debt. Ugh!

But I don’t want to end the year on a down note, so I am very thankful:

• fantastic wife
• wonderful children
• all the bills we have received have been paid!
• Our health is good
• I love my work

So, I hope you have a wonderful New Year and that you will take time to reflect on your blessings! Happy new Year!

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A lot of people at this time of year like to make New Year’s Resolutions. I don’t. I like to set goals. The difference? A New Year’s Resolution is usually a wish, a generic “I would like to…”. Goals on the other hand are specific, measurable, and attainable.

I sit down (usually with my wife) and I map out where we would like to be at the end of the year – whether it is financially or some other area of our life. Then I sit down to determine how to measure that goal, and the steps it will take to achieve it.

For example, our Emergency Fund has taken several  big hits recently (windows and a well pump). So one of my goals for next year is to build back up our emergency fund. Now that is still too general – a good goal will state how much I want to put into the emergency fund this year (specific, say $3000), and the steps I will take to achieve that. With money, it is pretty easy to set goals because money is measurable (either I will have put the money into the emergency fund or not).

I believe it is very important to set goals, especially financial ones. Otherwise, you will be tempted to spend your money on whatever comes along rather than having an objective for your money. If you don’t know where you are going, than any road will take you there.I hope we all know where we are going financially.

What are some of your financial goals for this year? Share in the comments where you are headed this year. I will close this post with one of my favorite quotes – “Failing to plan is planning to fail.”

Have a great New Year!

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