Three Plans for Your Financial Future

With God as your pilot, you can take control of your financial destination. You cannot control what the stock markets do, but you can control how much you allocate toward your goals. Leave nothing to chance. Stop relying on the government, stop counting on your company, and take responsibility for your future. There are three plans you can primarily focus on as a faith-based investor:

Path 1. The Government Plan

This is, in two words, “Social Security.” Nearly two thirds of today’s elderly count on Social Security as their primary source of income. Can you imagine that? Each year gas, groceries, health care, and other goods go up in value and their paychecks buy less and less. This is a plan for disaster. I have seen many elderly lose their homes and independence because they relied on the government to take care of them. Over time, this plan will not lead to financial independence – and who knows if Social Security will even be around when you retire?

Path 2. The Company Plan

For some this may be a pension. This may have been the case for many in the private sector years ago. However, according to the Employee Benefit Research Institute, less than 18 percent of those in the private sector today will be able to rely on any form of pension. Companies left and right are abandoning, freezing, and altering pension benefits mainly because people are living longer, thus severely increasing the costs to corporations. Even cash-rich private companies like Fidelity Investments are choosing to get out of the pension business for their employees. You may be saying, “Well, I have a 401(k) or 403(b) or another self-funding retirement option at work so I will be in good shape.” Maybe yes, maybe no!

There are three major problems with tax-deferred plans at work:

1. Limited Choices. For most, this provides two challenges: the limited ability to screen your investments for moral issues and the limited ability to find the best investment vehicles (place to get the highest potential return).

2. High Fees. Most retirement plan fees are hidden beneath layers and layers of costs assumed by mutual funds. There are the widely publicized expenses reflected in the prospectus of the mutual fund listed under the expense ratio. But there are also trading costs, commissions, and other fees that you can find only in what is called the Statement of Additional Information (SAI). These additional expenses are difficult to determine, but a 2007 analysis by Virginia Tech, the University of Virginia, and Boston College revealed that the average SAI charge is 1.44 percent per year. This is in addition to the 1.56 percent charged by the average Annual Expense Ratio. In other words, the total charge of the average mutual fund is 3.00 percent per year.

3. Tax Time Bomb. Make no mistake about it. The government knows how to generate future tax revenue at your expense. They do this by allowing you to take tax breaks today in exchange for much larger tax bills in the future. Many people just look at the tax benefits of tax deferral and neglect to factor in that what used to be a $5,000 tax write off is now a tax bill for tens or even hundreds of thousands of dollars. Uncle Sam is no fool. He’s figured out how to entice you into funding his future spending. Boy our government has been doing too much of this lately! Don’t even get me started!

Path 3. The Faith-Based Investment Plan

This plan allows you to better control your tax bill, your investment choices, and fees. Dr. Stanley Thomas, who wrote The Millionaire Next Door, simplified the basic guidelines that most millionaires followed. They maximized income, gave generously, minimized expenses, and invested regularly. It seems so simple, yet most struggle to do all four. Living below your means is the key! Are you willing to sacrifice short-term temporary pleasure to have greater freedom in the future? Knowing what God truly desires for your life is essential. Once you are in God’s will, He will fulfill the desires of your heart. You may be in preparation mode or already there. Know what you want and make choices that will lead you where you need to go.

Instead of freedom, most Americans fall for the “trappings of life”: a bigger house; a better car; the latest furnishings, clothing, and electronics. The banks, credit card companies, and other finance businesses have figured out that if they can trick you into assuming monthly payments, they will have you trapped for years paying high interest fees and charges. This trap wipes away wealth and prevents you from saving and giving more money to God’s work. The sacrifice of short-term happiness for eternal happiness is well worth making. In fact, it makes God smile! People don’t stumble into financial freedom; they choose a path that leads there over time. This freedom ultimately allows you more time to serve God and His people.

The Choices . . . Oh, the Choices

When you look at investing, there are really only five choices. Here’s a look at the classes of assets you’ll generally be considering when you invest:

Start or Operate a Company: Selling a product or service that meets the needs of the marketplace can be the fastest path to financial freedom. However, this can also be the riskiest and least likely to succeed when you evaluate your choices.

Stocks: Although past performance is no guarantee of future results, stocks have historically provided a higher average annual rate of return than other investments, including bonds and cash equivalents. However, stocks are generally more volatile than bonds or cash equivalents. Investing in stocks may be appropriate if your investment goals are long-term.

Bonds: Historically less volatile than stocks, bonds do not provide as much opportunity for growth as stocks do. When interest rates rise, bond values tend to fall, and when interest rates fall, bond values tend to rise. Because bonds offer fixed interest payments at regular intervals, they may be appropriate if you want regular income from your investments.

Cash Equivalents: Cash equivalents (or short-term instruments) such as money market funds offer a lower potential for growth than other types of assets but are the least volatile. They are subject to inflation risk, the chance that returns won’t outpace rising prices. They provide easier access to funds than longer-term investments and may be appropriate if your investment goals are short-term.

Alternative Assets: The term “alternative assets” is highly flexible and is used to describe specific physical assets, such as natural resources and real estate, as well as methods of investing, such as hedge funds and private equity. In some cases, even geographic regions, such as emerging global markets, are considered alternative assets. These are often investments that are unrelated to other asset types.