“Five Steps to Financial Well-Being,” Ensign, Mar. 2004, 66–71
“What are we going to do, Todd?” Mary pleaded as she surveyed the late notices, account statements, and documents threatening foreclosure that littered the kitchen table. Todd gazed at the calculations on his note pad. “I don’t know,” he mumbled. “I just don’t know.”
Todd and Mary (names have been changed) are months behind on bills and are in serious financial trouble. Creditors are threatening to foreclose on their home and repossess their cars, boat, and other possessions. Five credit cards are maxed out. Todd and Mary again waited until the end of the year to pay tithing. In the past, a cash advance from a credit card or “borrowing” money from their retirement account always worked, but none of the regular sources are available this year. Todd and Mary have considered getting additional credit cards to pay their bills. It appears that the only other solution is for Mary to find a job and earn “extra” money. For Todd and Mary, and many like them, managing finances seems to be an impossible task. But there is hope. By following prophetic counsel on five simple steps, anyone can obtain and maintain financial well-being.
The most important step toward achieving financial well-being is to pay tithing first—no excuses and no exceptions. President Gordon B. Hinckley counseled: “Some of you have money problems. I know that. There is never enough money in your homes. I know that. You are struggling to get along. What is the cure? The only thing I know of is payment of tithing. … It was God who made the promise that He would open the windows of heaven and pour down blessings upon those who walked honestly with Him in the payment of their tithes and offerings, and He has the capacity to keep His promise.”1
The Lord has repeatedly commanded His people to pay tithing.2 Tithing tests our faith, but the Lord blesses us bountifully when we faithfully obey His commandment. Simple, unquestioning faith and strict obedience in observing the law of tithing result in miraculous blessings; they are vital to both our financial and spiritual well-being.
In addition to paying tithing first, we must take a second step in order to obtain or maintain financial well-being: pay ourselves. Elder L. Tom Perry of the Quorum of the Twelve Apostles explained: “After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. … It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing.”3
But what does it mean to pay ourselves? President Heber J. Grant (1856–1945) clarified: “If there is any one thing that will bring peace and contentment into the human heart, and into the family, it is to live within our means. And if there is any one thing that is grinding and discouraging and disheartening, it is to have debts and obligations that one cannot meet.”4 When we live within our means, we spend less money than we make, and we pay ourselves by putting the rest in savings or in some other safe investment. These savings must remain untouchable except for specific purposes like education, missions, retirement, or legitimate emergencies.
Obviously, after paying yourself there still needs to be enough money for necessities. I am convinced that everyone knows what “necessities” are, but I am astonished at the number of times I am asked, “Does this mean our family can’t take vacations every year?” or “Does this mean we have to cut back on eating out?” The answer to both of these questions is yes. These are luxuries, not necessities.
What about purchasing a large and spacious home? Most people would be happier and better off financially following the counsel of President Hinckley: “When I was a young man, my father counseled me to build a modest home, sufficient for the needs of my family, and make it beautiful and attractive and pleasant and secure. He counseled me to pay off the mortgage as quickly as I could so that, come what may, there would be a roof over the heads of my wife and children. I was reared on that kind of doctrine.”5
In my professional life I have observed that the more luxury items a person buys on credit, the greater the likelihood that person will file for bankruptcy. To avoid this, luxuries should never be purchased on credit. As President J. Reuben Clark Jr. (1871–1961) advised, “the ordinary family will do well to purchase by installment only the actual necessities of life, leaving the luxuries to be bought as they can be paid for when purchased.”6
In paying yourself first, keep in mind that the more automatic the savings or investment program, the better. It only requires one decision. After that, the deposit takes place automatically with each paycheck. Also, the best savings plans are those based upon a percentage of income rather than a fixed amount of money. For many people, automatic savings plans are already available at work. These include IRAs or 401k’s and are often coupled with an employer-matching program.
The next significant step leading to financial well-being is budgeting. President N. Eldon Tanner (1898–1982) once stated: “I am convinced that it is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money. Money can be an obedient servant, but a harsh taskmaster.”7
Budgeting has been the topic of numerous Ensign articles.8 Simply put, budgeting means tracking purchases and expenses and creating a written plan to save a certain amount of money each month. But why should we budget? “Many people think a budget robs them of their freedom,” President Tanner said. “On the contrary, successful people have learned that a budget makes real economic freedom possible.”9 Budgeting provides economic freedom because it allows us to control our money rather than allowing our money to control us.
When preparing a budget remember that it must be written to reflect an accurate record of all income and expenses. Some people who have never written a budget before are shocked when they see where their money actually goes. They are amazed at how just a few small purchases can add up over a short time. However, they will not accurately know how much money went to eating out, movies, groceries, or bills unless they keep track by writing it down.
Creating a budget should be a family task. We are encouraged to teach our children about money, interest, debt, investments, and credit. Elder M. Russell Ballard of the Quorum of the Twelve Apostles counseled, “Parents need to teach children very early that a solid financial base is a very important element in a happy home.”10 Additionally, Elder Marvin J. Ashton (1915–94) declared: “Money in the lives of Latter-day Saints should be used as a means of achieving eternal happiness. Careless and selfish uses cause us to live in financial bondage. We can’t afford to neglect personal and family involvement in our money management.”11 Budgeting as a family provides the perfect opportunity for parents to guide their children in the proper use of money.
Finally, to adjust for life’s inevitable changes a budget must be reviewed and revised regularly. With a typical family, if more than six months go by without the budget being reviewed or revised, it is generally not an effective tool.
The next step in obtaining and maintaining financial well-being is avoiding unnecessary debt. Limiting debt means paying less money in interest. Elder Perry pointed out that those who understand interest earn it rather than pay it.12
For those who must pay it, however, interest is a relentless taskmaster. President Clark explained: “Interest never sleeps nor sickens nor dies; … Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”13
The problem is, most of us don’t have enough cash to pay for a home, a car, or an education. Commenting on incurring debt, President Hinckley counseled: “Reasonable debt for the purchase of an affordable home and perhaps for a few other necessary things is acceptable. But from where I sit, I see in a very vivid way the terrible tragedies of many who have unwisely borrowed for things they really do not need.”14
To avoid the unnecessary debt President Hinckley spoke of, reduce the number of credit cards you have and use them only when you have the cash saved to immediately pay off the balance each month. The ease of obtaining and using credit cards beguiles their destructive potential. Don’t fall into the trap of thinking, “I’ll buy it now and figure out a way to pay for it later.” In my experience, credit card debt is the number one cause of bankruptcies filed by individuals. In addition to cutting back on credit cards, families should shun all other types of short-term, high-interest loans.
Finally, financial well-being is achieved only by eliminating debt. President Hinckley advised: “Get out of debt and rid yourself of the terrible bondage that debt brings. … Discipline yourselves in matters of spending, in matters of borrowing, in practices that lead to bankruptcy and the agony that comes therewith.”15
President Ezra Taft Benson (1899–1994) provided a sound program for eliminating debt. He advised, “Let us use the opportunity we have to speed up repayment of mortgages and to set aside provisions for education, possible periods of decreased earning power, and emergencies the future may hold.”16 We can do as President Benson counseled by paying more than just the minimum payment due on a debt. In the mortgage example suggested by President Benson, any surplus amount prepaid would reduce the principal owed on the mortgage. Applying the prepayment to the principal reduces both the total interest and the total number of payments over the life of the loan.
Prepayment is especially useful when numerous debts exist if the “roll-over” technique is used. Under this technique, the prepayment is applied to the smallest debt first until it is completely paid for. Once the smallest debt is paid off, the money used toward the smallest debt is rolled over to the next smallest debt until it too is paid off. This continues until all debts, small and large, are completely paid.
Financial freedom is possible in the latter days. The Lord, through His chosen leaders, has taught what Latter-day Saints like Todd and Mary can do to obtain and maintain financial well-being. Paying tithing proves our obedience to the Lord and brings promised blessings. Paying ourselves insures that we will have money when needed. Budgeting allows family members to evaluate their spending habits and control their money. Finally, avoiding unnecessary debt and eliminating legitimate debt loosen the chains of financial bondage and provide a family with the financial freedom to aid the building of the Lord’s kingdom.
Read about Todd and Mary’s situation from the first two paragraphs. Discuss ideas of what they should do to obtain and maintain financial well-being. Use the section headings of this article to help begin the discussion.
Use a group of pennies to represent the monthly family income, and divide them up to show where the money goes each month. For example, take 10 percent of the pennies out for tithing. Discuss the difference between needs and wants. Based on the suggestions in this article, invite family members to share ideas on how the money should be spent.
Share an experience and bear testimony of how paying a full tithing has helped you feel a sense of financial well-being.