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What Should I Do After Exhausting My Savings?

When Financial Tension Becomes Productive Fruit

Logan is a board director for LifeChange Concepts. He's also in his mid-20s and has bought, as well as sold, over 30 vehicles. So he's uniquely qualified to share his expertise on buying a used vehicle. His wisdom is also insightful for young adults purchasing their first vehicle.

“Overly spending on leisure and entertainment is a problem with almost all my friends. There is also a mindset of not preparing for the future or thinking ahead but living in the moment. Talking about saving money, let alone retirement money, is like pulling teeth with some of my peers. It takes a big picture perspective to understand that every $1 saved and invested at 20 years old equals around $88 at retirement.” – Logan, LCC Board Director of Young Adult Discipleship & Mentoring. My favorite subject is history because I believe, as it's been said, that if you want to know where you are going, you have to know where you've been. From a financial perspective, what we've been is a consumption-based culture, relying on debt since the 1980s. But it's important to understand, which is why I cover it in classes I teach, that we weren't always a consumption-based culture. Prior to the 1980s, we were a production-based culture, which means that our value came from what we produced, what we added to the culture around us through our labor. I'm old enough to remember the 1970s where work ethic, thrift, savings, delayed gratification were still values and concepts that were taught and lived out. But that’s all gone now. Today, we have a generation of young adults, who've known nothing but growing up in a consumption-based society that's told them that their value comes, not from what they’ve worked for and produced, but what they buy and consume. It's been great for Wall Street, for the wealth creators and generators, the powers that be and the big banks. But not so great for Main Street where the cultural messaging has taken root that fulfillment in life comes through consumption of entertainment, leisure and products. This may sound controversial to some, but the current social-economic climate in the West, particularly the US, is at its root anti-Gospel (in my opinion). The consumption-fueled mentality is based around self-pleasing, self-centered, instantly gratifying behavior, disregarding the role of wise financial stewardship, let alone Gospel-centered financial stewardship. I do not believe that is what Christ desires from or for His people. According to the young adults on our board, here are 10 main mistakes young adults make : 1. Spending over half their earnings on eating out or hanging with friends. 2. Racking up credit card debt due to poorly budgeting strategies. According to Experian “The average credit card balance among consumers in their 20s was $2,709 in Q2 2019. Credit card debt increased the most among 20-year-olds year over year….” (1) . Even though this article is from 2019, we can only expect the numbers to increase as we study the trends of spending habits. One good recent example our team came upon was with a student in one of our classes. After going through the course and learning the foundations of a budget, he noticed that 60% of his earnings were being thrown down the drain while constantly eating out with friends. As we told him, we don't discourage hanging out with your friends. But we do encourage limiting how much you spend, while budgeting the number of events and amount you can spend per week , paycheck, or month. The next four mistakes can seem little at the moment, but overtime can have young adults paying thousands of dollars extra in loan interest. 3. Buying cars, typically newer with high interest and high monthly payments. 4. Not paying extra on bills while they are single (extra money on student loans) 5. Relying too much on student loans (as a ministry, we’ve seen college students take out loans in excess $75,000 for low-paying degrees.) 6. Renting vs living with parents Jeremy, our board president, can speak from experience in regard to this section of mistakes. Luckily, in his case, he will enjoy the prospering fruits in the coming years of not making some of these mistakes, unlike a lot of young adults his age. Though Jeremy decided to go out of state and leave the opportunity of the HOPE Grant. He did take advantage of the online program at Liberty University , graduated with a four-year degree and with the help of grants left school with less than $30,000 in debt. Jeremy also pays $100 extra month on top of his monthly consolidated loan payment, which he is able to do since he still lives with his family and has limited bills. He’s on track to pay off the loan early, which will save him anywhere between $2,000- $3,000 in interest that he will see later on in the loan cycle. Lastly, these mistakes will hinder young adults in the future. 7. Not setting up a retirement account 8. Not caring about credit score 9. Not setting up a savings account in case of an emergency fund 10. Not using a financial advisor A young adult's mind is full of life, ideas, and adventure; but also can be full of short sightedness and lacks the wisdom of experience. This is the time every 50-year-old would love to go back to and change one or two small things in their life to make their life a little easier with their retirement or savings account. The introduction of a financial advisor in your young adult life will bring not only discipline into their budgeting and spending. But it will also develop an easier time for them when they are older and can truly appreciate their hard work in saving up for retirement and those pesky emergencies. “You can’t predict the future, but you can prepare for it. A financial advisor can help you cope with the fallout of life's unexpected events and adapt your strategy to stay on track.” (2) While it’s impossible to put the ketchup back in the bottle, we can teach, and more importantly model, as Christians that our identity comes from our God who created us. And that God-given value comes from and through our work, our giving of our time and money and our service to the culture and world around us. We can also teach good, solid biblical financial stewardship principles to a largely financially illiterate society and culture around us. Whether its grandparents, parents or young adults, the mission of our LifeChange Concepts ministry is to wed both biblical financial stewardship principles, and practical financial literacy tools to free young adults to live out the plan, the purpose and the ultimate mission that the Lord has for them. Feel free to contact us if you need help addressing any of the top ten financial mistakes listed above! 1. Tatham, Matt. “Americans in Their 50s Have the Highest Average Credit Card Debt.” Experian, Experian, 5 Nov. 2019, www.experian.com/blogs/ask-experian/research/credit-card-debt-by-age/#s1 . 2. Sabharwal, Sanchit. “Benefits of Working with a Financial Advisor - New (US: En).” Edward Jones, Edward Jones, www.edwardjones.com/us-en/working-financial-advisor/benefits-working-financial-advisor. Accessed 14 Feb. 2024.

It's never been easier to build wealth, especially for young adults. Here's some simple, basic steps.

Save, Save, Save - You should bring 50% as a down payment (including your trade-in if you have one). Buy newer-used – Find a vehicle that’s 2-3 years old, with under 30,000 miles and save 20-30%. You can find that brand new $35,000 vehicle for $25 - $27,000. If you are a younger, first-time car buyer, buy a 5-6 year-old vehicle in the $12,500 range. Find your vehicle ahead of time* – Use sites like True Car, Kelley Blue Book, Carvana. Compare and contrast to find the best vehicle with year, and mileage being the main criteria. When you walk into the dealership, know exactly the price, you’re willing to pay. Sell your existing vehicle to a private party - get 20% more than trade-in value. If you go the trade-in route, printout the Kelley Blue Book quote to take to the dealer with you.* Hold firm, and do not take less than the blue book quote. Lock in your interest rate ahead of time* - Third-party dealer interest rates are typically 2-3% higher. However, after they make their initial offer, if you show them the interest rate you qualified for ahead of time, they will match to get your business and close the deal. Monthly Payment* – Figure out a monthly payment that fits your budget. Use an on-line calculator to figure out a payment. Hint 1 – if you are a middle-class family, you cannot afford an average car payment of $500+ a month. Your range should be $250 +/- and the length of the loan should be 36 months for a 5-6 year-old vehicle (48 max for newer-used). Hint 2 - DO NOT tell the salesperson ahead of time what payment you “can afford.” Hold Firm - They need you more than you need them. If you can’t agree to price and terms, politely shake hands and walk away. Most likely, they won’t let you leave and will give you your price & terms. *Printout documentation to bring with you.

You should build wealth from your money, not the banks

The average American has $90,460 in debt.  Here’s how much debt Americans have at every age:

Vehicle Monthly Expense Comparison What's the better value? 2018 Toyota Corolla SE * 2015 Ford F150, Auto.** Fuel (1) $ 70.00 $110.00 Insurance (2) 225.00 225.00 Maintenance & Repairs 118.00 153.00 Taxes & Fees (3) 20.00 20.00 Vehicle Loan Payment (4) 305.00 400.00 Total Monthly Expenses $738.00 $908.00 Notes: (1) Based on 1,250 miles driven per month and $1.98/gallon cost of gasoline (2) Based on a 21-year old with a good driving record and a 700-credit score (3) Sales tax paid upon purchase is included in the vehicle loan (4) Based on a $5,000 down payment, and 48-month used vehicle loan at 6% interest on the balance. Assumes a purchase price of $18,000 for the Toyota and $22,000 for the Ford pickup. * 28K miles on this vehicle ** 105K miles on this vehicle Unless you live in a urban location with efficient mass transportation, a vehicle is a necessity, a “need” as opposed to a “want”. But if we’re not careful, what we need in a vehicle can quickly giveaway to what we want, and what we ultimately purchase or, more accurately speaking, what we finance, can far exceed our means. Due mainly to the enhancements in technology that cars come equipped with these days, the average new car price has risen to $35,000, with the average car payment being $550 per month. We’ll never pay more money, for anything that depreciates faster than our vehicles. If we’re not careful, nothing will choke out our monthly budget quicker than our car payment(s). And if you’re young, just starting out and trying to get ahead in life, buying more car than you can afford can put you quickly into debt, while setting you back years on saving for a down payment on a house, as well as establishing a savings and investment plan. New vehicles depreciate 30% after the first two years, then 10% a year thereafter. So let’s say you finance a $25,000 vehicle with no money down at 4.5% for 5 years. You’ll end up paying almost $28,000 with interest and financing charges for a vehicle that will be worth $10,000, with a trade-in value far less than that, once the vehicle has been paid off. And that’s not including $1000s in regular maintenance, repairs, fuel and insurance costs. Even more staggering to our monthly budget is the $465 payment. So whether you are a young couple, single individual or an established family, what’s the best way to go about purchasing a vehicle? Rather than ask, “what car payment can I afford?”, here’s a few helpful steps we would recommend: 1. Keep your vehicle for 10-12 years, or until maintenance expenses rise to the level that justifies purchasing another used vehicle. Most properly maintained vehicles will go well beyond 200,000 miles before this decision has to be considered. It’s amazing how many people complain about having to spend $200/month in maintenance costs for a nine-year-old vehicle, but have no problem signing up for a $500/month car payment for 6-7 years. 2. Extend the life of your vehicle. Properly maintain it by budgeting $125-150/month for maintenance (oil changes, windshield wiper blades, brake pads, tires, etc.). 3. Buy a newer-used vehicle. Vehicles depreciate 30% in the first two years – let someone else pay for that! After the first two years the depreciation slows to about 10 percent per year. The cost of that new $35,000 vehicle drops to $21,000 - $24,500 after two to three years. While a new $25,000 vehicle depreciates to $15,000 - $17,500 after two or three years. *Use the internet to your advantage. 20 years ago, the dealers held all the information and buyers were in the dark on what they could be expected to pay. Now you can do your homework and research through sites like Kelley Blue Book and True Car to read reviews and printout an exact breakdown of what you should pay for a vehicle. Based on that information, calculate what you’re willing to pay, and be prepared to walk out if the dealer doesn’t meet your price expectations. When you walk in to a dealership armed with this information, they’ll know you’re an informed buyer. Never tell an auto salesperson, if he/she asks, what monthly payment you want. Stay focused on the price you want, not the monthly payment. If you give them a monthly payment amount, then they may meet your requirement by changing the length of the loan, rather than reducing the purchase price of the vehicle. [Note: calculate at home before car shopping begins the monthly payment for the amount you will need to borrow and the length of the loan. You will need to check with your bank to get the interest rate on a car loan in order to complete the calculation. You can use a loan payment calculator at Bankrate.com or other websites to calculate the monthly payment] If your credit score is below 660, then you would be wise to not borrow for a vehicle purchase – more on the credit score in future blog. 4. Pay cash for your vehicle or only finance your vehicle for 36 months. Because of rapid depreciation, you’re likely to be “upside-down” (owing more money than the vehicle is worth) after 36 months of financing. That’s why dealerships sell gap insurance* for $500-$1000, which is another cost to avoid. *Gap insurance pays off the vehicle in the event of an accident where the vehicle is “totaled” and the amount owed is more than the vehicle is worth. To accomplish paying cash or short-term financing, here’s two scenarios to follow depending on where you are in life: Scenario 1 - For those who are just starting out (typically those in their teens and early-to-mid 20s), this is important because biting off more than you could chew on an auto loan and car payment can set you back for years. If you think you could “afford” a $250-$350 a month car payment, save that money, and scratch and claw for two years. Note that I put afford in parenthesis because I’ve known people who work part-time minimum wage jobs who have $200 car payments. If you save that money, in two years, you’ll have around $7,000 saved which can use to pay all cash for a semi-decent starter car. Next, plan on grinding it out, and driving that car for 3 to 5 years in which you’ll no car payments. You’ll also have to put $150+/- on average per month into repairs to extend the life of that vehicle. But you’ll save on costs such as insurance by having an older vehicle as well. All that said, after five years of no payments, if you’re disciplined and frugal in committing to $250 a month in car savings, that’s $15,000 cash you can pay for a three-year old vehicle that was $25,000 brand new. Within a few short years you’ll be ready for the next scenario. Scenario 2 – For those who are established and at that level where they feel they can afford a $35,000 new vehicle and a $550 monthly payment. May I suggest letting somebody else pay for the depreciation for the first two years and instead pay $25,000* +/- for the same vehicle, albeit two-years older. Now let’s you say you drive your older vehicle for an additional three years. Assuming you spend $150 on average monthly repairs to extend the life of your own vehicle for those three years, and save the remainder of the $550 you would’ve spent on a car payment, that’s an additional $14,400 to put towards a down payment on that $25,000 vehicle. And that’s not including what you’ll save over those three years in insurance costs by driving your older vehicle. If you had a $10,600 loan* for 36-months at 4.5% for that $25,000 two-year-old vehicle, your payment would be $315 a month. That’s an additional $235 a month you’ll have the next three years. And an additional $550 a month after that simply by extending the life of your old car for an additional three years, while forgoing the purchase of a brand-new vehicle to buy the same make and model that’s newer-used. That’s a lot of cash that you’ve suddenly freed up to bolster the savings for your kids or grandkids college fund, your investment portfolio for retirement or to give away more to your favorite ministries, charities and causes. *Investing the $4,000 (in a mutual fund averaging 8% annually) that you’ll save on the interest alone on a $10,600 / 36-month loan as opposed to a $35,000 / 60-month loan would be worth $40,250 in 30 years. If you added the $235 per month saved in years 1 through 3, and the $550 per month saved in years 4 and 5, that same investment grows to $178,000! All in all, cars are more expensive than ever, and if we’re not careful, they can eat up more and more of our disposable income than ever. As always, be smart, be wise, make good choices through prayer and consultation with those who are wise. If you’d like to talk more about these scenarios, or are interested in a budget analysis, feel free to contact me!