Questions to Consider Before Making a Big Financial Decision

[INTRODUCTION] Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber. [EPISODE] Bob: Well, Shawn it’s good to have you back from your babymoon that you’ve been on. Shawn: Although even with all the sunscreen, I still did not come back unscathed from the sun. Bob: Did you have one of those sunburned days like you had what we did went down to South Padre 10-11 years ago? I remember that. Shawn: Let’s not talk about that. Shawn: No, no, I got a little bit of color, so I’m a little less of the color of the pale Moonlight, but no, I did not get a sunburn like that, but thankfully you guys seemed like you handled things pretty well while I was gone, but yeah. Bob: No, without you, it was hard. It was hard. But I know that you and Jenna are looking forward to this next baby that you’re going to be having. Shawn: I think you’re looking forward to it, too. Bob: I am, I am. And so y’all went to Maui. Shawn: Yeah. It’s the first time I’ve ever been to Maui, but I guess Jenna went with your family, like the whole family 15-16 years ago, whenever it was. And she said she remembered the road to Hana was like all these cliffs and you’re about to fall off the side of the road. And it was certainly winding. I’ve never gotten car sick, that I remember, in my life. And I made it about two thirds of the way up the road to Hana before I had to just lean back and close my eyes. But Jenna usually has a good memory, but she said the road to Hana had less cliffs than she remembered. It was certainly winding, but I guess in her kid brain, maybe she was thinking that you were right on the edge of the cliffs more, but it was a lot of fun. Bob: Well, I have a really good podcast for us today. I’ve been working on this, and this is our 103rd podcast for Christian Financial Perspectives. We keep getting up there, and I was thinking about this. And Shawn, let me tell you where I came up with this idea and today’s podcast is going to be on questions to consider before making a big financial decision. We’ve talked about this the last couple of podcasts. I’m really getting that new car itch because I just went over a hundred thousand miles, but I’m trying very hard not to do that. And I’m telling you a big financial decision today is buying a car. I can’t believe like, you know me, I love Ford Explorers. I love the new Jeep Cherokee L, the long one. Shawn: Or the Ford Broncos that they brought back`. Bob: Yeah. But these cars, I mean, they’re like $55-60,000. Shawn: A cheap car now is, I mean, you’re lucky to get one under 20k. Bob: These are big financial decisions nowadays, but Shawn, here’s what’s hard on me. Where I live, like every guy in my subdivision is driving a brand new King Ranch Ford F-350 truck that they paid 80 grand for. So I thought I’d make a podcast called “Questions You Need to Consider Before Making a Big Financial Decision”, because I tell you, many times a big financial decision, especially with automobiles, because this is a depreciating asset, can turn into a bad one. Shawn: So this sounds like a little bit of maybe self therapy. If you’re struggling with this, even in your position, people are probably out there that are also struggling. Bob: You know I have. I mean, I am not the perfect person by any means. And so, we’re going to attempt today to look at questions that you need to consider before making that next big financial decision. Now, this is what I mean by big financial decision besides the new car. HGTV is always touting their big, nice vacation properties. And that’s tempting for me too. It’s another temptation. Shawn: Or their home renovation projects. Bob: Yep. And I was talking to a client the other day. He’s wanting to buy a new boat. And I was like, yeah, yup. I was actually talking to another client, they’re looking at an RV. I was like, no, no. And believe it or not, we have several clients that have airplanes. So these are big financial decisions. So, you’ve got the major remodel. You’ve got the boat. Shawn: To me, those are ongoing financial decisions, too. It’s not even just that initial purchase. Bob: Yeah. And so we’re going to discuss, and we’re going to post all this all on our website, things that you need to think about. Shawn: So that’ll be posted at Christianfinancialadvisors.com/podcast. I’m really excited about this episode, Bob, because I know there are many out there who might not have ever thought of some of these questions, along with some who will actually be surprised that financial decisions are always a spiritual decision as well. Bob: Well, when you’re a Christian, it should be, because if we really believe that God owns it all in Psalms 24:1. Psalms 24:1 says, “The earth is the Lord’s and everything in it.” So if we believe that’s God’s and God owns it all, then we’re managers. So for a Christian, a financial decision is also a spiritual decision. So Shawn, if you notice, I came up with a lot of questions and like I said, we’ll post all this on the website so you can pull them up. So, that’s that first one you see there. Shawn: First one and these are in no order of importance necessarily, but number one is is the potential purchase a want or a need? That one is, I feel like we’ve hit a lot of people. Like, is it really something you need or is it just something you want? Like, do you really need a new car, Bob? Or do you just want something because you hit 100,000 miles? Bob: Okay. Okay. It’s because I want it. I haven’t had a new car in five or six years now. I just like the new car smell and all that. But my car, I washed it really nice this weekend, cleaned it all up, and I’m like, this is really nice. Maybe I can keep this at least another year. But yeah, that’s a want. That’s not a need because the vehicle is running fine, but I’ll tell you, Shawn, people buy all the time based on wants and not needs. Shawn: Jenna and I are in a similar situation where we’re looking at maybe getting rid of one of our vehicles because we have a small, two row SUV, typical, and we have a full sized car. Well, with the new baby on the way, we’re going to have at least two car seats, plus all of the gear that it takes to take care of kids. And so, we’ve been looking at maybe even doing something a little weird, maybe even selling our car now, since used car prices are still so high, and I’ll just walk to work for a few months/ Bob: Or I’ll just give you my Explorer. Shawn: I guess you could buy your new car. Bob: All right. So there’s a second question to that that I think about. So you said, is it a want or a need? Can you really live without it? Shawn: That’s a good one. Yeah. Bob: Now in this case, like what you’re talking about, because I know that’s a very small SUV that y’all have. With two children, that might be a little small. So you could live, you could absolutely if you had to, but it would be really, really tight, but can you live without it? In other words, can you live without the new airplane or the new car or the new model? I see so many times on HGTV, they’ll go in and they’ll do this major remodel that cost $50,000. And it’s all just for aesthetics. It’s not for function at all. It’s just because the color wasn’t right. That the countertops didn’t look good, but the countertops were fine. They weren’t broken or anything. But it’s because it looks better. Shawn: And want versus need, can you live without it? I feel like there’s a lot of these questions that we are going to be going over where it’s not necessarily that there’s a wrong answer for some of these. Like, it doesn’t mean that just because it’s a want versus a need that you shouldn’t do it, but it’s just some really important questions to kind of cover and make your pros and cons list. Another one is what is the reason that you or I want to make this purchase. Bob: And what is the reason I need it. So write those down. Take these questions and write them down. Why is it I want it? Some new car smell or it might be more safe. Shawn: Yeah. Or maybe our family is growing and we don’t have any room in this size car. Bob: With a purchase, is it going to appreciate or depreciate in value over time? Shawn: That’s a good one. So like a home, obviously if you ask any realtor, the price will always go up, but in general, it is true with real estate that there may be shorter periods of a down market because every market, no matter what it is, housing, stock market, they always go through cycles. But housing real estate, those do tend to appreciate over time. Now car, since we talked about that one a lot, definitely one of those depreciating assets. Most times if you buy like a boat or an RV, any of those types of vehicles probably will depreciate over time. And depending on which vehicle it is, it may depreciate a lot more over time. Bob: So that’s where you need to think about the total annual cost. Shawn: Exactly. So then what would be the total annual cost of the purchase from the time you buy it until you sell it? And so for an example, a vacation property, boat, RV, airplane. These are things that can be very expensive upfront, but especially a plane. I felt that that’s one of the biggest examples, the cost of maintaining that plane, the cost of operating that plane, it’s a lot higher than people think about. I mean, even if you did a plane card thing where you’re kind of like a part of the club, you’re talking about possibly $1,000 or more per hour of operation, not including anything else during the year. RVs, same thing, maybe on a slightly smaller scale than the plane. Bob: But they get 7-10 miles to the gallon. Shawn: Downhill. Bob: We’ve talked about this when we talked about real estate is a vacation property. I don’t think people really think now, of course you want that price appreciation. That’s on one side, but on the other side you have the taxes and the insurance and the maintenance, and they’re always showing this stuff on HDTV. They always show them the beachfront properties, and the cost of insurance to cover those properties is very, very high. And this is why you always see so many vacation properties for sale because someone goes into it and never really counted all the costs. “I never realized it was going to cost this much.” Shawn: Like, for example, if you bought a vacation property on the beach and you loved it for about a year or two, and then you just decided this isn’t worth it anymore. And especially, like a lot of people do, they’ll get a vacation home and they’re not going to be there all the time. So what are most people do? They go to VRBO, they go to AirBnB, they try to listen to themselves with a property management group. And all of that starts to add up to where yeah, you might make money on it. But also, when people look at the appreciation of an asset like that, that 30%, was that actually enough to cover all of the expenses and the maintenance and the purchasing initially and the interest, like everything involved or is that 30% more like 8%. And is that 8% over a two year period or more, then was that really a better decision, especially if you looked at it as investment versus leaving in a portfolio. Bob: Are you talking about real estate going up by 30% in one year? Shawn: Well, over a couple of years, even if it did that, that’s the point. What is your true cost and what are you actually getting out of it? Bob: See, we’re going to get down to this pretty soon, I believe. We’re going to come back down to reality, especially as they start to raise interest rates because most people don’t think right now – interest rates are 2% or 3% or even 4%. Well, if you raise interest rates by just 1%, you’ve raised it by 20-30%, and that’s going to lower the price of that house. I mean, they’re going to have to lower the price because most people don’t buy houses with cash. Shawn: What do you mean by that, Bob, if it goes up 1% on the interest rate, but it’s going up by 23%? Bob: Okay. Okay. Okay. What do I mean by that? So if you go from 3% to 4%, you’ve gone up by 33% on the interest rate, you realize? Where I come up with that formula is 1% of 3 or 1/3 is 33%, right? 1/3 of 3 is 33, which is 33%. So if it goes from a 3% interest rate to a 4% interest rate, you have raised the interest rates by 33% Shawn: And then that affects the home price… Bob: About 20 to 25%. Shawn: And now the purchasing power of the buyers is going to be reduced… Bob: By 20 to 25%. Shawn: That will affect the actual pricing. Bob: See, I think we’re going to come back to where real estate is just keeping rate with inflation, not this 20-30% appreciation. So, you talk about a vacation rental. So we get back to a vacation home of a normal appreciation of 5% a year over a two year period or three-year period in that vacation now that you’ve owned it, you have not made money. You’ve lost money. Between the time that you’re buying costs, closing costs, costs to get it and then when you sell it – the realtor fees and the title company fees and all the different fees – will knock that down. And that really pulls your yield down. Another thing that people don’t think about when they want to go buy a property or an RV or boat or a new car. And I’m going to use here an example of a $50,000 withdrawal. Let’s say they have an investment, and they’re going to withdraw that $50,000 out of an investment account, that’s making a nice 6% return on average, let’s say. Well, you realize over a 12 year period based on the rule of 72’s that 50 is not going to double to 100. So, you’ve taken money out of your investment portfolio that’s no longer growing, possibly put it into a depreciating asset. So anytime you want to make a purchase, you really want to say, well, what are the disadvantages, but what are the advantages of it, too? So there may be some advantages to the purchase, but you also need to list the disadvantages. Cause we’ve talked about the pros and cons of many of these areas. Shawn: Both the advantages and the disadvantages. Good, good idea. So another one, have I prayed about it and sought wisdom from God’s word? For a Christian, as I said earlier, all big financial decisions should be a spiritual one as well, as it’s all God’s money in the first place. And Psalms 24:1 talks about that. We are considered managers, not owners, according to the scripture. Bob: So we believe that you should pray about it and really seek and see what that wisdom says to you. Are you positive that making this purchase decision is a smart move in the long run? Yeah. And I mean, are you positive, really positive, that’s going to happen? Shawn: So another one does this financial decision presume upon a financial future that may or may not happen. Bob: That’s a good one, isn’t it? Shawn: Yeah. So you’re maybe making that decision of, well, I am supposed to get a raise of X amount coming into this next year. And as long as we hit our sale’s quota, then this will be fine. It’s totally within the budget. And then something like, I don’t know, a global pandemic hits and you have a bunch of economic shutdowns and all of a sudden sales quotas aren’t even close to what you thought it was going to be. All of a sudden that bonus or raise doesn’t happen Bob: Or an illness comes out of nowhere. Exactly. Or you’re in an accident. If you have to borrow to purchase that plane or that car or that home, you are always presuming upon a future that we really have no idea about. I got this principle from Ron Blue, a very well-known Christian financial author, and I’ve never heard anybody say it like the way he said it. It’s stuck with me ever sense that borrowing presumes upon the future. Shawn: And that’s a good way to look at it. So will this purchase affect my giving negatively? So there are only four ways to spend money. Live, Give, Owe, and Grow. One of these will be affected. Bob: It has to be. Because when you think about those four ways – live, give, owe, grow – it’s going to cost you more to live now and pay that extra bill, and it’s got to come out of either the giving part or the growing part. Shawn: And I guess that’s a good question to ask then when you’re looking at that giving, am I making this decision out of maybe a surplus or out of something that maybe something new has happened or am I going to be taking away from my growth potential, say your portfolio, or am I going to be taking away from the church or some other area that I’m giving in? Bob: That’s excellent. And could a purchase take away from your cash reserves, too? I mean, you want to keep cash reserves and maybe have plenty in cash reserves, but is it going to pull those cash reserves down to a dangerous level to do that? Shawn: The recommendation on that is at a bare minimum, you should have three months of your monthly expenses saved up in cash. You shouldn’t touch that. We always recommend here six months. Bob: Remember the formula from Genesis 41 that we did, which is 1.4 years. Because Joseph told Pharaoh to save a fifth of the harvest. It’s 20% for up to seven years, 20×7 =1.4, exactly 1.4 years. That’s astounding. When people hear that, and they’re like, where did you get that from? I got that straight from scripture. Shawn: So another one we would be looking at, am I saving enough now for my future before making this purchase? That’s a good one. So I have people ask me on a regular basis, they have X amount in cash reserves and they’re looking at making a purchase. So we’re looking at pulling money out of their portfolio. And the question I usually ask is, well, are you going to be dipping below your minimum cash reserves? Are you going to be affecting your long term retirement? So, if this is going to affect, which kind of goes back to the it’s one of four things for the way you spend the money, are you going to be taking away from your growth? And if you’re taking away from how much you’re saving, maybe it’s not a good choice. Bob: I had this one in there, Shawn, but I think we’ve already shared a little bit about the cash reserves after the purchase. So this next one is really important. I was going over this with Rachael and I said, what do you think about this one, Rachael – if married, is my spouse agreeable with the purchase. She said, yeah, you need to keep that one in there. Shawn: That is an important one. A lot of couples will say like, oh, well my wife or my husband, like, they’ll say one of them that makes the financial decisions. Oh, I let them handle the budget. That may be true. But the thing is, is when you and your spouse purchase something, whether it’s one person that purchased it or two, you’re both being affected by that. And what is the number one, typically, I think in all the polls that you see, the number one cause of divorce is usually money and financial issues. So making sure that you and your spouse are in agreement with the purchase, you’re not in opposition. That’s a huge thing. Don’t add more stress to something. It’s already hard enough to be God-fearing and love your spouse unconditionally. Don’t add another problem to it. Bob: I’ll say the large purchases are usually done by us guys, too. I got to admit it. I mean, I’ll get on Rachael for buying the extra clothes and the shoes and stuff, but then I want to go by the boat or the new car. Is there an alternative to making this large purchase? So if you’re looking at that vacation home or you’re looking at that car, or you’re looking at that RV, or even that airplane, in some cases, is there an alternative, would it be less expensive to rent that vacation home, or even to rent an RV. There’s RV rentals now. Would it be cheaper to do that less expensive than buying in the long run? Shawn: And that will come down to, in the case of the vacation home, how often are you really wanting to go down? Like, are you finding that you’re going every month taking a long weekend? Are you going once a quarter, are you going twice a year. I mean, how often are you really going to be able and want, or willing, able and willing, to go down to that home? And if you’re not going down enough based on what you’re going to be spending on it compared to renting, maybe just rent and then you don’t have the responsibility of what if something comes up and you don’t get to go for six months. We didn’t lose anything on the renting side. Bob: I’ve learned something else with vacation homes, and this is to the older generation. Don’t buy that vacation home thinking your kids want to come to it. Am I right? Shawn: Yes. Bob: Because you’re not a big beach guy. We’ve had a couple of these vacation homes… Shawn: Yeah. Now, if you had one up in Colorado, I might have to make the drive up there, but… Bob: That’s too far. That’s too far. Shawn: So, so the last but not least have I sought wise godly counsel from someone I trust if this is a good financial decision or not? As we know plans, fail for lack of counsel, but with many advisors, they succeed. Bob: What’d it say? Two are better than one. I just had a call this morning from a wise, young man about 32 years old. And we talked about that this morning because he says I’ve really saved and I’ve done well. And I’m up to where now it’s a pretty good size sum, and I want some counsel. I feel like I’m doing this all by myself. I want some godly counselors. So we realize there’s a lot of questions. If you count all these together, there’s 18 of them. So what we’re doing is we’re putting all of this on the podcast website. You can go pull them all up. And next time you’re looking at a large purchase, pull these up and go through them, go through them with your wife, pray about it. Ask the Lord, Lord, is this really what you want? And count the cost. That’s the main thing is count the cost. It’s in Matthew where he says, look at the wise man, and he counted the cost before he went and built it. So you need to count the cost, and we want to have that for you. Go to Christianfinancialadvisors.com/podcast to find all of these questions. That’s going to do it for today. Shawn: And just remember when you’re looking at those questions, I like to keep it simple. I feel like it’s usually helpful. But when you’re looking at those questions, you may come to the decision that maybe it was a want, or maybe it is a little bit more, more money. But if you’ve prayed about it, you’ve sought wise counsel, you’ve gone through these and you still have a peace about it, probably okay. But if you’ve got something, if the Holy Spirit is kind of pulling on your heartstrings a little bit, it’s kind of nudging you, and you don’t feel that peace about it. Maybe just hold off for a second. Bob: That’s right. Yeah. We’re not saying there’s anything wrong with a new car. Not at all. Shawn: At the end of the day. I think that’s what it is. It’s just you want to make sure that between you and the Lord and with you and your spouse, that you’re at peace of whatever that decision is. Bob: Thanks, Shawn. That’s it. [CONCLUSION] That’s all for now. We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986. [DISCLOSURES] Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors®, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.