Avoid These Mistakes!

Since the earliest days in the history of The Church of Jesus Christ of Latter-day Saints, personal and family finances have been topics the Lord and His prophets have frequently addressed. Who can forget the Lord’s terse counsel to Martin Harris, an early Church member who generously mortgaged his farm in order to finance the initial printing of the Book of Mormon: “Pay the debt thou has contracted with the printer. Release thyself from bondage” (Doctrine & Covenants 19:35). Indeed, a substantial number of sections in the Doctrine & Covenants contain revelations from the Lord that relate principally or in part to financial matters. In these scriptures and in the nearly two centuries of teachings of modern prophets from the Prophet Joseph Smith to President Thomas S. Monson, we have been cautioned about the dangers of excessive debt and the blessings of living within our means.

At a time when concerns about family finances are widely believed to be a leading cause of marital discord and divorce, our efforts to manage our finances wisely are perhaps more important than ever. During my adult life in the Church, I have observed a number of common financial mistakes individuals and families make that, if avoided, will lead to greater peace and financial security.

Mistake #1: A 30-Year Mortgage (Bond)

With few exceptions, a home is the most valuable asset most of us will purchase in our lifetime. However, too many Latter-day Saint families in the United States purchase a home that stretches them financially beyond what is needed or what is wise. Although 30-year mortgages have grown in popularity because of the lower monthly payment they offer, I believe 30-year mortgages are a financial mistake for most families. Thirty years is too long to be in “bondage!” With a 15-year fixed mortgage, you can pay off a house in half the amount of time and save tens of thousands of dollars in interest. Making prepayments on a 30-year mortgage will reduce interest costs and allow you pay off the loan in fewer than 30 years, but if our goal is to avoid excessive debt and pay off debt as quickly as possible, a 15-year mortgage is a better financial choice. In short, if you cannot afford to finance a home using a 15-year mortgage instead of a 30-year mortgage, I believe it’s a good sign you’re purchasing a more expensive home than what is in your best financial interest.

Mistake #2: Eternal Car Payments

Life is better without a car payment. Too many people treat a monthly car payment like it is a permanent fixture in a family budget. Almost as soon as they pay off one car, they trade it in and take on a new car loan that requires another five years of monthly payments. Said simply, cars can very easily become a big waste of money. There is nothing wrong with wanting to drive a safe and comfortable car, but avoiding excessive and perpetual spending on cars, and driving cars long enough to be free from car payments for extended periods of time are smart financial moves.

Mistake #3: Worrying More about Storage than Financial Reserves

The prophets have taught that having at least some food storage on hand is an important way of living providently and fostering self-reliance. That is good counsel, and many families have been blessed during times of hardship by being able to rely on their supplies of food storage. However, I am often surprised that many families with a great zeal for food storage give comparatively much less thought and effort to building a financial reserve to assist in the event of an unexpected hardship. While food storage is important, we cannot use cans of food to pay our debts or our bills if we fall on hard times. Having a financial reserve of at least 3 months of expenses saved up and getting out of debt as quickly as possibly can bring as much peace of mind as having cans of food storage in our homes. Both of these forms of provident living deserve our attention and effort.

Mistake #4: Paying the Lord Last

I am convinced that the law of tithing is a gift from the Lord. Paying an honest, full tithe teaches us so many valuable lessons and brings so many blessings. As Elder Jeffrey R. Holland once taught, paying tithing is “a declaration that possession of material goods and the accumulation of worldly wealth are not the uppermost goals of [our] existence” (Jeffrey R. Holland, “Like a Watered Garden,” Ensign, November 2001). Over the years, several prophets have emphasized that tithing is not a principle of finance; it is a principle of faith. I believe it is a financial mistake to pay our other bills and expenses first, waiting to see if there is enough left over to pay tithing and other offerings. Instead, we will have greater peace of mind and the promise of additional blessings from heaven (Malachi 3:10-11) if we pay tithes and offerings first, trusting that the Lord will ensure our other needs are met one way or another.

Mistake #5: Waiting Too Long to Let Children Practice Tithing and Saving

We can help our children gain testimonies of the blessings of provident living by giving them opportunities to practice paying tithing and putting money into savings at an early age. Too many Latter-day Saint parents wait until their children are old enough to earn money outside the home before they teach and emphasize tithing and savings. This is a mistake because we lose the chance to teach these principles when our children are most impressionable. Using some form of allowance will allow even very young children to gain testimonies of the power of paying a full tithing and putting at least 10% of their money away in long-term savings. They can also learn the necessity of saving up money over a period of time to earn enough to pay for the things they want to have. Thus, even a very small allowance can become an investment you make that teaches your children these valuable lessons early.

Mistake #6: Not Saving Enough, and Not Saving Automatically

Savings rates for the average American household are abysmally small compared to many other developed countries around the world. Put simply, we spend too much and save too little. Too many families live at or above their means, leaving little or no room for setting savings aside.

As a good rule of thumb, pay the Lord 10% in tithing, and pay yourself at least 10% in long-term savings.

In other words, learn to live off of no more than 80% of your take-home pay. If your employer sponsors a 401(k) or other pre-tax savings plan, take advantage of it by maximizing your contributions—especially if your employer offers matching contributions. In addition, make your other savings automatic. Set up recurring transfers that automatically move money out of your checking account on payday and into long-term investments. For retirement savings, use inexpensive, diversified index funds. I try to remember that having the financial freedom to serve missions with my wife and spend our retirement years the way we envision depends critically on our choices now to save generously for later in life.

Mistake #7: Carrying a Balance on Credit Cards / Excessive Consumer Debt

In David Copperfield, Charles Dickens wrote “Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”  The difference between happiness and misery is having an income slightly, or more, above your debts versus having an income slightly, or more, below your decreasing debts. It is a terrible mistake, and burden, for any LDS family to carry a balance on a credit card and pay the accompanying interest. It is also unwise to have a large number of credit cards (one or two should be enough). Likewise, consumer debt – debt you pay off (credit card not paid in full every month, clothing, holiday travel, expensive celebrations and trips, food, home furnishings, electronics, eating out - etc) should be avoided as much as absolutely possible.  Live within your income.

As President J. Reuben Clark famously taught in 1938: 

“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” (Conference Report, Apr. 1938, 103).

Nate Sharp is an associate professor in the Mays Business School at Texas A&M University, where he teaches and researches financial reporting. He grew up in Holladay, Utah, served a full-time mission for the Church in the Korea Seoul West mission, and later graduated from Brigham Young University and the University of Texas at Austin. He married Holly Carroll in 2003, and they are the proud parents of five beautiful children.

-edited for increased clarity for South Africans by Judy Bray

Counsel from Judy Bray – Learn to live well enough.  Learn to live with an absence of expense.  Learn to live increasingly well – increasingly well within your income.  Learn to save more and more - monthly.  (Discover the magic of compound interest working FOR you rather than against you.)  Counsel with those financially wiser than you.  Learn from them.  Make your own choices.