Three Key Numbers

Written by Keith Schwanz
From his column It's Your Money

its-your-money-00-20_article.jpgI recently spoke to a group of young pastors. After that conversation, I thought of an experience I had as a college student. The minister with whom I served at the time told me he often felt that he preached a better sermon on his way home for Sunday dinner than he did in the service. That confession has come to mind at various times through the years of my own pastoral ministry.

In my recent meeting, I talked about personal finance in a pastoral household. Toward the end, one person asked about how to start implementing some of the things that had come up in our discussion. I stumbled in my attempt to respond to her question. As sometimes happens, I had a better answer on the drive home. Here’s what I wish I would have said.

First, calculate your net worth. has a handy online calculator that will help you do this. Make a list of everything you own: financial accounts, house, car, etc. Make a list of everything you owe: loans, mortgage, consumer credit account balances, etc. Subtract what you owe from what you own to get your net worth (own – owe = net worth). Do this at least once a year. The goal in this step is to take a snapshot of your financial position.

The net worth statement is a key number, maybe the key number of personal finance. If you owe more than you own, then you have a negative net worth and no financial margin. Calculating this measurement can help you get a deeper sense of the urgency of making adjustments in your finances. You might also create a graph so that in the years ahead you will be able to look back and see the growth of your financial stability.

The net worth statement is a key number, maybe the key number of personal finance.

Second, create a cash flow statement for the previous year. Go through all recorded expenditures and group items by spending category: housing, utilities, automobile, health, groceries, fun stuff, etc. Some credit card companies provide an annual statement with expenditures grouped by type. This kind of document may be a good place to start, but you will likely have to look in other accounts to get the full picture. The goal in this step is to gain an understanding of where the money has been spent.

Third, divide your net worth by the annual expenses in your cash flow statement. The quotient will indicate the number of years the resources in hand could be used for support (net worth ÷ annual expenses = years of support already saved). The goal in this step is to get a sense about how long what you have saved could adequately meet your needs.

If the quotient from dividing net worth by annual expenses is less than your life expectancy, then look again at the cash flow statement. As you take a half step back and consider the amount spent in the various categories, does the picture you see reflect your values? Do you see places where reducing costs might provide funds needed to set aside for retirement or a major financial decision? What adjustments to your cash flow might lead to an increased net worth?

These three numbers provide a quick way to determine your current financial position and to assess where attention may be needed. Of course, this calculation paints with a big brush, so more detailed calculations will help to more accurately guide financial decisions.

Soon, I will again speak to young pastors about the importance of keeping their own financial houses in order. I’ll be ready.

Keith Schwanz is a writer and editor. He previously served the church as pastor, church musician, and seminary educator.