Posted: February 16th, 2015

Savings vs. Debt – Good and Bad News About How Interest Impacts Your Life

Paper, Order, or Assignment Requirements

The Bible teaches that we are responsible to manage our finances faithfully in a way that honors God. The phrase that is generally used is that we are to be good stewards of the wealth that God has given into our care. The word “steward” clearly implies that it is God’s money that we are managing and not our own.

In addition, 2 Corinthians 12:14 reminds us that parents are responsible to save for their children. Also, 1 Tim 5:8 very strongly states that we are responsible to care for any close relatives who need care. In context, this includes aged parents and grandparents at a minimum.

Managing your savings and/or retirement funds to meet your goals can seem like it requires an ability to predict the future. How much money needs to be saved each month depends not only on your goals and your personal situation but also on the amount of money available, time, and interest rates. Some of these things are not knowable because they are in the future and could change dramatically.

Does this mean that we should just give up and make no effort to provide for the future? Absolutely not. It means that we do our best to make reasonable assumptions, discipline ourselves to control our spending, and make wise plans for our investments. It also means that we need to seek God for wisdom as we trust Him to provide for what we cannot.

In this forum, you will be using the spreadsheet provided in the Assignment Instructions folder to start a basic financial plan that that takes issues of debt, interest rates, and investment into account. Open the spreadsheet and enter the appropriate information into the cells shaded in purple.

Look at the bottom of the page in the spreadsheet. You will see 3 tabs. The first tab is for the worksheet you need to fill out. The 2nd tab shows the worksheet filled out with sample values. How these values were determined is described in the attached Word document as an example to help you fill out your worksheet. The 3rd tab is for a worksheet to help you calculate your average interest rate on your current debt if you have any.

Once you get the worksheet filled out, play around with the numbers a little to see how changes affect how much you will need to save each month to meet your goals. See what happens if you delay your plan to start saving by a few years. See what happens with a few different values for interest rates.

Once you have completed filling out the attached spreadsheet, provide a reaction to your discoveries in a thread. In your thread, you must give 3 different numbers you used either for “# of years until retirement” or for “years of delay until you start saving.” If you choose to use different numbers for “#number of years until retirement,” be sure to adjust your “# of years you will live off of your money” to match.

For example, using the numbers in the sample spreadsheet, I used 20, 25, and 30 for “#number of years until retirement.” For 20, I set the “number of years you will live off of your money” to 30. For 25, I set the “live off of your money” number to 25, and, for 30, I set the “live of your money” number to 20. The 3 different amounts needed to be saved each month were $2,204, $1,087, and $424.

Note that 1087/2204 = .49 and 424/2204 = .19. So, in my post I would say that I used 20, 25, and 30 years for the “#number of years until retirement.” When I changed from 20 to 25 years, it reduced the amount I needed to save per month to 49% of the original amount. When I changed “#number of years until retirement” to 30 years, it reduced the amount I needed to save per month to 19% of the original amount. By sharing these percentages and not the actual dollar amounts, you show your instructor that you did this comparison part of the assignment (and you preserve the privacy of your financial information).

For the rest of your thread, you may tell the class what surprised you, what you learned from the exercise, or any actions you need to take to adjust your savings and/or debt reduction strategy. You are not required to share any personal financial information with either your instructor or with any other classmate. Do NOT post your worksheet into the Discussion Board. Also, if you know of a link to another resource that has helped you in your attempt to honor God by managing your finances wisely, you are welcome to share that link with the class.

How to Fill Out the Retirement Savings Calculator

1. Open the “Calc with sample values” tab in the Retirement Savings Calculator worksheet.
2. If you have more than 1 outstanding debt, go to the “avg interest rate on debt” tab and fill out the amounts and interest rates of each debt. Your total debt amount and average interest rate on your debt will be automatically calculated at the bottom of the debt list.
3. Go to the “Calculations” tab. Enter the total amount of your outstanding debt in cell D2 (that is the cell column D, row 2 of the worksheet).
4. Enter the average annual interest rate on your outstanding debt in cell D3. Enter the amount of total monthly payments in cell D5.
5. In cell D8, enter the number of years of delay from today until you start saving. Depending on your situation, this number could be the number of years until your debt is paid from cell D6 or it could be the number of years until you graduate or some other number that makes sense in your situation. It could also be 0.
6. Enter the number of years until you retire in cell D11.
7. Enter the monthly income you want at retirement in today’s dollars in cell D12.
8. Enter the assumed average interest rate on your investments after your retirement in cell D16. This number should be relatively low because most people opt for very safe investments at this point in their lives. These safe investments tend to have lower interest rates than investments that carry more risk. The “Calc with sample values” has a value of 4%. No need to enter the % symbol when you enter this.
9. Enter your estimate of how many years you (and your spouse if you are married) will live after you quit working in cell D19.
10. Enter your estimate of the interest rate on your investments before your retirement in cell D25. Opinions vary widely on the correct rate to use for this. The long-term average interest on stocks in the United States is about 12% per year. Many analysts use this in their future projections. However, many other analysts consider this to be too high due to the long-term effects of the high debt level of the United States government. The “Calc with sample values” has a value of 9%. This percentage is just a number that is somewhere in the middle. It is not intended in any way as an actual prediction of future interest rates. The author of this worksheet has no knowledge of what future interest rates will be and does not intend that anyone use this number as a meaningful prediction.
11. If you have any money invested in savings today, please enter the total amount in cell D27. Do not enter the dollar sign or any commas. Just enter the numerical amount. The “Calc with sample values” has $50,000 just to show the effects of having some money already invested.