According to the Bureau of Labor Statistics, the prices of consumer goods continue to rise. The signs of inflation are apparent at every checkout station. If you are like most Americans, your wallet feels costs increasing far more than the 8.6% reported recently by the Bureau of Labor statistics.1 Between the drastic jumps in food and energy, many ministers are tapped out just paying for the basics.
In this article, Christian Messemer, Ph.D., CFP®, and Senior Financial Planner with Clark Asset Management, gives ministers a few do’s and don’ts to help battle inflation’s impact on their budget.2
Turn to your church for solutions
Increase your income through other opportunities
Most financial planners start with the expense side of the equation, but in our experience, there are at least four ways a church could assist their minister: mileage reimbursement policy, housing allowance, parsonage utilization, and cost of living adjustment.
Mileage: Between hospital and home visits, ministers put many miles on their vehicles. Despite this, many smaller churches do not have a mileage reimbursement policy. Yes, ministers can log miles and deduct them on their taxes or have the church reimburse them for gas. However, the reimbursement policy wins (in most cases) when you examine the math. As of 2022, the standard mileage rate is 62.5 cents per mile. This rate takes into account fuel costs and wear and tear on one’s car.
Housing Allowance: A benefit some ministers neglect is the housing allowance. The housing allowance allows ministers to segregate their income into two buckets: Earned Income and Ministerial Housing. While they are responsible for paying Self-Employment Tax (15.3%) on both buckets, they are exempt from paying Income Tax on the Housing Allowance Bucket. Depending on the one’s compensation and monthly housing expenses, this small change could yield substantial tax savings.
Parsonage: Parsonages are not nearly as popular a benefit as they once were, but if a minister is struggling with rising costs, and the church has a parsonage and the church has a housing option available, making the change could help one trim costs dramatically. Please note, that the fair rental value of the parsonage will be included for Self-Employment, but not Income Tax purposes. Also, any expenses NOT paid for by the church are eligible for the Minister’s Housing Allowance.
Cost of Living Adjustment: A cost-of-living adjustment (COLA) is just that, an adjustment to a minister’s wages to offset rising inflation. The goal of a COLA is simple, to keep the minister from falling behind as life gets more expensive. A COLA is not a raise or bonus, so be sure your church does not conflate the two. However, COLA conversations transition well to yearly compensation discussions.
Some ministers need more assistance than their church is capable of providing, which necessitates the pursuit of outside income opportunities. Outside employment is not uncommon among Texas Baptists. According to our 2018 Pastor Finances survey, 55% of the average Texas Baptist minister’s total income comes from church-related compensation, 19% from outside work they do, and 26% from other sources such as Social Security or their spouse’s job.
Part-time employment: For some ministers, taking a part-time job is the difference between a debt spiral and making ends meet. Such pursuits allow these ministers to remain a full-time employee of their local church, while pursuing outside employment opportunities in their off hours.
Full-time employment: Others choose to make a more drastic change. These ministers transition to a full-time, non-ministry, position within the local community. Such a move allows the minister to continue to allow him to lead his local congregation, while also providing for his family. Here, the minister becomes bi-vocational. This may be a difficult conversation and transition to have and make, but this move is still far better than losing a committed shepherd.
Minister’s Financial Health Grant: Texas Baptists offer a Minister’s Financial Health grant to equip pastors and ministers for financially healthy careers in ministry. Structured as a matching grant funded by the Lilly Endowment, it requires educational components including personal financial counseling and completion of an online seminar with a lay leader. In addition, the minister and their church must raise $2,500, which Texas Baptists match, dollar for dollar. Mary Hill Davis, Texas Baptists Missions Foundation, the Baptist Health Foundation of San Antonio, and the High Plains Christian Ministries Foundation may also provide the match for ministers and churches who lack the financial ability to contribute. Visit www.txb.org/cfh for more information and to apply.
When the pressure mounts it is easy to look for the quick fix. Unfortunately, quick fixes tend to be short-sided and hurt our finances in the future. When it comes to personal finance, take the long-term approach.
Credit Cards: Credit card usage is increasing. As balances balloon, there appears a new enemy: interest rates. As interest rates increase, the cost of carrying credit card debt increases. Over time, the carrying cost of debt requires more and more present cash flow for payments, causing families to fall further behind.
Cash-Out Refinance: A cash-out refinance takes equity out of your home. While this may be a suitable option, if you are struggling to make ends meet, the last thing we would advocate for is more debt. With the recent jump in interest rates, refinancing now most likely means jumping out of a lower interest rate loan to one with a higher rate.
Withdrawing retirement funds: It is tempting to see one’s retirement funds as another savings account to tap. However, unless a minister is in retirement, those funds are earmarked for your “future self.” Do not borrow from your family’s tomorrow.
Decreasing/stopping your retirement contributions: While it seems like a good idea to free up cash, decreasing contributions to your retirement accounts sacrifices your future for the present. The retirement savings of ministers is already low, so any decrease only makes your future retirement funding situation worse. Dollar cost averaging and the power of compound interest are your best friend.
With inflation over 8%, year after year, some pastors are struggling to make ends meet. This article suggests three ways to battle inflation: turn to the church for solutions, increase income, and avoid the quick fix.
1CPI Home: U.S. Bureau of Labor Statistics, https://www.bls.gov/cpi/, Accessed 26 June. 2022.
2A recent graphic by Visual Capitalist depicts well how the bare necessities upon which many of us depend have drastically increased over the past year. From May 2021 to May 2022 Americans have seen the following price increases: Eggs (+32%), Poultry (+17%), Milk (+17%), Coffee (+15%), Baked Goods (+11%), and Fruits and Vegetables (+8%). Marcus Lu, “3 Insights From the FED's Latest Economic Snapshot, ” Visual Capitalist, https://www.visualcapitalist.c...) 26. June. 2022.