Today on MoneyLife with Chuck Bentley

Business expansion

I have a business that is actually doing very well in this economy. I am ready to expand, yet I feel guilty because we have friends whose businesses are not doing well. What do you think about taking a risk and leasing bigger office space in order to accommodate my growing business in this financial market? I can stay where I am for a year or so and plan for this growth.

You shouldn't feel guilty for being successful, nor should guilt influence your decision about expanding. Your business’ success will help others.
Small business owners are the heroes of our economy. Ask yourself these questions:

1. Would you have enough cash reserves to survive another downturn in the economy if you expanded?
2. Can you get a short-term lease for a great price on the property you need?
3. Can you expand without incurring any new debt?

If you can answer yes to all those questions, you should expand. Concern over the future of the economy has many people in a holding pattern. No business owner should have a strategy to just hold onto what they have; you must continually try to grow and expand. There's nothing wrong with being ambitious as long as you’re wise and following God’s financial principles.

Refinance

I would really appreciate your counsel concerning a mortgage refinance. We bought our house 6 years ago for $110,000 on a 5-1 ARM. I am only considering the refinance for the security of a fixed rate in the future.  Seems like most people refinance to get lower payments, but mine will actually be higher.  It surely is tempting to keep paying down principal faster because I can afford to pay extra with the lower variable rates.  I just want to know that I'm doing the wisest thing.

Yes, you should convert to a fixed-rate mortgage. You are exposed financially right now and inflation may be coming that will push up interest rates. I don’t like any adjustable rate mortgages. Now’s a great time to get a fixed-rate mortgage. Get the lowest rate you can and pay for it in the cheapest possible way. Watch out for hidden fees so you don’t have surprises at closing. Get the shortest-term loan possible (15-year versus 30-year). It will cost you more in the short-term but save you money long-term.

Early mortgage payoff

I am 36 and blessed with a wonderful wife who is staying home with our young children, ages 4 and 2.  We have $30k in a money market account for emergencies which we don't plan to touch. We are debt free except for our home (we owe $175k on home valued at $265k). Our 401k balance is $110k. I have a desire (my wife is supportive) to suspend 401k contributions and delay the start of our college savings, in order to focus entirely on paying off our mortgage in 5-7 years if it is God's Will.  Would it be foolish to miss out on the 401k match for those years and to wait that long for college savings?

I agree that paying off mortgage is a great idea. If you pay off your home, you can’t lose it no matter what the economy does. It may go down in value, so it’s not an investment decision. You could lose everything invested in the stock market. It's a good decision to live in a home that’s paid for and save for the future, but you need to agree on paying off the home as a couple. You’ll be able to save more once the home is paid for.

Emergency fund

We are retired, debt free and our health is good.  You say it's wise to have 3-to-6 months living expenses "set aside."  As I recall, this recommendation seemed to be made primarily to someone who is still employed and who would not be able to pay their bills if they lost their job.  Our question relates to the meaning of "set aside."  Our investments are diversified in mutual fund stocks and bonds and certificates of deposit spread out over the next three years.  In one sense, then, these assets are "set aside." Our question is whether it would be wise to begin to significantly increase the amount we have in our savings accounts and possibly short term CDs or stay with our current approach?

Set aside means you have access to the funds and can use them without paying a penalty. CDs, retirement accounts, have penalties for early withdrawals. Money market accounts that are FDIC-backed are better. The funds stay relatively liquid. You should be able to get the money when needed.

Stop 401(k) contributions

My company has just stopped matching contributions to my 401K retirement plan as a way to reduce expenses during this slow economy.  They are planning to match contributions again in 2010.  Would it be wise for me to stop contributing into my 401K during this period as well to give my family more expendable income through the rest of this year?

The answer depends somewhat on the rate of return on your 401(k) and the size of your emergency fund. If your 401(k)'s value is growing, you may want to continue contributing. If you’re losing money and need to increase your emergency savings to prepare for a possible disruption in your income, it would be wise to suspend contributions this year, get your finances in better shape, and start contributing again next year. Adequate short-term savings is more important than retirement savings. You need money you can access without penalty.

401(k) cashout

My husband and I are 26 years old. I will be leaving my job in a few months so that I can finish school. I am not sure what to do with my 401K when I leave. Should I cash it out despite the penalties and put it in our savings or is there another option that would be better? Also, how can we build credit so that we can someday buy a house with out going into debt?

Don’t cash out your 401(k). It's better to open an IRA and rollover your 401(k) funds into it. You can open an IRA at a bank. You can place the funds in a CD, money market, or a mutual fund within the IRA and keep the money in the IRA until you are 59 1/2. Building credit is tricky and must be done carefully. It's best to have small credit accounts that you faithfully pay back. You build credit by paying on time within the terms of your agreement. If you use a credit card, pay it off every month. Saving a large amount of cash to buy a house is just as important as building credit.

Church loan

More than a year ago, a fire destroyed the sanctuary of our church.  I loaned $35,000 to the church for six months. I received a phone call from one of the trustees asking if I would be willing to extend the term on the loan for another six months.  I have decided that I want to apply the $35,000 to my mortgage.  Do I extend the loan to the church and put my plans on hold for another six months?

This is a very bad situation. I've seen it ruin relationships. Give money to a church but don’t loan money. You end up in situations like this where you feel guilty if you say no to the church on the loan extension, but you need the money. Tell the church no, that you need to stick to the original terms of the loan agreement. Once you get payment, close the books on it. If the church needs a loan in the future, suggest it be done as a commercial loan through a bank using the church and property as collateral. Stay away from business deals with the church. Give to the church but don’t be its lender.

Preparing for the worst

I believe that our country is teetering toward an Economic Earthquake depression. How fast should we get out of debt? Should we sell our current house and use the equity to pay cash for another one? Should we be concerned enough to move to a more rural area and buy land in preparation for a very bad and possibly dangerous down turn in our economy?

"Urban Survivalist" describes the mentality that is driving people to stockpile food, grow gardens, and prepare for disruption of utilities. People aren’t crazy, they’re trying to be prepared like people did for Y2K.

No man knows the future. The Bible says if we see danger, we should take action, but we need to be balanced, sober-minded, and full of faith. God is in control no matter what. You need to get debt-free but don’t panic and make foolish decisions.

There's no reason to sell your house unless you can’t afford it. If you can sell your house and purchase another with cash, you should consider that. If you live in a high crime area now, a bad economy will make it worse. If you live in a safe area now, there shouldn’t be much change. Don’t expect a bad economy to destroy otherwise peaceful communities.

Talk to your husband, be unified, work to pay off your house and debts as soon as you can, and live within your means. Above all, trust God.

Investing

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Why Invest

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How to Make the Right Investing Decisions

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The Five Tier System

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Other Resources:

• ABCs of Money Package
• Career Direct
• God's Principles for Operating a Business
• Business By the Book
• Crown Mvelopes