4 Financial Planning Tips Every Pastor Needs to Know
If you’re a pastor, you know that money matters. The Bible contains more than 2,000 verses about money and about 15% of Jesus’ teaching was on the topic of money and possessions. But how much do you actually know about money?
Whether you went to Bible college, seminary, or are simply self-taught, chances are you spent your time digging into the Scriptures, not finance. Your hermeneutics and homiletics may be fine-tuned, but you probably weren’t taught much more about personal finance than the average American.
I really appreciate and admire the work that you do as a pastor. What you do is so important to me that I would like to come alongside and help you. You see, unlike you, I spent my education studying finance and money matters. I am here to help you with the financial side of your life so that you can focus on what God has called you to- pastoring His people.
Here are four personal finance topics unique to pastors that you need to understand in order to be a good steward of the finances God has entrusted to you:
1. Optimize Your Clergy Housing Allowance
One of the greatest financial planning opportunities you have as a licensed minister is the clergy housing allowance. It gives you the opportunity to exclude all of your housing expenses from your federal taxable income, which can provide huge savings.
The housing allowance isn’t just for mortgage payments or rent, it can be used for any expenses incurred to establish a home. These include:
- Down payment on a home purchase
- Mortgage principal and interest payments
- Property taxes
- Homeowner’s insurance
- Structural maintenance and repair
- Landscaping, gardening and pest control
- Furnishings (purchase, repair, replacement)
- Utilities (gas, electricity, water, internet) and trash collection
- Land telephone line
- Cable TV expenses
- Homeowner’s association dues/condo fees
Every year you need to anticipate your annual expenses and request the allowance from your church. They will not include the amount you requested in your taxable income. At the end of the year, you add up your actual expenses (keep your records!) and any excess housing allowance needs to be added back into your taxable income when you file your return.
If you have not opted out of Social Security, you cannot exclude the housing allowance when calculating your self-employment taxes. Also, while the clergy housing allowance is exempt from most state income tax, you should double check with your state just to be sure.
2. Social Security: Are You In Or Out?
If you are a pastor or minister who has been licensed, commissioned or ordained by a tax-exempt church you have the option of opting out of Social Security. In order to do so, you must oppose receiving public insurance because of your religious principles or be conscientiously opposed to it and you have to sign a form saying so.
Social Security is designed as a safety net, and if you choose not to participate you will have to create your own safety net. Most people think of retirement benefits when they think of Social Security, but the program provides much more. In addition to retirement benefits, Social Security provides disability benefits, survivor benefits, and covers some Medicare premiums.
If you have chosen to opt out of Social Security, it is vital that you buy disability insurance, life insurance, and are saving enough for retirement to cover both your living expenses and your Medicare premiums. Each of those is essential to creating your own safety net.
3. Know Where Your Money Comes From
Speaking of taxes, they can get a bit complicated for pastors. Whether your income is from ministerial duties or non-ministerial duties and whether you are paid by a church or employer or someone else all affects how the IRS treats the income.
You can only opt out of paying Social Security taxes from your ministerial income. If you have a non-ministry job, you will have to pay Social Security taxes on that income whether or not you’ve opted out.
If your church is not exempt, they will pay the employer portion of your payroll taxes (as would a secular employer) if you haven’t opted out of Social Security. However, money and gifts you receive from individuals for performing weddings, counseling, etc. are considered self-employment income and you will have to pay the full 15.3% tax yourself.
You should track all of your income throughout the year including what you did to earn it and who paid it. Then, work with a tax preparer who has experience working with pastors when you file your return.
4. Your Personal Finances Are Not Personal
Have you noticed that when people don’t want to discuss something they always say, “It’s personal”? Well, I’m sorry to tell you, but if you’re a pastor, your finances are not personal.
Just as Paul told the Corinthians to “follow my example, as I follow the example of Christ” (11:1, NIV) your congregation will follow your example. They look to you as a role model and you will set the standard for stewardship in your church.
You cannot expect your congregation to be generous givers and wise stewards if you are not doing it yourself as their leader. First Timothy 3:5 even says, “but if a man does not know how to manage his own household, how will he take care of the church of God?” (NASB) The mandate is clear: part of your calling as a pastor is to be a good steward of your own finances.
How are you doing in these four areas? If you need some help with any of them or have any questions, I’m here for you. Just pick a time here for a free 30-minute phone or video call to discuss how I can help you. Once again, thank you so much for your service to the Kingdom!
About Guide Financial Planning
Guide Financial Planning (formerly Wacek Financial Planning) is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can learn more about Guide Financial Planning and our team here and the services we offer here.