Should I leave an inheritance or give away most of my money during my lifetime?
Should I pay off the mortgage early or invest that money in retirement accounts and college funds?
How much life insurance is enough?
How much retirement savings is enough?
How much money should I give away?
These are hot topics for those who are living below their means and have income to work with. We’re such money nerds we’ve even been known to discuss these topics during our monthly date nights. Once you get your spending under control, have a yearly budget, and have implemented some practical thrifty ideas, it’s time to start thinking about building and sharing wealth. As I mentioned in Resolve Your Reasons This Year, I recently read Money, Possessions, and Eternity by Randy Alcorn (2004) and chased it with Dave Ramsey’s latest, The Legacy Journey (2014). Both authors are Christians and wrote these books at least in part to share what they believe the Bible says about money. Their messages are strikingly similar in some areas while very different in others. Reading them back-to-back was challenging and thought-provoking, which is why I’m comparing and contrasting their views for you.
Before getting into the details, I want to fairly convey the purpose of each book. Alcorn’s book is not a how-to book. He is a full-time pastor with some thoughts on practical financial principles, but the book is mainly a treatment of the Scriptures on money-related topics. The subtitle of Ramsey’s book is “a radical view of Biblical wealth and generosity.” This is the famous financial adviser’s first book to delve into the Scripture’s teaching on money, but he only deals with a few passages he believes are often misunderstood. The main topics of his book are leaving an inheritance and giving generously. His book is A LOT shorter!
Ramsey’s book aims to counter the “toxic messages” that rich people are evil, their wealth always takes away from others’ fortune, and that they should be judged for enjoying their wealth while also giving generously. He provides practical examples of what to do with “extra income” beyond a set amount one agrees to live on. He suggests setting ratios on the overflow for giving, (taxes), investing, and “lifestyle” (= fun). Basically, his book is for people with money. Normal people who are approaching steps 6 (early mortgage pay off) and 7 (build wealth and give) will benefit from his book and it may help them make decisions about investments, budgeting extra income, giving, and leaving an inheritance.
Alcorn’s book basically assumes the reader will not become wealthy since he advocates giving away most extra income immediately, after investing something for retirement, children’s college, and leaving room for modest discretionary spending. With the exception of the tithe he avoids specific, numeric advice to leave room for personal decision-making. He says he struggles all the time with the tension of how much to save for retirement vs. how much to give away now. Clearly he prefers to err on the side of generosity. He critiques “financial independence” on some of the same grounds we do, which is why we’ve coined financial flexibility. We’re managers, not owners, of the wealth God’s given us, and we always want to depend on God financially and otherwise. And we want to use money to help others as well as meeting our needs.
Here’s the throw down of their positions on different financial topics, with my two cents, too:
|Ramsey||Alcorn||Pretend to Be Poor|
|Debt||No consumer debt.Get rid of student debt ASAP.
15-year mortgages recommended; pay off early after steps 1-5.
|“We shouldn’t normally borrow and should always pay off debt as soon as possible”
“Not all debt is the same” e.g. mortgages can be reasonable. He paid his off early.
|No consumer debt, including cars.
Get rid of student debt ASAP by living like a student.
15-year mortgage; pay off early if possible.
|Insurance||Get term, not whole life insurance.||Most Americans are over-insured.Life insurance should meet family’s needs for a period of time but not indefinitely.
Don’t replace depending on God & Christian community with insurance.
|Get term, not whole life insurance.|
|Investing for retirement||Once consumer debt is paid and 3-6 emergency savings funded, invest 15% of income in retirement accounts.||People think they need enough to live a high-expense lifestyle indefinitely to retire.
Don’t replace depending on God & Christian community with retirement account.
Tension between meeting others’ present needs and our future needs; seek the Lord.
|Get your employer match.
Invest 15% after consumer debt paid & emergency fund in place.
Conflicted about investing more vs. paying off house early.
Investing makes more sense mathematically but we like the flexibility of no debt.
Not over 10% until out of consumer debt.
Occasional extra giving after out of consumer debt.Set an amt to live on & set a giving ratio for “overflow.”
“Go crazy” with giving once you get to step 6 or 7 (see above).
Leave a golden goose (principle) that will continue to lay eggs.
Set an amt to live on that includes some recreational/discretionary spending, and investing for retirement/college funds, and give away the rest.
Your lifetime is your opportunity to give; leaving isn’t giving; aim to leave as little as possible beyond small gift amounts.
|10% or more recommended.
Live on less without being miserly.
Extra giving: prayerfully respond to needs as they arise.
Time is also an important resource; therefore, we do not plan to build wealth at the expense of spending time to help others now.
|Inheritance||A good man leaves an inheritance to his children’s children.
Only to be given to children who are following the Lord & agree on how to use the money for God’s kingdom.
The golden goose should be kept to lay eggs to give away.
|Only leave small gift amounts.
You don’t know what your children will do with wealth; it is more likely to ruin than to help.
Don’t set up a foundation; how can you tell God the principle is untouchable?
|??? Not there yet in our financial journey.
As of now we’d leave money for our children’s care since they are young.
Overall, the normal income person could come away from the books with very similar applications. Give at least 10%, and more when you can (I don’t believe there’s anything magical about 10% but it’s a decent baseline). Get out of debt and stay out. Don’t over-insure. Plan for retirement and kids’ college. The big difference is their take on investments for building wealth and giving. I can see why, as a pastor, Alcorn has a different take on these issues than Ramsey, who has advised very wealthy people. I tend to agree with Alcorn’s interpretations of challenging money’s passages, but don’t like how he explains away Ramsey’s key verse about leaving an inheritance to your children’s children. I’ll post a more in-depth review of Alcorn’s book next since he deals with a lot of interesting principles that don’t fall into these categories.
Which author do you tend to agree with more? What financial questions do you wrestle with? Have you thought about leaving an inheritance?