We Were Sinking . . . Fast

I often find myself telling my 14 year old son that, some day, he will understand why I do the things I do/say the things I say/decide the things I decide (as a dad). And then, shortly after saying that to him, I have to remind myself that he just cannot understand these things at this point in his life. Even if he believes me (which is doubtful sometimes), there is something about experience that causes you to understand things in a whole new light.

I remember realizing this after becoming a pastor. Even during seminary, I knew that pastoral ministry was going to be hard and stressful at times. I knew the types of situations that would arise. I knew the difficult tasks and decisions that would have to be made. But having never actually experienced any of those things . . . I didn't really know any of it.

Making the transition from the secular workforce to pastoral ministry would have been hard enough on its own, but adding to our situation was the incredible financial stress my wife and I found ourselves under.

Instead of receiving $4,000/month in tax free income, we received only $3,388 - a $612/month shortfall - due to SECA.

Unfortunately, we had maxed out our budget when we had purchased our home. We bought near the end of the housing bubble of 2007, and while the home we ended up buying was the cheapest in our neighborhood and a complete fixer-upper, it was still ridiculously expensive. Our mortgage payment alone ate up over half of my monthly pay, and we could not cover all of our expenses on my income alone.

The only thing we could do to make ends meet was to begin dipping into our emergency savings, but that was only going to last us so long. We were sinking . . . fast.

Why I LOVE Direct Deposit

I'm not aware of any research that would indicate how most churches handle their payroll, but my guess is (just from personal experience) that most churches pay their pastors using a physical check. That's how our church operated for years. I was paid once a month, at the end of the month, by physical check for six years.

Most of the time, that process worked fine. Some months, I might get paid a couple of days before the end of the month; other months, I would get paid on the last day. However, on more than one occasion, I was paid late.

I remember one time in particular when our financial secretary had an emergency in the family right at the end of the month. She immediately left to be with her family and did not come back for a week. Since nobody else in our church at the time knew how to process payroll, what that meant for me was that I did not get paid until the 5th of the new month!

The uncertainty of this method eventually led me to begin looking into direct deposit options for our church staff. Since we use Quickbooks for our bookkeeping, we decided to use Intuit Payroll's direct deposit service. At only $1.75/paycheck deposited, it is an affordable and easy-to-use solution for churches of any size.

Now, payroll is a breeze, and we always get paid on schedule. I LOVE it.

Thoughts on Preparing to be a Pastor

I regret my choices to attend the college I attended and to major in what I majored in.

Actually, that's not 100% true, but it is about 50% true. It has nothing to do with the school itself, per se, nor the degree, but rather . . . with what I wished I had done.

When I first went to college, I attended a Christian, liberal-arts university. At the time, I wanted to become a politician! No joke. However, during the first semester of my freshman year, God changed my heart, and I committed my life to ministry.

Well, in the church context that I grew up in, when a young man like myself wanted to be in some form of ministry, it was expected that he go to Bible college to prepare himself. Trusting that this was sound advice, I left the university I started at and transferred to a small Baptist Bible college in Wisconsin and majored in Evangelism. I was on my way to being fully prepared for ministry!

Or so I thought . . .

While the Bible college I attended was good enough, I soon realized that what I was learning there was not going to be sufficient to truly prepare me for pastoral ministry. If I wanted to be thoroughly prepared, I would need to attend seminary after graduation.

Upon arriving at seminary, I realized that my three years of training in Bible college had been a complete waste of time and money. Not only was I learning the same things in seminary, but I was learning them in a deeper and more helpful way. I could have attended any college, Christian or not, and majored in any subject, sacred or not, and I would have been just as prepared for ministry after seminary as I was going to be despite my Bible college degree.

This realization deepened even more once I became a pastor. While my seminary education was paying dividends on a weekly basis, there were so many things that I didn't know about taxes, banking, insurance, accounting, bookkeeping, and a whole host of other things. After just a couple of years in pastoral ministry, I knew what I wished I had done.

If I could do it over again, I would not have attended a Bible college, nor majored in any ministry related field. In fact, apart from meeting my beautiful wife and setting me down the path that I am on today, I can't see any benefit to my educational choices at the time. 

If I could do it over again, I would have stayed at the Christian, liberal-arts university and majored in either business or accounting. As the lead/senior pastor of our church, either of those degrees would have been extremely helpful in preparing me for the multitude of non-ministry related tasks and decisions that I, and so many other pastors, have had to face.

If you are thinking about pursuing pastoral ministry someday, let me encourage you to spend your college years focused on a business-related major . . . and THEN attend seminary afterwards to prepare yourself theologically and practically. If you follow this advice, you will be putting yourself in an excellent position for success in the pastorate.

How can a pastor track housing allowance expenses?

When it comes to maximizing the housing allowance designation, pastors have lots of options! However, none of that matters if you cannot substantiate your housing related expenses at tax time. What is the best way to track your housing allowance expenses so that filing your taxes is as simple and fast as possible?

The easiest way is with a paper file. Each year, in January, I create a file in my file drawer for that specific year's taxes. Every time I get any receipt, invoice, or statement that I can use for my housing allowance, I put that documentation in the tax file. I can then forget it until it's time to file my taxes the following year. I know that everything I will need will be in that file, and I will not have to spend any time searching/looking for receipts or statements to verify my housing allowance claim.

It doesn't get any easier than that.

What expenses count towards a pastor's housing allowance?

This is a great question, and one that is very important for pastors to understand. In a nutshell, any expense that is used for the upkeep, maintenance, or provision of your home may be counted towards your housing allowance. This includes:

• Rent, principal payments, down payments, etc.
• Taxes, interest, and insurance on the home and its contents
• Utilities
• Expenses related to purchasing furniture, appliances, decorations, and household goods (e.g. sheets, dishes, towels, etc.)
• Improvements
• Repairs
• Miscellaneous items (e.g. snow removal, lawn mowing expenses, light bulbs, cleaning supplies, etc.)

As you can see, that is a fairly extensive list!

Payroll: What Schedule Should Churches Follow?

How often should churches pay their employees? Weekly? Every two weeks? Bi-monthly? Monthly?

I don't think that there is, necessarily, a right or wrong answer to this question. It's more a matter of what is convenient and/or helpful for the employees and the church.

At our church, all employees are paid monthly on the 28th day of the month. This practice of issuing payroll at the end of the month began before I became the pastor, and so, I cannot explain why we did it this way originally. Having come from the private sector where I was paid every two weeks, it was a bit difficult to make that initial transition into a monthly pay schedule, but now that I've done it that way for ten years, I don't even think about it.

Since our church uses direct deposit to issue paychecks, I like the monthly schedule because it keeps our processing costs as low as possible. The cost to the church to use direct deposit is $1.75/paycheck. Since we have five employees, we pay $8.75/month or $105/year for this service. If we issued paychecks every two weeks, those costs would be approximately $17.50/month or $227.50/year. So, as you can see, the savings we get from paying monthly are not insignificant.

Whatever schedule your church uses, the most important thing is that you are consistent in following that pattern. As I said above, we issues paychecks on the 28th of each month. If the 28th falls on a Saturday, checks are issued on the 27th. If the 28th falls on a Sunday, we issue them on the 29th. All of our staff knows this and can plan accordingly.

This wasn't always the case at our church, and in a future post, I'll share some of that story so that you can understand why consistency in payroll scheduling is so important AND why I am such a big fan of direct deposit for church employees.

I'd love to hear what schedule your church follows for payroll. Leave a comment below or on the Brokepastor.com Facebook page.

Why Didn't Our Church Know?

In my last post, I mentioned that our church was not aware of the fact that what it had seen previously regarding pastoral compensation didn't apply to us. You see, they thought that my pastoral income would be completely tax free, and yet, it wasn't. Why was that?

Well, as I said, when I became a pastor in September 2007, our church was a six-year-old church plant. For those first six years, the man who had pastored our church had been an older, experienced church planter, and sometime before he planted our church in 2001, he had already opted out of Social Security.

Now, in a future post, I'll take some time to talk about the many and varied issues surrounding a pastor's decision to opt out of paying Social Security taxes on his ministerial income, but for now, just know that doing so, generally speaking, makes a pastor's income completely tax free (free from both income tax and SECA).

In my case, however, since I was a brand-new pastor, I had not opted out of paying Social Security taxes. Therefore, while my income was effectively free from income tax, it was not free from SECA . . . but our church didn't understand that distinction nor how it worked.

They just thought that since the former pastor received his full income tax free each month, I would too. They weren't trying to lie to us or mislead us in any way. They just didn't know.

I Wish I had Read this Book Ten Years Ago!

I’ll never forget that phone call.

I was sitting in my study, working on Sunday’s sermon when the phone rang. It was my wife. She had driven with another lady in our church to go to a Women’s Bible Study and had decided to stop at the bank to get $20 from the ATM.

For the very first time in our lives (before or since), we were overdrawn.

I had never experienced that feeling before – sickness and dread and fear all mingled together. To this day, I’m not sure what was worse – hearing the fear in her voice as she struggled to hold back the tears or the feeling of fear in my own heart as I was totally blindsided by the news.

How could this have happened?

After four years of Bible college and four years of seminary, I became the lead pastor of a small, six-year-old, church plant in September 2007. Even though the church was struggling in many ways, they wanted to do the best they could to help provide for us financially. They offered us a starting salary of $48,000/year along with full health coverage for our family.

The best part was, they said, that our salary would be “tax-free” because I was a pastor. We were so excited! We decided to buy a house based on that information. We set our budget based on that information. In fact, we planned a lot of things based on that information.

However, when I got my first monthly paycheck, instead of receiving $4,000, I received $3,388. Something called SECA had taken 15.3% of my expected salary away.

We were devastated.

Less than one month into pastoral ministry, our plans, our budget, and our house payment were all in serious jeopardy . . . and there was nothing we could do about it.

This is why I decided to write How to Not be a Broke Pastor and Structuring Pastoral Compensation. The first is written to and for pastors. The second is written to and for churches. If either I or our church had read these books ten years ago, the situation I just described would have never happened.

However, the old saying is true - you don't know what you don't know. I didn't know enough to ask the right question so that I could understand how my pastoral compensation would actually work. Our church didn't know enough to understand that what they had seen elsewhere wouldn't apply to me.

We were both flying blind . . . and that was the problem.

Welcome to Brokepastor.com

After ten years of thinking about the many complexities surrounding pastoral compensation, I was finally encouraged to sit down and begin to write about everything that I have learned.

The fact of the matter is that there is no single book or resource on the market today focused exclusively on understanding pastoral compensation in a way that I think is truly helpful to both pastors and churches. My goal is to fill that need.

As I begin this journey, my prayer is that I will be a blessing to the thousands of pastors across America who are struggling to understand how to manage their money well.

Sincerely,

S.L. Potts