Archive for April 2006

READ!

To better understand anything, it is always very helpful to read some books about it. For personal finances, it is no different. I recommend that you read at least 4 books a year about personal finances. I do understand that I am a nerd about this subject, but I believe that if you want to free yourself up to focus on your life’s true passions, you need to be financially free. You will not just trip one day and become financially free. It requires continuous learning, a written plan (your budget), stated goals, and mutual commitment with your spouse to achieve them.

Reading books is a great way to learn! It helps to expand your knowledge about personal finances. It enables you to review case studies of others who have had different life circumstances. It challenges your paradigms.

If you are looking for books that have helped shape my personal finances, here they are. Happy reading!

The Wealthy Barber by David Chilton
– I read this book when I was twelve. Great book that really drives home compound interest!

Financial Peace, Revisited by Dave Ramsey
– Practical guide to becoming debt-free complete with the tools/worksheets necessary to achieve it!

The CashFlow Quadrant by Robert Kiyosaki
– Makes you want to run out and start a business!

The Bible by God
– Makes you want to use your financial freedom to help the poor and less fortunate and reach the lost!

Helpful Personal Finance web sites

Here is my list of helpful Personal Finance web sites:

1. Dave Ramsey’s web site
– Dave is a HUGE hero of mine!

2. Cheapskate Monthly’s web site
– Their monthly newsletter helps keep you motivated to save!

3. CNN’s Personal Finance web site
– I don’t agree with everything they tell you, but it is very informative!
– I really like their on-line classes about personal finances 101 classes

4. Yahoo’s Personal Finances web site
– Good info – poor page layout

5. USA Today’s Personal Finance calculators
– I really like the one that tells you when you will be a millionaire

I hope these sites help! I challenge to constantly learn more about your finances. You will either know what is going on with your money, or you will be wondering where it all went. Choose to learn.

Unexpected money

If you have a detailed financial plan (a monthly zero-based budget) and you receive unexpected money, you will know exactly where that money can be put to good use. If you do not have a plan, there is a good chance that the money will leave you quickly.

Marketers understand our ability to impulse purchase when we receive unexpected money. To ensure that an unexpectedly large tax return is not used elsewhere, car dealerships will do your taxes for you if you use the tax refund as your down payment. Lottery winners are approached by many who have a “great deal” for them. Those who receive an inheritance are suddenly offered “opportunities” that did not previously exist. If a large company gives out bonuses every Christmas, the employees are all marketed to by the local stores and businesses to get them to spend the bonus at their store.

I believe that if we receive an unexpected money and there is no plan, then it is not going to be a financial help to us. It will only allow us to acquire more junk that we will later sell at a yard sale or give away to Goodwill. If we do have a plan (a monthly zero-based budget), we will improve our chances at gaining financial freedom.

Do you ever receive unexpected money? Do you have a plan?

Why?

Today is a day to observe human behavior.

Have you ever met someone who is so excited about some new thing? This new thing could be a new friend, a new girlfriend, a new boyfriend, a new car, a new house, going to college, a new boat, football season tickets, on and on and on … Anyway, they are sooo excited about this new thing.

How do you know that they are excited? They talk about it all of the time. They speak more rapidly when talking about it. Their voice changes when they talk about it. They are more animated when they speak about it. They let everyone they know about this new thing in their life. They are pumped up!

Flash forward six months. Gone is the excitement. Now, that new thing is not as enticing. It is part of their life now. It may not even be a part of their life anymore. If it is still in their life, it may still be nice, but it certainly does not get the level of attention it was getting when it first became part of their life.

Why is this?

Now, I have to apply this to personal finances.

I have seen people learn the financial principles necessary to win (emergency fund of 3 – 6 months expenses in savings account, saying NO to debt, become debt-free, save for retirement and college, and budget monthly). They put together their first monthly budget. They are so excited! They tell everyone about it. “This budget is working!” “This is awesome!” “This is fantastic!”

Flash forward six months. Gone is the excitement. They have stopped budgeting. They have not been able to control themselves and have went and bought a new truck with 100% financing. They are right where they started. This REALLY IMPACTS MARRIAGES!!! I have seen married couples who cannot even talk about finances anymore because one or both of them knows beyond a shadow of a doubt that they have just deepened the hold that debt has on them. Proverbs 22:7 says that the “borrower is servant to the lender”. I have seen the servants. They have no hope. Hope is what sets fire to the human soul. When that hope is lost – the end.

I have personally counseled many who have went this very path. My heart hurts for them. The somberness is palpable. It really is tangible. They have lost hope. Some have lost everything they owned. They know what must be done, but for some reason unknown to me, they cannot make themselves do it. I pray for them now. Lord, help them become free of financial bondage. Restore HOPE to their lives. Help them establish personal discipline to make it happen.

Gain control of your finances

It is time to gain control of your finances. Life is way too short to continue living from paycheck to paycheck. Here are some sure-fired ways to gain control of your finances.

  1. Stop blaming circumstances, other people, or your spouse
  2. Sit down (with your spouse if married) and list all of you bills on paper. For each debt (i.e. student loan, car, house, etc.), list the name of the creditor, the total amount owed, and the monthly payment. For each monthly bill (i.e. electricity, phone, etc.), list the company and the current monthly payment owed.
  3. List all of your monthly payments due THIS MONTH in one column. Total up the monthly payments.
  4. List all of your other money needs this month (groceries, gasoline, baby gifts, stamps, dining out, blow-it money, vacation savings, emergency fund savings) in another column and total them up.
  5. List all of your income for THIS MONTH in another column. Total up the income for the month.
  6. Complete this formula:

TOTAL INCOME – MONTHLY BILLS – ALL OTHER MONEY NEEDS = ZERO

The total of this equation must equal ZERO. If it is a POSITIVE number, it means that you have not given each dollar of income a name. You have not assigned all of your income to a category. This cannot happen. Money that is not given a name will leave you. Here is a good place to put extra money – debt reduction or emergency fund savings!

If the total of this equation is NEGATIVE, it means that you are OVERSPENDING your income. This cannot happen. You will empty your savings or turn to debt to cover the negative amount. You will not win if this happens. Instead, go back through your monthly spending and reduce it to cover the gap. You can also boost income if you have overtime or a 2nd job as an option. Either way, this must balance to zero. You will not win otherwise.

AGREE TO LIVE BY THIS BUDGET!!!