Archive for September 2006

Where did you learn to manage your finances?

It is always an interesting to hear others tell me how they learned about how to manage their finances. There are many sources that combine together to make up the average person’s knowledge base for financial management.

Here are some of the sources I have observed/heard/personally experienced:

  • How one’s parents managed their money – This is a VERY LARGE INFLUENCE on one’s knowledge of money management – For good or bad
  • How one’s family managed their money – brothers/sisters/uncles/aunts
  • How one’s friends manage their money – For good or bad
  • Books – I highly recommend “Financial Peace Revisited” by Dave Ramsey, “The Wealthy Barber” by David Chilton, and “Rich Dad. Poor Dad.” and “The Cash Flow Quadrant” by Robert Kiyosaki.
  • TV – This gets a little scary.
  • Auto Dealers – This is more than a little scary.
  • Magazines
  • Newspapers
  • Internet
  • School – elementary/junior high/high school/college
  • Experience – the best teacher of all!
  • General observations of others
  • Financial counselors
  • The Bible – can it get better than this?
  • Church

Regardless of where YOU get your financial knowledge, always check it against the basic equation of:

INCOME – OUTGO = EXACTLY ZERO

If it sounds too good to be true, it probably is. If it sounds like get-rich-quick, it is get-poor-quick. If it requires someone with 10 college degrees to explain it to you, then stay away from it.

  • Keep it simple.
  • Stay the course.
  • Avoid debt.
  • Think long-term.
  • Maintain self-discipline and the power to say “NO!” to yourself and others.
  • Wait overnight before making a large purchase.
  • If you have 10 seconds to make the decision, think for the first 9 seconds.

Are you happy with where your finances are today? If you are, pour more coals to what you are doing. If you are not, go obtain some financial wisdom from trustworthy sources.

Wait overnight for that big purchase

I am selling a house right now. Joy. Joy. Joy.

For most people, a home purchase will be the single largest purchase of anything in their entire life. It needs to be done carefully and with much thoroughness to ensure that it is going to be a good purchase. For most people, waiting overnight seems OK before making an offer on a house.

Is this true for other items?

Let’s take a car. How many people do you personally know that one day showed up with a new car, and you didn’t even know that they were looking for a car? I mean, the car they were driving was newer than yours and ran better than yours, yet they showed up with a new car. The people who I know that bought a car this way did not wait overnight before making the purchase. I also know that many of them got ripped off and did not get a good deal on the car because they were caught up in the frenzy of the buying experience.

Let’s take a hobby. Like scrapbooking. This thing has caught on like wildfire. Ladies are spending money like crazy on this really cool way of displaying the family’s photos. The issue happens when the spending happens without thinking and BOOM $300 later you own everything that Creative Memories offers.

How about a boat? What about the RC airplane? What about furniture? What about a high end dog? What about a timeshare?

Think overnight. You will NEVER regret it!

20 years from now …

I wrote on February 8, 2006 about what life will look like in 20 years if mismanagement of our finances were to continue. That post is located here.

My question today is this: Have you changed anything to make your life better in 20 years?

Many times when I write in these blogs I am writing to myself. I am working through thoughts that are helping to shape my life at the current time. That was the case for my “What Will You Say In 20 Years” post.

I am here to tell you that I have taken SUBSTANTIAL steps to modify the picture 20 years from now.

Steps that I have taken.

  • Resigned position in Corporate America to pursue this passion of my life regarding helping others with their personal finances. I am embarking on a CRUSADE against the “I’ll always have a car payment” and “I’ll always be broke” mentality.
  • I am reading even more books. Filling my brain with information.
  • I met with a personal coach on the topic of Executive Leadership. WHAT A GREAT IDEA! It is an opportunity to have a skilled individual who has a vested interest in you as an individual, but no vested interest in the company. As a result, you can bounce ideas off of them without fear of repercussion or retribution. Very cool.

What steps have you taken?

Does God want you to be rich?

So I was briefly reviewing the web pages that I check daily, and I found this article on www.cnn.com. The question being asked is, “Does God want you to be rich?

Very interesting question, indeed.

The question is often asked. It is interesting to see it being approached by Time Magazine.

I would like to ask the question another way. Does God want you to be poor?

In financial counseling, I have never personally encountered anyone who became poor because God made it that way. There is this one man I have read about in the Bible. His name was Job. You can read about him here. After all of his wealth was stripped away, he still honored God. In the end, God blessed him even more in the last days of his life than at the first.

I do not know how often God lets individuals become poor on purpose (like Job), but I have seen example after example after example where poor decisions have been made that led to the person or couple becoming financially strapped.

Let me list some “poor” decisions.

  • A car financed for 6 years with payments that really can not be afforded. Especially when the vehicle insurance, license plate, and property taxes also go up with the new vehicle.
  • A house with a payment that consumes 50% of take-home pay.
  • A piece of furniture or a ATV that they could not pay cash for and so it was financed for 4 years at 20% interest.
  • Not having an emergency fund with at least $2000 in it. How realistic is it to believe that there will never be a financial emergency in our life?
  • Not thinking about purchases overnight. They are talked in to making a purchase of something they did not NEED by a very talented salesperson. So they bought and now they are paying. (Timeshares are very spur of the moment decisions that are many times a BAD deal.)
  • Not putting money away for the children’s college. If you really do want to help your children out with college, you really should start saving for them. They really are growing older every single day and they will be 18 and headed there before you know it!
  • Not putting money away for your retirement. The word “tire” is in retirement because someday you are going to be very “tired”! If you do not put away money, you will be working when you are very “tired”!

I could list MANY more …

I believe that God has given us this thing called “common sense” and this other thing called a “brain”. He created us in His image. He wants us to think about things. He equipped us to be able to think about purchases and how we should handle our money.

If we truly stopped and thought about our purchases and our overall money management, we would be able to avoid being poor. We could even achieve wealth.

To get it, we need only understand these three things:

  • God is in control
  • INCOME – OUTGO = EXACTLY ZERO
  • We are the managers of our money. We are in control of where our money goes.

Budget + Retirement Savings = Financial Success

There are two critical components to a healthy financial future.

These two items are:

  • Establishing and living by a monthly budget
  • Saving for retirement every single month

Let me tell you about two situations.

Situation One

I have seen situations where a family has not lived by a budget. They do not spend every dollar on paper, on purpose, before the month begins. They have, however, avoided doing DUMB with 000’s behind it. They have some debt, but it is not outrageous. Maybe they have a car loan and some credit card debt.

This family has not lived by a budget, but they have been putting 15% of their pre-tax earnings into a retirement fund (401(k), 403(b), SEP, IRA, Roth IRA, real estate). Every single month. 15% of their pre-tax earnings.

Because this family has avoided signing up for large quantities of debt and has saved systematically for retirement, they will be able to retire with a healthy amount of income.

Situation Two

I have observed a situation where a family has been VERY frugal in their purchases. Never frivolous with their spending. Never turning to debt. They budget every single dollar on paper, on purpose, before the month begins. They live by that budget.

They have, however, forgotten one key line item in the budget: retirement savings. They never were able to force themselves to put away any of their earnings toward retirement. They did not get into the rhythm of putting money towards their retirement every single month.

The result? No debt at retirement, but they are flat broke and totally reliant upon Social Security.

Conclusion

  1. Put money toward your retirement every single month starting this month. Even if it is only $25/month. Do it now! Time is your biggest friend!
  2. Begin budgeting this month! Spend every dollar on paper, on purpose, before the month begins. Live by the budget.
  3. If you do (1) and (2), you will win financially.