Archive for December 2006

Children need to learn about money

One thing that really pumps me up is seeing parents teaching their children how to manage money well.

I remember as a child that I knew the value of money.  I was the youngest of six children.  My dad was self-employed and my mother kept the six boys in line.  We knew the value of money.  How did we know the value of money?

We rarely went out to eat.  Why?  We could eat at home sooooo much cheaper.

We planted a HUGE garden.  We picked, cleaned, snapped, and canned over 100 quarts of green beans in a single day multiple times.  We planted an ACRE of sweet corn.  We boiled that corn, cut the kernels off, but them into freezer bags, and froze hundreds of bags of corn.  We picked grapes until it filled 5-gallon pails and made grape juice out of it.  We grew asparagus.  We grew tomatoes – yellow and red.  Butternut squash, zucchini, yellow squash, pumpkins, … the list goes on and on.  Why did we plant a huge garden?  It was much cheaper than buying it at the grocery store PLUS my parents had six laborers available!

We went on vacation, but we went to places that were cheap and accommodated large families (country areas).  We loved every single vacation.

My dad attempted the weekend farmer thing.  We had a cruddy old Gleaner combine that broke nearly every time we took it out.  We saw how tough it was to get ahead if we did not plan on break downs!

My dad gave me a book when I was around twelve years old called The Wealthy Barber by David Chilton.  It was a fictional story written around the concept of compound interest.  WOW!  It got my attention and the instant I began earning an income, I started investing money – in large part due to reading that one story!

Children need to learn about money.  I learned about how to manage money from my parents.  I DID NOT learn how to manage money from the school I attended.  For most children, the number one way they will learn how to manage money is from their parents.  Are you setting the example?  Are you teaching them the "How-To" part?

If you are looking for a great place to start teaching your children about money, it would be during Christmas break.  Get a copy of The Wealthy Barber by David Chilton and read it together with your children.  Sound nerdy?  Maybe, but I guarantee you that your child will not forget it!

The hooks are into those with high incomes!

"To be able to save, I will need to make more money."

I have heard this said a lot.  Have you?

It is true that INCOME is one part of the INCOME – OUTGO = EXACTLY ZERO formula, but it is a rare situation indeed when a person's only hope for saving money is to raise their income!

Remember that this I am a financial counselor who sees many financially stressed persons every week!  RARELY is it an INCOME issue.

Most times, it is an OUTGO issue!

For those who are high income, it is amazing how many barbed hooks are sunk into the income!  Here are just some of the hooks …

  • 1st house, 2nd house, 3rd house
  • For each of those houses come the accompanying bills:  Electricity, Gas, Cable, Phone, Lawn Care, Housekeeping, Maintenance, Insurance, Taxes, etc.
  • 1st car,  2nd car, 3rd car
  • For each car, the bills roll in: Insurance, Taxes, Maintenance, Gasoline
  • Vacations
  • Country Club memberships
  • Jewelry
  • High Fashion
  • Box Seats for all events
  • Personal Fitness Trainers
  • One-on-one lessons
  • Private schools
  • Super-pricey college

The list goes on and on and on!  If those with high incomes do not watch out, they can be spent into the poor house before they can blink twice!

Why are those with high incomes at the most risk?  Well, people generally know that these individuals earn a high income, so they are sought out by those with something to sell.  If you want to make some money, you might as well go to those with some to spend.  Preferably a LOT to spend.

In the book The Millionaire Next Door by Thomas J. Stanley, Stanley describes persons as PAWs and UAWs (Prodigous Accumulators of Wealth – PAWs or Under Accumulators of Wealth – UAWs).  PAWs have a net worth equal to 10X their annual income.  UAWs have a net worth equal to less than 3X their annual income.

As Stanley performed analysis on PAWs and UAWs, he noticed a very clear distinction about UAWs.  They had a stated or unstated need to "keep up with the Jones's".  As a result, they spent more money than they made, and although they might have $300,000 in the bank, their peers have over $2,000,000 in the bank.  Why?  The UAWs allowed the hooks of "keeping up with the Jones's" to sink in!

If you are a high income earner, beware the hooks!  Ensure that you understand that YOU are in control of your finances – not the slick salesman or your broke friends.  How much could you leave to your children if you removed some of the "hooks"?  How much could you spend on things you really liked if you removed some of the "hooks"?  How much could you give away to causes you deeply believe in if you removed some of the "hooks"?

If you are not a high income earner, avoid the "keep up with the Jones's" mentality and pursue financial freedom instead.  If you keep saving, every single month for years, you will have a high income.  You can do this!

To those who are changing entire financial future …

You PUMP me up!!!  I am excited to see the huge improvements that you are making in the management of your finances!

I am in the midst of meeting with over 40 couples over the next few weeks.  It has been awesome to meet with each individual and couple, hear their story, and be able to help them produce their first-ever budget!  It has been awesome to conduct scenario-analysis to say, "What if you did this … ?"  and "You would be 100% debt-free in 6 months if you just did this …" and "You can RETIRE!"

I have seen people with NO HOPE leave with a spring in their step and saying, "I SEE HOPE!!!"  I have seen people who have NEVER worked together on their finances sit together in my office and WORK TOGETHER to put together their spending for the next month.  I have seen people who have significant financial mountains/monsters in their life with NO PLAN for how to deal with them leave with a REALISTIC PLAN for eliminating the mountains/monsters.

Most of all, I see couples working together to achieve the plans they have for their lives!  I see couples working together to teach their children.  I see people going and teaching others that there is indeed a better way!

Way to go!  I am inspired by you all!

Do we deceive ourselves?

I am currently working through some materials written by John Ortberg, and yesterday I came across a sentence that made me stop short.

He wrote, "Truth confronts the unfortunate tendencies we all have toward self-deception."

Wow!  Do you have a tendency to deceive yourself?  I know I do!

I used to really deceive myself when it came to my finances.

I would deceive myself by making a bad financial decision and then say to myself, "Oh, it's not really that bad.  You will be able to pay for it with your tax refund next year."  By the time the tax refund arrived, I would realize that I had spent 2X that amount – planning on using the tax refund to pay for both.  Self-deception.

I would deceive myself by saying, "I will follow this budget that I put together for this year."  And, then I would not follow the budget.  But I could say that I did have an annual budget!

I would deceive myself by saying, "I have paid off these credit cards.  We are not going to go through this again."  And, guess what?  I would load up the credit cards again.

Let's go back to what John Ortberg wrote: "Truth confronts the unfortunate tendencies we all have toward self-deception."

What were the TRUTHS that confronted my self-deception?

  • The TRUTH is that it really is BAD to spend money you do not have!  Planning on using upcoming payments is not good enough!  The TRUTH is that when you pay cash for items, you will NEVER run into the "Oh no, I have overspent the tax refund" situation.
  • The TRUTH is that a monthly budget that is developed using INCOME – OUTGO = EXACTLY ZERO as its basis will work ONLY when you commit to actually following it!  Developing a budget would be a worthless paperwork exercise for Jenn and I if we were not 100% committed to following it.
  • The TRUTH is that if I have a credit card, there is a HUGE chance that I will run up a balance on it.  I have lost three times with the credit cards.  Getting rid of the credit cards and closing the accounts was a key reason that Jenn and I became and have stayed debt-free.

Call things what they really are.  Ensure you have a truth-teller in your life (spouse, someone who is winning with their money) who will ensure truth is spoken to you.  It really will confront our unfortunate tendency toward self-deception.

Leadership in Finances

What does the word "Leadership" mean?

Well, it is (as my 7-year old daughter informs me) a compound word comprising of two words: Leader & Ship

I started thinking …  What does a Lead Ship look like for the Navy?

Here are some characteristics that describe a Lead Ship:

§         Always out in front

§         1st to confront the enemy

§         Scares the enemy (why do enemies always try to attack the rear?)

§         Always prepared for the surprise

§         Best people are on board

§         Nimble and Flexible

§         Trusted

§         Heavily Equipped/Armed

§         Always on the lookout

§         Newest/Best knowledge and equipment

§         Has a plan!

§         Leads others

How does this apply to your finances?  Well, do you exhibit the same characteristics when it comes to the way you manage your finances?

Do you have a plan?  Are you prepared for the surprise?  Do you have a plan?  Are you flexible?  Are you able to be trusted?

Look through the list.  What do you need to do to exhibit these characteristics?