How to Manage Your Money: |
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The bottom line: God owns it all. List your assets. Now start thinking about them as "God's assets in my care." We are stewards, not owners. (Job 41:11, Haggai 2:8, 1 Corinthians 4:1-2)
Trust God to meet your needs. (Matthew 6:25-33)
Learn as much as you can before jumping in. Loads of web sites offer investing information, but beware of the many that are trying to sell you something or take charge of your money. Of the thousands of books on investing, I recommend that you start with these two: Harriman's New Book of Investing Rules: The do’s and don’ts of the world’s best investors and The Most Important Thing by Howard Marks. Join the AAII (American Association of Individual Investors) or at least check out some of the material on their web site.
Set long-term financial goals. (Luke 14:28-30) Goals benefit you in four ways:
- Goals provide direction and purpose.
- Goals help you crystalize your thinking.
- Goals provide personal motivation.
- Goals are a statement of God's will for your life. (Proverbs 21:5)
Save, Save, Save. Yes, you have a lot of expenses, but you can't afford NOT to save. Want ten reasons to save? (I could give you 100)
- Your car will break down someday. (Not "might," but "will.")
- Christmas and birthday presents.
- Babies and children.
- Trips home, visits to parents and grandparents.
- Vacations and time away.
- Retirement (Who me? That's decades away!)
- Payments on a house.
- Furniture.
- Hobbies.
- New computer or cell phone.
Save at least 5 to 10% of your income. Even if your income fluctuates, save the same amount every month or every paycheck. It's tough, but if you don't put it away for yourself, who will?
Be impatient to get your money working for you; be patient to let it keep working for you.
Spend less than you earn over the long term. In other words, live within your means. Here's a little poem for you:
When you get a job that pays you more,
Continue to live as you did before.
Adopt a nonconsumptive lifestyle. Live simply and sensibly. (Luke 12:15) Make serving and saving your first priorities.
Don't be "penny wise and pound foolish." The phrase was coined by Robert Burton in his work The Anatomy of Melancholy in 1621. Basically it means being careful and economical in small matters while being wasteful or extravagant in large ones.
Economize in sensible ways. Two mix-and-match outfits and three scarves will get you more mileage than six separate outfits and cost a third as much.
Remember the "opportunity cost" of consumption. If you buy something you don't really need, you aren't just losing the amount of money that it cost. You are actually losing what that amount could have grown to over time with compounding (interest or investing).
Compounding can be your best friend or your worst enemy!
Understand it. If you put $1,000 in a bank CD paying 5%, in 25 years it will be worth $3,400. If you put the same $1,000 in the stock market and if it grows by 10% per year (about its historical average), your $1,000 will grow to $10,800 in 25 years. Conversely, compounding can work against you in paying off your credit card bill with the bank charging a whopping 19.9% rate of interest.
Here's a direct comparison of compounding at its best and worst:
• Invest $10,000 in a bank CD at 5% for 10 years and you'll get $16,289 back, a gain of $6,289.
• Invest $10,000 in stocks at 10% for 10 years and you'll get $25,937, a gain of $15,937.
• Pay off $10,000 in credit card debt at 20% for 10 years and you'll pay $61,917, a cost of $51,917 in interest!
Debt of any kind is BAD. Debt always presumes on the future; if you take on debt today, you must repay it tomorrow. And who knows what tomorrow will bring?(Romans 13:8, Proverbs 27:1, James 4:13-16).
Four reasons to avoid debt altogether:
- Compounding works against you.
- Getting in debt is much easier than getting out.
- Debt mortgages the future, i.e., because of the interest payments you must make, you are sentencing yourself to a lower standard of living in the future.
- Debt robs you of your freedom of choice. When you have debt, repaying it becomes your overriding number one financial priority.
Don't lease anything. Ever. (Unless the lease rate is less than the interest you can get on a bank CD of the same duration.)
Buy insurance only for catastrophic losses. Don't insure against mishaps you can afford.
Pay all the taxes you owe -- but not a penny more. (Romans 13:1-7)
Income tax refunds make no sense at all. Far better for you to invest the money for the year and pay your taxes in April than overpay the government and get a refund in June.
Take care of your car. Keep up on routine maintenance and do it yourself if possible (oil changes, washing, etc.). Use high-quality lubricants and parts. Keeping your car in a garage will add 20% to its life. (One cold start is the equivalent of driving 100 miles.)
Know yourself: your values, your interests, your vision, your temperament, your goals, your strengths, your weaknesses. (Lamentations 3:40, Romans 12:3)
Think before spending. Don't ever buy anything in response to a telephone or TV sales pitch.
Finances are part of the marriage partnership. Communicate with each other! (Eph 5:33, 1 Cor 1:10, 13:4-7, Gen 2:18, 21-24, Ps 34:3, 128:1-4, Prov 5:18, 17:1, 17:14, Eccl 9:9, Mal 2:16, Matt 19:3-8, Phil 2:2, Col 3:8-9, 1 Tim 3:4-5, Tit 1:6, 1 Pet 3:8-9, James 1:19-20)
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