Sunday, April 27, 2008

10 Questions for Life

1) Do you know where and how much money you spend every month?

2) Do you have any savings?

3) Do you pay off your credit card every month?

4) Do you know how much money you will need to retire on?

5) Do you know your net worth?

6) Do you know how much debt you have?

7) Do you teach your children how to handle money?

8) Do you invest on a regular basis?

9) Do you give money to charities?

10) Are you happy?

If you answered no to some, most, or all of these questions then the 10 Financial Rules for Life may be of some help to you.

Thursday, April 10, 2008

Rule # 1 Stop Spending Money

"You shall not covet your neighbor's house. You shall not covet your neighbor's wife, or his manservant or maidservant, his ox or donkey, or anything that belongs to your neighbor.“ Exodus 20:17

How much money you earn has no proportion to your ultimate wealth. Your ultimate wealth is determined by how much money you spend.

This is the hardest concept for people to understand as we spend our adult lives trying to earn more money. While this is not necessarily a bad thing most people really don't have much control over how much money they make.

We all have control over how much money we spend. This is where the bulk of your efforts should be spent, controlling expenses not chasing income.

Even when we are successful in capturing more income our expenses seem to "creep" up at a higher rate than our new and improved income.

Think back in your life to how you used to live 10, 20, 30 years ago before you had all that income and ask yourself a few questions.

How did we live on that little income?
How many phones did we have?
How many vehicles did we have?
How many TVs did we have?

Then ask yourself two big questions based on how we live today.

Where does the majority of this big income go today?
Why do we spend money on these "things"?

Rule # 2 Manage The Money

"No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money. Matthew 6: 23 -25

Are you serving money by managing it or by ignoring it?

If you are ignoring it, have no financial options, live hand to mouth, are buried in debt, then you are a slave to it.

If you are the slave, then it is the master.

There are two ways to serve money, hoarding and spending. Hoarding doesn't seem to be the greatest issue in our society today. Spending God's resources to fill your emptiness is a road that leads to a, ah, rather unfortunate end.

The earn and spend cycle is a vicious one and our western civilization seems to have embraced it as a new religion. Or should I say an old master. The duel income family for the most part is not born out of necessity but out of want. Yes everything cost more "these days" but our income has for the most part kept up with inflation.

We just simply spend more money on discretionary items than we did 50 years ago.


In one word, television.

TV changed the world, yes kiddies the tv did not become a household item until the 1950s. Television and advertising changed the world as we know it. Now tv defines how we view ourselves and sets the standard in how we think we should live.

That standard is unattainable for most and the attempt to get there is financially and morally bankrupting the nation.

When all the sheep are turning left, turn to the right.

Rule # 3 Learn

“Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold.” Proverbs 3: 13-14
Read Proverbs Chapters 1 – 4.

Learning begins after you leave school, as we receive no financial training there. If you want to gain this knowledge you have to do it for yourself. The information is there, it’s up to you to find it, read it, and apply it.

The time to start is now as the older we get the harder it is to change.

I can only think of one thing that all humans have in common, we all will deal with money in our life time. It seems strange that our school system, with the odd exception, virtually ignores this subject. The school curriculum instead moves into very detailed analysis of information that only a very small percentage of students will ever use in their life time.

The subject of money management incorporates so many other subjects, math, history, psychology, sociology, and provides the student real life examples as to why those subjects are important.

Suffice to say I believe that money management should be taught as a core subject all through high school.

Until such time as it becomes important in the formal school system we have to educate ourselves. The focus of this learning should be on behavioral finance as that cuts to the core of how we view our relationship with money.

Here's a few books to start that education.

Predictably Irrational, Dan Ariely
Rich Dad, Poor Dad, Robert Kiyosaki
Cash Flow Quadrant, Robert Kiyosaki
Guide to Investing, Robert Kiyosaki
A Fool and his Money, John Rothchild
Why Smart People Make Big Money Mistakes, Gary Belsky & Thomas Gilovich
Emotional Intelligence, Daniel Goleman
King Solomon’s Secrets to Success, Wealth, & Happiness, Steven Scott
The Millionaire Next Door, Thomas Stanley & William Danko
The Wealthy Barber, David Chilton
Ordinary People Extraordinary Wealth, Rick Edelman

Rule # 4 Teach Your Children

“The teaching of the wise is a fountain of life, turning a man from the snares of death.” Proverbs 13:14

Teach your children.
Our children learn most everything by watching what their parents do, not by what their parents say.

It is the responsibility of parents to teach their children money management concepts. The first concept they should learn and the most important is the ability to delay gratification. A spoiled 4 year old is one thing, a "spoiled" 50 year old is financially doomed.

Walmart has built an empire based on the knowledge that people cannot delay gratification. They add the idea that you are getting a "great deal" to provide you the justification to buy now. Shopping with your children is a great platform to teach them how to spend money, you are teaching them whether you want to or not because they learn by watching you.

So teach them by telling them why you have come to the store, what you are going to buy, and then exit the building with nothing in your hands other than what you had planned to buy. If they "see" something they "want" and it was not the reason for this trip to the store the answer should be no.

After you leave the store you ask your child why they wanted to buy the "thing" and ask them to think if it is something that they really believe is worth spending money on. Talk to them about all the other "things" they have purchased and if they had it to do over again would they still spend that money on the same "thing".

As Napoleon Hill so aptly said, "think and grow rich".

The second concept we should teach our children is that plastic is not money. Many children think it is because many parents act like it is. When your children see you using a credit or debit card make sure you explain to them how they work and how they are different. In case your not sure, a credit card is a loan, a debit card with cash in the account is not.

Teach your children a balance with money between spending, saving, and giving. Again they will learn this by watching you.

Introduce the concept of getting your money to work for you, show your children dividends, rent, or interest coming in and how the money invested in a income producing vehicle is making this income for you.

This, of course, assumes you have some type of income producing vehicle you can show them. :)

I may have mentioned this before, they learn by watching us.

Rule # 5 Good Debt Bad Debt

“The rich rule over the poor, and the borrower is servant to the lender.” Proverbs 22:7

If you reserve your debt for appreciating assets, your assets will always be larger than your debt.

There are only 2 assets that fall into the appreciating category, real estate and businesses. Businesses include both private and public companies. This means there are a whole lot of "things" that should not be purchased with borrowed money.

Robert Kiyosaki (Rich Dad, Poor Dad) has a great quote, "the rich only buy assets, the poor only buy liabilities, and the middle class buy liabilities they think are assets". Kiyosaki's definition of an asset is something that has positive cash flow, ie puts money in your pocket. His definition takes your house out the asset category as it takes money out of your pocket every month. Kiyosaki's definition of a liability includes all debt plus every thing else you buy that does not fit his definition of an asset.

My definition of an asset is anything that appreciates in value over time, again only real estate and businesses qualify. Anything that depreciates over time is a liability. Using debt to purchase "liabilities" means you pay interest to own something that eventually becomes worthless.

These "liabilities" include cars, everything inside your house, and every toy in your garage.

The key to increasing wealth is never borrow to purchase liabilities, and limit the purchase of all liabilities using cash.

Credit cards.

We discussed the effect that television has had on our spending habits and credit cards have given us the fuel to keep the buying binge going. It's a interesting coincidence that the tv moved into our living rooms in the 1950's and american express and visa issued their first cards in 1958.

Prior to the credit card there literally was no way to spend more money than you made. There were no bank overdrafts on personal accounts, there were no personal lines of credit. Once the cash ran out you were done.

The credit card is quite simply the greatest financial disaster known to mankind. Paying 21% interest or more on your groceries, clothing, furniture, holidays, gifts, property taxes, and anything else you can think of is financial suicide.

"Some things in life are priceless, for everything else there's mastercard."

Quite a statement.

You know what to do.

Rule # 6 Watch The Money

“She considers a field and buys it; out of her earnings she plant a Vineyard.” “She sees that her trading is profitable, and her lamp does not go out at night.”
Proverbs 31:16, 18

Planning, researching, considering, monitoring, tracking, and recording, are all traits that create, preserve, and growth wealth.

Businesses that are publicly traded are required by law to report to their owners on a quarterly basis. In that report they tell us how they did compared to last year, and compared to the plan they laid out at the start of the year.

There is no business more important than the business of you and your family, so the least we can do is report to ourselves on an annual basis.

If you plan to eventually become self sufficient, that is no reliance on a job for income, you need to start tracking your progress, or lack thereof, immediately.

This is a very simple process that can be done on paper or with a spreadsheet. You list your assets (appreciating assets only) and your debt (all debt). You then subtract your debt from your assets and you find out how much you are worth.

If this number is negative you have some work to do. You must do this on an annual basis on the same date each year. The goal is to make sure your net worth is increasing each year.

The other document that should become critical to your existence is a spreadsheet used for tracking expenses. This is easy once you have it set up, as you can add items into a cell and have the spreadsheet do the math for you.

The only way to find out how much you spend, and where you spend it, is to track it. Of all the methods I have tried I have found with online banking and a spreadsheet it is a very quick, easy, and relatively painless process.

This is your life, you should be concerned.

Rule # 7 Grow Some Money

"The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master's money.” Matthew 25:16-18

Risk is not a four letter word. If we apply all the knowledge we have achieved we can multiply wealth.

That is all the knowledge, not partial knowledge, not greed, and not hearsay.
Investing money for your future has a few simple rules that will insure success. Always be invested, never try to time the market, contribute on a regular basis, and don't touch the money until you retire.

There are two obstacles that must be overcome in order grow our "talents"; procrastination and inflation.

You simply must start. Start now. Between you and your employer a minimum of 10% of your gross salary must go into "appreciating" assets on a regular basis coinciding with your pay cheque.

That's it, your done, see you in 10, 20, 30 years. That was easy.

Those "appreciating" assets can be stocks, bonds, real estate, all of which can be done via small monthly contributions into managed funds.

Inflation is the silent killer that erodes our buying power each and every month. If you are holding money in some sort of "safe" savings account you are not earning enough interest to keep you ahead of the inflation rate. Your safe investment will be exposed over time just as if you dug a hole and hid your money.

You are going to need around $500,000 to $1,000,000 to retire on depending on government, company pension plans, and your retirement spending plans. If you think this sounds impossible, don't worry it isn't.

If you start at the age of 25 and contribute $100 on a bi weekly basis until you are 65 with a 10% rate of return (all equity average) you wind up with $1,200,000. That's without increasing your contribution amount ever in the 40 year period.

Start. Start now. Hurry. Hurry faster.

Rule # 8 Peace Becomes You

“Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.” Matthew 6:34
“For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that.” I Timothy 6:7-8

Fear is not an option.

We live with the knowledge of God’s hand on our life, if we do the work we have nothing to fear. We have been given all the resources we need to succeed. It is simply a matter of applying them in our lives.

Learning enough to take control of our financial lives gives us the confidence that we are on the right track. Knowing that the basis of our chosen path comes from God gives us the strength to not get derailed.

While we are encouraged to seek advice from others we are not told to simply hand over all responsibility to someone else. When it comes to investing people want to hand off all responsibility which can lead to disaster. This allows people to blame someone else if things go wrong. We have many examples of things going very wrong when someone blindly hands over total responsibility to someone else.

It's your life, it's your family, and it's your responsibility. If you don't know, learn.

Then relax.

Rule # 9 Give to Receive

Honor the Lord with your wealth, with the firstfruits of all your crops; then your barns will be filled to overflowing, and your vats will brim over with new wine.” Proverbs 3: 9 -10

“One man gives freely, yet gains even more; another withholds unduly, but comes to poverty.” Proverbs 11:24

The greatest return on investment you can receive comes from giving money away. You have achieved financial peace; money no longer controls you.

How should the haves in this world lend a hand to the have nots? The old saying, give a man a fish you feed him for a day, teach a man to fish you feed him for a lifetime, is undeniably true.

Giving people money for nothing destroys their self worth and creates generational poverty.

Economies are created and fueled by commerce and commerce requires capital. This is where the haves must step in.

Rule # 10 It's Not Your Money

“The earth is the Lord’s, and all it contains.” Psalms 24:1

“What do you have that you did not receive?” I Corinthians 4:7

It’s not your money. You are the “professional” manager placed by God to handle all that it his.

How are you doing?

Money can form a barrier between man and God. By acknowledging that all we have is a gift from God and then managing his resources in a way that glorifies him we can remove that barrier and truly live a life of contentment.