PART ONE: MONEY BASICS
First off, money is necessary. Paul warns Timothy that the love of money is the root of all kinds of evil. However, money is not evil. In fact, money is a necessary tool for survival as well as kingdom impact.
THE FIRST 10%
Make your conviction from the get-go to tithe... at least! We as leaders must set the example to be faithful stewards. The tithe is the starting point. As God blesses you, you can increase that. It may be sacrificial or it may be planned. I would set up a separate category in your giving. The first is to the church you belong to - the extra "offerings" can go to other work around the world. Rather than spreading your giving, think concentrated or focused. Support a missionary, a church plant, or a Compassion International child.
JUST ONE INCOME
When starting out, make it a goal to live off mostly ONE income! It will be tight and really hard. Okay, it may not be fully possible. However, if you can, you can use the second income to catch up and deal with the debt you have and then save for special purchases. If you live on two incomes and you have budgeted your life so that you have to have both, and then if that second income stops, you are really in trouble. If you live off one income, and if something comes along, i.e. baby, etc., you can survive. It helps you be a person who lives within his/her means and to live a contented life.
It may not be possible at all these days. But at least leave yourself some margin for expenses to come up later.
SAVING IS A BABY STEP
One in Three Americans has $0 saved for Retirement.
28% of people OVER %% have NO retirement savings
WHAT?
This is irresponsible. But it’s also being human. It is counter intuitive to plan that far for the future. But we must save more, even a little bit.
Saving is basically not spending. That is the first habit to getting control of your finances.
It is also intentionally setting aside money today for the future.
REGULAR AND AUTOMATIC
The key to being prepared for the future is saving with two key mindset. This is especially important for retirement savings.
It must be regular.
It must be automatic.
You need to set up an automatic feature to put money in saving (or better yet in an investing vehicle). It has to be automatic because we humans forget and then we lose great opportunities for great monetary growth.
SAVING OPTIONS
The goal for anyone's financial plan is to have more money coming into the money pot than is going out. One way to do that is to save. (However, saving money without investing is not smart in the long term. You don't want to just save money; you want your money to grow without you doing anything to it. That is called Investing, and we will discuss more about that on the Investing page.)
Don’t keep savings money in a bank for .020 return on your money or locked up in a US savings bond for 21 years to make the money back..
Online Savings Account - For cash you need soon, check out Discover Savings for 0.50% (at current writing)
Short-term Investment Account - For cash that you don’t need for at least a year (or longer as in retirement), talk with the guys at Red Oak Financial to get set up with an income account. Last year, my income account made 12%. It won’t every year, but it’s much better than the 0.20% that you will make from a local brick-and-mortar bank. It’s a no-brainer. You have to keep money in an investment account for at least a year and then you can withdrawal it (there are penalties for early withdrawal).
Some people seem to be natural savers. And some naturally spend. If you have a hard time-saving money, check out an app called Chime bank, which will allow you to have your extra change go into a savings account. For instance, when you spend $3.48 on something, 52 cents will automatically go to your Chime savings account. That may be a good first step. I would encourage you to discipline yourself by using an enveloping system and be disciplined to save it yourself. But if you can't, here is one help.
Acorns is another app that you could use instead where you can use your extra change to invest in stocks instead of just a savings account like Chime does.
GIVE EVERY DOLLAR A JOB: Get on a budget
Every dollar should have a job. There should never be any dollar just sitting around doing nothing. They will cost you a lot in the end. When you budget, every dollar you get is earmarked for something currently or in the future. Designate categories or envelopes. You want to assign a job for each dollar.. The following are possible envelopes:
Check out either Mvelopes mvelopes OR You Need A Budget www.ynab.com Both are online budget systems that basically work on the envelope system. Mvelopes is the best that I have found for basic budgeting. They both cost $60-$100 a year.
Google Sheets is another way of budgeting. You can set up Sheets to utilize the powerful formulas and tabs to organize monthly spending to help you know where every dollar is spent. Download a basic budget file.
PAY OFF DEBT
Some debt, like a house, education, a car, at times, is necessary. We want to minimize it as much as possible so that we don’t spend money in interest that could go to kingdom work or investment.
Make a plan to pay off any debt that doesn’t fall into the above categories; Financial Superheroes avoid debt in the above areas.
If you have credit card debt, be aggressive in paying off all interest-bearing loans and Credit Cards starting with the smallest amount. After you pay that off, take that money and add it to the next one, etc. Once you stop paying interest, you get an automatic raise.
Play around with a credit card payment calculator. This will help you to better decide what to pay off AND how long it will take you to get out of debt.
You may be able to find a credit card that offers a 0% balance transfer. Be sure it has a low balance transfer fee, like 2% or 3%. You may still decide to do it with a 5% fee if you need to get rid of a high-interest card.
Read Debt: A Love Story (a story told to WealthSimple of a couple revealing the brutal details of their life in the grip of an epic cycle of debt). Don't let this be your story.
AVOID CREDIT CARDS... UNLESS...
If you are NOT disciplined, ONLY use cash!!!!! End of story. It is HIGHLY recommended to NEVER use credit cards. These days, debit cards provide the convenience that credit cards used to offer. This is true for anyone who does not have much discipline.
Please watch this short video on How Credit Cards Work. The only drawback from this video is that the finance charge example used is so low and unrealistic. They often carry a 15%, 19.99% or even a 29.99% finance charge. If you have one of those and don’t pay off the WHOLE balance EACH month, you may never get done paying off that card by paying only the minimum payment. Many people get stuck because they haven’t properly budgeted for ALL of their expenses AND emergencies and then get in a place where they HAVE to use a credit card. Often times, they can’t pay off the balance and opt only for the minimum payment.. By doing that, you will spend so much more money.
However, sometimes, the only way to build your credit score, which you will need when you want to buy a house, is to build credit by using (and paying off each month) credit cards.
If you are disciplined to use credit cards, use only cashback credit cards.
You must pay them off EVERY month. You don’t want to have any balance and have to pay interest at any time.
Check out Nerd Wallet to see if there are any cashback cards that meet your needs.
I like cashback cards instead of free miles or shopping spree cards because you can use them for anything. Those latter cards keep you locked into one thing.
Chase Freedom Card gives 5% on various categories by quarter: gas, grocery stores, and fast-food restaurants!
Discover is a tiered program. You only get .25% on the first 2000 spent. They do have special quarterly programs that give 5% on certain items, i.e. gas for Jan – March, but you have to sign up for it each time.) All iTunes purchases can receive a 5% rebate with Discover.
Bank of America has a 3-2-1 program: (3% on gas, 2% on groceries, 1% on all else).
The Amazon credit card gives a 5% rebate on all things you buy from Amazon.
BUYING A CAR
Some money experts say to pay cash when you are buying a car. I have never been able to do that because I want a car that is reliable and has a warranty. So I always look for a 1 yr old vehicle (a program car that was used by the deal or one that was in a fleet). I add the extended warranty on it because cars these days have a lot that could go wrong and often do (auto-adjusting seats, auto windows, audio connectedness, etc.).
Check out how much you might be able to spend with this Car Affordability Calculator.
In addition, if you pay cash, that ties up all of your cash flow in case you have a major emergency. I don’t like to be strapped like that. In addition, it decreases my ability to invest in the future.
HOUSING: RENT OR BUY?
You always want to think of your next move, not this one. How long you plan on living in this house? If it is a short-term housing plan, it would be better to rent. If you plan to live there for a long time, several years, then it would PROBABLY be better to buy. If you choose to buy, you want to think about selling this house before you buy it. Will I be able to sell it quickly? You don’t want to get stuck with two mortgages (and sometimes, even the best homes can’t sell because of market conditions).
So should you get a 15-year loan or a 30-year loan? That depends on interest rates. With interest rates being traditionally lower (compared to 13-17% in the 70s), it is usually better to get a 30-year loan to help with cash flow and so that you can also invest for your retirement.
If you have a $300,000 mortgage (yes, this is way too high but the illustration still stands. I got this example from Curtis Ray) you would be paying $2000 a month for a 15-year loan. You would be saving $83,000 in interest as compared with the 30-year loan. Wow. That is a big savings. but you are more cash strapped and zero money to invest for your future retirement.
If you choose the 30-year loan, (remember, you will be paying 83,000 more in interest), your monthly mortgage payment would be $1250, a $750 a month saving. Let’s say you invest that $750 a month (or $9000 per year) into your retirement fund (Roth), over the course of 30 years, you will have paid off your house, and even though you spend $83,000 more in interest, you will have accumulated 1 million dollars for your retirement.
The 15-year loan, more often than not, benefits the bank, not you.
PLAN FOR EMERGENCIES
Make a regular and progressive goal to plan for your emergencies.
Seek to reach at least $1000. (Don’t think “all at once.” The key is little by little.
Save for your deductibles (which can be included in your emergency fund at first but then you want to have it above and beyond).
$500 for your car
$1000 for your home
LIFE INSURANCE
Choose Term Insurance over Whole Life or Universal Life Insurance. Whole or Universal Life Insurance has an investment component. Separate the two.
Buy the term insurance you need (You get a lot of insurance for little money).
Invest the extra money that you would have spent for the whole life policy in an investment account. That way you’ll have the insurance you need for your family (in term), and you will be growing your investment money. You will do better in the end. Of course, consult a financial planner first.
TAXES
If you need to file taxes, you may be able to do so for free by going to irs.gov and then clicking on file taxes for free. This will take you to a free version of Turbo Tax.
MONITOR CREDIT SCORE
Finally, for the basics, monitoring your credit score is an activity that you need to regularly do. I do it monthly as I update my monthly summary details: Networth, Current checking, savings, Robinhood, Retirement, Retirement goal at age 65, Debt, Home equity, Credit card limit (used to calculate credit score), and Credit score. I have all of these headings in my Google Sheets Portfolio tracker. You can get a free credit score from Credit Karma. Be sure to study up on how to improve your credit score. The higher the credit score, the lower the interest rates you can receive for a home, car, or that side hustle business loan.