A Back-to-Basics Approach for Your Finances
This is the first of our series on getting back to financial basics. I watched a baseball movie recently, Trouble With The Curve with Clint Eastwood, and it reminded me of how important it is to practice the basics. It doesn't matter how good a professional is, they constantly need to practice the basics. I believe the same applies to our financial lives. While there are very sophisticated (and complicated) strategies—and I have learned many of them over the years—if you stick to the basics, you will do very well.
Give Your Finances the Time and Effort They Deserve
My wife and I lead Dave Ramsey's Financial Peace University class at our church. If you ever have the opportunity to take this class, I highly recommend it. Even if you are doing great financially, it will enable you to refine and improve what you do. Remember, even the professional baseball players must focus on the basics every year, month and day to stay on top of their game.
Our class focuses on the basics. But don't think that practicing the basics is going to be easy. For most people, working on financial basics will take much time and perseverance. However, if you follow along with us, we will help keep you motivated to change your family's life for the better. Following these basic rules will:
- Get you on track for an incredibly successful retirement
- Reduce the stress of not knowing if what you are doing is right
- Reduce fights with your spouse over money (really)
- Eliminate debt in your life, forever
- Enable and empower you to spend less, thereby freeing up resources for living and giving
- Ensure you are well-protected from calamity and mishaps
- Help you take care of your family and children with less financial stress
- Allow you to save for your children's education
- Enable you to give like never before
If you save $500 per month for 30 years at 8%, you will have $750,000 in 30 years. [Tweet This]
Tips to Help You Control Your Finances
Did I mention that following these rules is tough? It is. But after working at them over time, they will get easier and become second nature. If you want help along the way, we are here for you. We help our clients stay on track in all these areas (and more). Well, let's get to it. The first tip is on saving right!
Save for emergencies, purchases and wealth. Your first goal is to save for an emergency fund (this is a fund for actual emergencies, not pizza night or last-minute purchases). You could keep the money in an account at your local bank or in a money market account where you can access it quickly. If you don't have an emergency fund, start by setting aside $1,000. The initial $1,000 is key. Over time, you can increase this fund to include 3–6 months of expenses. This money will not be used unless there is a true emergency.
If you are living paycheck to paycheck, as many people are, knowing you have $1,000 set aside will start to reduce your stress.
Save for big purchases or large expenses that occur one or two times during the year. These occasions can include Christmas gifts, vacations, insurance premiums, etc. If you are planning to buy a car sometime in the future, start setting aside funds for it now. For example, if you plan to purchase a car for $25,000, and you have a trade in of $10,000, you will need $15,000 when you go to buy the vehicle. Start saving now. If you save $500 per month for 30 months, you will have $15,000. If you're thinking, "I can't save that much," then save what you can and save over a longer period of time. Make what you have last until you can pay cash for it. You don't need a more expensive car. You can get by with a less expensive used car.
Our last tip alone may make you a millionaire:
Skip the car payment and pay in cash. Many people have car payments of $400 to $500 month. If you pay cash for your cars and save that $400 to $500 per month for 30 years at 8%, you will have $750,000 in 30 years. If you earn 10% over that time, you will have over $1,140,000.
The Importance of Saving Today
The sooner you start saving, the better. To clarify how important it is to start now, consider the story of two brothers, both age 19. The first brother starts saving $2,000 per year for eight years and earns 12% per year. Then he stops saving at age 27 and doesn't save another penny. Brother #2 starts saving at age 27, and saves $2,000 per year until age 65 and also earns 12% per year. At age 65, brother #1 will have a total of $2,288,000, while brother #2 has only $1,532,000.
I can't stress how important it is to have a plan and follow it. Take control of your money now!
No Discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it. Hebrews 12:11
A faithful man will abound with blessings, but he who hastens to be rich will not go unpunished. Proverbs 28:20
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