Have you ever thought about being a millionaire but then just laughed it off. I am going to show you the key to becoming a millionaire; compound interest.
$100 a month, that is all it takes. If you invest $100 a month for the next 40 years you will have invested $48,000 by the end of it. That is a lot of money.
But after 40 years of compound interest that $100 a month would be $1,176,477.25!!! (This calculation was done with the assumption of the market average over the last 75 years, 12%)
I think most people could plan to set aside $100 a month; but the problem is nobody is doing it.
Compound interest is your greatest friend or your greatest enemy. (By the way, that exponential growth works against you for your debt)
Monday, August 20, 2007
Friday, August 17, 2007
The Heart of Savings
What I am going to talk about is a tough issue to teach and explain. The reason why it is hard is because it is a balancing act.
Savings is important but not at the cost of replacing the hope we have in Christ with our "stuff."
Proverbs 21:20 "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."
This is saying save for a rainy day. This is where I got the concept of an Emergency Fund from.
However, there is a flipside to this that was brought up in my life group last Wednesday. When we put our hope in that to take care of us we now have a new issue to work on and some might even go as far to say they don't need God.
Matthew 6:19 "Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal."
I cannot stress this enough. You SHOULD do things like save money. Scripture is clear and calls that wisdom. But DO NOT put your trust and hope in that because our stuff on earth is so fragile. It can be given then taken away in a blink of an eye.
God loves his children and loves us enough to teach us what is best for us. Just like a father telling his daughter to not play on the roof. The daughter will say things like, "Why are you ruining my fun" or "You are so mean, why are you against me." Then the father will reply, "I know what is best for you even when you don't, I love you, and because of that you need to go sit in the corner."
It's discipline but it's love.
Proverbs 12:1 "Whoever loves discipline loves knowledge, but he who hates correction is stupid."
I want you to save money AND put your hope in Jesus and not on Earthly things. Look for discipline in this; our hearts will fight this and as a Christ Follower you should be constantly growing in this area.
Savings is important but not at the cost of replacing the hope we have in Christ with our "stuff."
Proverbs 21:20 "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."
This is saying save for a rainy day. This is where I got the concept of an Emergency Fund from.
However, there is a flipside to this that was brought up in my life group last Wednesday. When we put our hope in that to take care of us we now have a new issue to work on and some might even go as far to say they don't need God.
Matthew 6:19 "Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal."
I cannot stress this enough. You SHOULD do things like save money. Scripture is clear and calls that wisdom. But DO NOT put your trust and hope in that because our stuff on earth is so fragile. It can be given then taken away in a blink of an eye.
God loves his children and loves us enough to teach us what is best for us. Just like a father telling his daughter to not play on the roof. The daughter will say things like, "Why are you ruining my fun" or "You are so mean, why are you against me." Then the father will reply, "I know what is best for you even when you don't, I love you, and because of that you need to go sit in the corner."
It's discipline but it's love.
Proverbs 12:1 "Whoever loves discipline loves knowledge, but he who hates correction is stupid."
I want you to save money AND put your hope in Jesus and not on Earthly things. Look for discipline in this; our hearts will fight this and as a Christ Follower you should be constantly growing in this area.
Thursday, August 16, 2007
Joe Sangl Day
Today I am meeting with Joe Sangl from Newspring for a Financial Counseling Roundtable with 7 or 8 other people who have a passion for helping people with their finances.
I could not be more excited and can't wait to post tomorrow on what God teaches me through this!
I could not be more excited and can't wait to post tomorrow on what God teaches me through this!
Wednesday, August 15, 2007
Am I against all debt?
I get this question a lot, and in order to answer let me explain the kinds of debt that I am specifically referring to.
Types of Debt
Credit Card
Student Loan
Home Mortgage
Car Loan
The answer: Yes, I am against ALL debt. I want to make every effort to have (zero) debt in my life. That is the ultimate form of financial freedom when I don't have to make payments to ANYBODY. I do not want to ever be STUCK at a job because I need the security of being able to make payments. This is not freedom, it is what I call bondage. You are literally bound to doing something you may not want to do. So my plead is to make every effort to stay out of ANY kind of Debt.
With that being said, those 4 types of debt are not created equal.
My stance on debt is, it is only acceptable debt when you can sell it and be debt free immediately. It has to retain monetary value.
Therefore out of the 4 types of debt I listed, a Home Mortgage is the only form of debt I consider acceptable.
Home Mortgage
At any point when things change in your financial situation you can sell your house and be out of debt immediately. Now we all know it might take a few bumps (like it may take your house a few months to be sold). But that is why I recommend a fully funded emergency fund of 3-6 months expenses. It is smart to have it for this very reason.
Car Loans
Car Loans are NOT acceptable. Your car depreciates in value so fast and it breaks my heart when people get stuck financially and need to sell their car but they can only sell it for like $15,000 when their loan is still outstanding for $25,000. You still have to sell it because $10,000 of debt is still better than $25,000 but it is just a bad situation...stay away.
What I personally do, and what I recommend is to find a beater car (couple thousand bucks) that is in good mechanical shape (ugly physical shape) and drive that while making a car payment to yourself. Put aside $300-350 a month but put it in a money market to buy your next car, in cash. Keep making payments to yourself and at some point put it in a mutual fund. After years of making payments to yourself, there will be a break even point where due to compound interest you will never have to make a car payment again!
Credit Cards
These are NEVER acceptable. They do not even come close to the rule that I have of being able to sell it immediately and be out of debt. I do not feel that I need to go real in depth but Credit Card companies are making MAJOR money; it is or will be coming from you if you play around these things.
Student Loan
I know that I am going to get push back on this. The common response is, "Education is important. Some people can't afford college, so are you saying they should not go to school just because they can't afford it." My response to this is no AND yes. First of all, education is SO IMPORTANT. But it is not valuable because you need a diploma, you need to actually learn and apply it there. And I do think that an education is VERY important, but like I said before the only acceptable form of debt is when you can sell what you went into debt for and be out of debt immediately; it needs to retain a monetary value (not sentimental value, not emotional value, not enjoyment value). Student Loans do not fall into the category of being able to sell it and be out of debt.
But I DO want kids to go to school. If asked, my advice would be to work, work, work your tail off. Work for a couple years and save up every penny you can, go to a state school. You will most definitely not take school for granted at that point. My buddy, Casey, worked his way through school and graduated from Clemson University in Engineering. He did not incur a penny of debt and graduated with a degree. It is never okay to use money that you do not have. That seems very basic to me but something that we rationalize so well. By the way, you know what we do when we rationalize, we tell rational-lies.
Yes I know that student loans generally have lower interest rates and yes I know they have things like you don't have to pay until you graduate. But it is still the emotional response of being in bondage and I will choose freedom 100% of the time.
So when you tell me the perks of debt (like in Student Loans) what I essentially hear is, "Come be in slavery, we have all types of perks like water, food, sheets, good hours, a nice master and it is much better than the other type of slavery." I will never be willing choose or say it is okay to be in this. I cannot make people's decisions for them, but there are too many Americans that have the walls closing in because of their money and we have to open our eyes that we are allowing it to happen. It is so important because it affects everything else in their life, to the point that they may not be able to do what God wants them to do because they have put them into a place of bondage.
Too many people are stuck in a trap and doing a job they don't want to be doing. Instead of doing something that makes them come alive and what God designed them to do.
In John Eldredge's book, Wild at Heart, there is a quote that holds very true.
"Don't ask yourself what the world needs. Ask yourself what makes you come alive, and go do that, because what the world needs is people who have come alive."
Types of Debt
Credit Card
Student Loan
Home Mortgage
Car Loan
The answer: Yes, I am against ALL debt. I want to make every effort to have (zero) debt in my life. That is the ultimate form of financial freedom when I don't have to make payments to ANYBODY. I do not want to ever be STUCK at a job because I need the security of being able to make payments. This is not freedom, it is what I call bondage. You are literally bound to doing something you may not want to do. So my plead is to make every effort to stay out of ANY kind of Debt.
With that being said, those 4 types of debt are not created equal.
My stance on debt is, it is only acceptable debt when you can sell it and be debt free immediately. It has to retain monetary value.
Therefore out of the 4 types of debt I listed, a Home Mortgage is the only form of debt I consider acceptable.
Home Mortgage
At any point when things change in your financial situation you can sell your house and be out of debt immediately. Now we all know it might take a few bumps (like it may take your house a few months to be sold). But that is why I recommend a fully funded emergency fund of 3-6 months expenses. It is smart to have it for this very reason.
Car Loans
Car Loans are NOT acceptable. Your car depreciates in value so fast and it breaks my heart when people get stuck financially and need to sell their car but they can only sell it for like $15,000 when their loan is still outstanding for $25,000. You still have to sell it because $10,000 of debt is still better than $25,000 but it is just a bad situation...stay away.
What I personally do, and what I recommend is to find a beater car (couple thousand bucks) that is in good mechanical shape (ugly physical shape) and drive that while making a car payment to yourself. Put aside $300-350 a month but put it in a money market to buy your next car, in cash. Keep making payments to yourself and at some point put it in a mutual fund. After years of making payments to yourself, there will be a break even point where due to compound interest you will never have to make a car payment again!
Credit Cards
These are NEVER acceptable. They do not even come close to the rule that I have of being able to sell it immediately and be out of debt. I do not feel that I need to go real in depth but Credit Card companies are making MAJOR money; it is or will be coming from you if you play around these things.
Student Loan
I know that I am going to get push back on this. The common response is, "Education is important. Some people can't afford college, so are you saying they should not go to school just because they can't afford it." My response to this is no AND yes. First of all, education is SO IMPORTANT. But it is not valuable because you need a diploma, you need to actually learn and apply it there. And I do think that an education is VERY important, but like I said before the only acceptable form of debt is when you can sell what you went into debt for and be out of debt immediately; it needs to retain a monetary value (not sentimental value, not emotional value, not enjoyment value). Student Loans do not fall into the category of being able to sell it and be out of debt.
But I DO want kids to go to school. If asked, my advice would be to work, work, work your tail off. Work for a couple years and save up every penny you can, go to a state school. You will most definitely not take school for granted at that point. My buddy, Casey, worked his way through school and graduated from Clemson University in Engineering. He did not incur a penny of debt and graduated with a degree. It is never okay to use money that you do not have. That seems very basic to me but something that we rationalize so well. By the way, you know what we do when we rationalize, we tell rational-lies.
Yes I know that student loans generally have lower interest rates and yes I know they have things like you don't have to pay until you graduate. But it is still the emotional response of being in bondage and I will choose freedom 100% of the time.
So when you tell me the perks of debt (like in Student Loans) what I essentially hear is, "Come be in slavery, we have all types of perks like water, food, sheets, good hours, a nice master and it is much better than the other type of slavery." I will never be willing choose or say it is okay to be in this. I cannot make people's decisions for them, but there are too many Americans that have the walls closing in because of their money and we have to open our eyes that we are allowing it to happen. It is so important because it affects everything else in their life, to the point that they may not be able to do what God wants them to do because they have put them into a place of bondage.
Too many people are stuck in a trap and doing a job they don't want to be doing. Instead of doing something that makes them come alive and what God designed them to do.
In John Eldredge's book, Wild at Heart, there is a quote that holds very true.
"Don't ask yourself what the world needs. Ask yourself what makes you come alive, and go do that, because what the world needs is people who have come alive."
Tuesday, August 14, 2007
Coupons of the Week
Here are some coupons of the week from Hustler Money Blog that you might be interested in.
Printable:
Express $10 off 40 or $20 off 80
Kmart $5 off 50 **should work at Walmart too
Best Buy 10% off
Office Max $10 off 20
Pep Boys $10 off 50
Value City $20 off 50
Printable:
Express $10 off 40 or $20 off 80
Kmart $5 off 50 **should work at Walmart too
Best Buy 10% off
Office Max $10 off 20
Pep Boys $10 off 50
Value City $20 off 50
Monday, August 13, 2007
Fear of Investing
I was talking with someone about a month ago about his financial situation. Just to paint a picture: he is married, does not own a home, is debt free, and him and his wife are in a situation where they are not incurring a lot of expenses. He makes a regular income; She does not. His regular income covers all expenses that they have. His wife has irregular income coming in due to things on the side she does. All money she brings in goes to savings.
He wants to invest the extra money they have coming in but says he is scared to do so. My advice to him is what I have heard from many financial guru's in the past. Knowledge Eliminates Fear.
Know this:
97% of the 5-year periods in the entire market history made money
100% of the 10-year periods in the entire market history made money
Just pick any random 5 or 10 year period in the market's history and you will find these statistics are true. By the way, this includes during September 11 and the Great Depression.
Your money will go up if you just leave it. Here is some knowledge to steer you away from short term investing.
Only 66% of the 3-year periods in the entire market history made money
That is a 1 in 3 chance that I will LOSE some of my money. I am not taking those chances; I would much rather stick with the 97% and 100% figures.
He wants to invest the extra money they have coming in but says he is scared to do so. My advice to him is what I have heard from many financial guru's in the past. Knowledge Eliminates Fear.
Know this:
97% of the 5-year periods in the entire market history made money
100% of the 10-year periods in the entire market history made money
Just pick any random 5 or 10 year period in the market's history and you will find these statistics are true. By the way, this includes during September 11 and the Great Depression.
Your money will go up if you just leave it. Here is some knowledge to steer you away from short term investing.
Only 66% of the 3-year periods in the entire market history made money
That is a 1 in 3 chance that I will LOSE some of my money. I am not taking those chances; I would much rather stick with the 97% and 100% figures.
Friday, August 10, 2007
FICO Score Decoded
I had a friend ask me a really good question recently that I wanted to put on here to show my thoughts on it. He asked, "Which is better on a credit score - a credit card with zero balance, or no credit card at all?"
Before I answer this question I have to lead into it so you know where I am coming from. I am not a big fan of encouraging people to make efforts to make their credit score as high as possible. I do think it is important to make all payments you have so that your credit will be intact and in good shape because it is your electronic reputation. As long as you do that, you do not have to worry about your credit score.
The only thing that a credit score gives you is the ability to borrow MORE money. So essentially what you are saying when you want to raise your credit score is, "I want the ability to borrow more money." I don't like the idea of borrowing money period so I usually advise people accordingly to not bend over backwards to get their credit score higher.
FICO scores are calculated based on your rating in five general categories.
Components of the FICO score are:
Payment history - 35%
Amounts owed - 30%
Length of credit history - 15%
New credit - 10%
Types of credit used - 10%
80% of your FICO score is to get in debt, stay in debt, and make payments for a long time. That is the way to improve your credit score, but also the way to be in slavery and have no freedom with your money. So I advise people don't even play that game. The only thing you need a credit score is for more debt anyways. Everyone in America is so worried about their credit score; yet most of America is living paycheck to paycheck. I want to steer people away from playing the credit score game because I really do think those two issues are connected.
But to conclude to an answer I say don't mess with it at all. If you are not planning on using the card, then don't get the card. It really doesn't affect your "credit score" that much if you had a card with zero balance as opposed to no credit card at all.
Before I answer this question I have to lead into it so you know where I am coming from. I am not a big fan of encouraging people to make efforts to make their credit score as high as possible. I do think it is important to make all payments you have so that your credit will be intact and in good shape because it is your electronic reputation. As long as you do that, you do not have to worry about your credit score.
The only thing that a credit score gives you is the ability to borrow MORE money. So essentially what you are saying when you want to raise your credit score is, "I want the ability to borrow more money." I don't like the idea of borrowing money period so I usually advise people accordingly to not bend over backwards to get their credit score higher.
FICO scores are calculated based on your rating in five general categories.
Components of the FICO score are:
Payment history - 35%
Amounts owed - 30%
Length of credit history - 15%
New credit - 10%
Types of credit used - 10%
80% of your FICO score is to get in debt, stay in debt, and make payments for a long time. That is the way to improve your credit score, but also the way to be in slavery and have no freedom with your money. So I advise people don't even play that game. The only thing you need a credit score is for more debt anyways. Everyone in America is so worried about their credit score; yet most of America is living paycheck to paycheck. I want to steer people away from playing the credit score game because I really do think those two issues are connected.
But to conclude to an answer I say don't mess with it at all. If you are not planning on using the card, then don't get the card. It really doesn't affect your "credit score" that much if you had a card with zero balance as opposed to no credit card at all.
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