Monday, November 28, 2011

Financial Advice for Young Couples! A MUST READ!!

We were able to spend a fun night with some of our best friends over the weekend.  Ryan & Dana are just precious....
....and we enjoyed a yummy dinner (I made the spinach lasagna rollups from skinny taste!!), lots of laughs, and about seven hours straight of talking with our friends. The boys talked lots of politics while the girls talked crafts- of course! Ryan is an accountant and very smart with we hit him up for some financial advice before heading home.  He would make an excellent financial planner with his knowledge!  Here are the tips he shared with us combined with lots of my own advice...and I wanted to share with you all! 
Here's My Guide to Being Financially Savvy, Yo!

*Work on paying down debt, starting with loans with the highest interest rates. There was a time when it was smarter to keep your money in a savings account or investment opportunity and make the lowest possible payments on loans; however, thanks to monetary policy and the current state of the economy, this is no longer true. The amount we make off interest is a significantly lower amount than the interest we are currently paying for borrowing money. PAY OFF DEBT!! Debt-free is the way to be!

*If you pay extra on anything, always denote that you want the extra amount applied toward principal only. This is something I learned the hard way! When I had a car payment, I paid almost double the amount every month in attempt to pay it off early. I thought I was being so "good," but those sneaky little companies apply it to interest so they make more money. You have to call the company and specify on the payment that you want the extra payment applied directly toward the principal.

*Invest in an IRA (individual retirement account) or Roth IRA (depending on your current income & tax situation).  This should be done in addition to a 401K or other retirement plan.  I plan to do this soon with a local credit union.

*Invest in some whole life insurance. Term life insurance only pays out 2-3% of the time and is often called "Lost Opportunity Cost," so whole life insurance is the smarter choice.  This is tougher to explain, so you can read about it below from here:

{The company generally will guarantee that the policy's cash values will increase regardless of the performance of the company or its experience with death claims (again compared touniversal life insurance and variable universal life insurance which can increase the costs and decrease the cash values of the policy). The dividends can be taken in one of three ways. The policy owner can be given a check from the insurance company for the dividends, the dividends can be used to reduce the premium payment, or the dividends can be reinvested back into the policy to increase the death benefit and the cash value at a faster rate. When the dividends paid on a whole life policy are chosen by the policy owner to be reinvested back into the policy, the cash value can increase at a rather substantial rate depending on the performance of the company. The cash value will grow tax-deferred with compounding interest. Most whole life policies can be surrendered at anytime for the cash value amount, and income taxes will usually only be placed on the gains of the cash account that exceeds the total premium outlay. Thus, many are using whole life insurance policies as a retirement funding vehicle rather than for risk management.}

*Work on a budget and stick to it as closely as possible. I think many people just blow through life living paycheck to paycheck, spending whenever, hoping to have enough money at the end of the month. I don't know how people make it without a budget!  I suggest keeping track of ALL expenses and income for 3 months, then work on developing a budget.  It'll help you see where your money is actually going, and some of it may surprise you. (I know I was not thrilled when I realized how much we were spending eating out- so I started cooking at home 4-5 nights a week and saved some $.) This will help you not spend on things you don't need and become more aware of your spending.

*If you don't have the money, don't buy it. I do have a credit card, but I use it like a debit card and only use it to benefit from the points (I refuse to pay those big credit card interest rates!) If I don't have the extra money, I simply do NOT buy it. Sometimes that means I go without something I'd like to have, but it's worth it to have the peace of knowing we do not have tons of crazy debt.

*Save up to pay for something in a lump some rather than financing. I know this is not always possible, but if you are able to hold off on something until you're able to pay for it in full, you'll be way better off (unless there is no interest for a time period and you're 100% certain you can pay it off in that amount of time!).  I am just NOT down with paying interest.  I paid my degrees out of pocket and don't have to deal with any students loans that plague most people. (Thankfully my parents let me live with them while I was working on my Master's and Specialist's so I didn't have the expense of rent or a mortgage!  Definitely a blessing.).  I refuse to have another car payment, so I'm saving up until I can pay the leftover amount in full when I trade my car in.  You save yourself lots of money in the long run! I remember when we bought our house and they told us how much our house would cost us total, with interest, if we paid on it for the full 30 years.  Ummmm, I love our house, but it sure ain't worth all that!

*Pay one extra mortgage payment a year (to principal only) to cut YEARS off your loan period. Most people I know have no intention of ever paying their house off.  I don't understand that thought process! If we are disciplined now, we can eventually live life without a house payment!! Wouldn't that be suh-weet??? I know some people like to pay bimonthly, but I choose to do it the other way because teachers only get paid once a month and I pay all of our bills at one time.  Either way, it's a great idea!

*What can you cut out??  Most of us have a few things we can cut out of our expenses to save money, and it adds up big time.  Can you lower your tv package? Can you cook at home more to save money instead of eating out? Will couponing help you save on your grocery bills? Can you paint your own nails, highlight your own hair, or do any other things around the house to avoid having to pay for extra services (fertilize your own lawn, spray or bugs yourself, etc.)?  

*Make saving a priority. I put a certain amount into savings each month as soon as I get paid, and I don't even miss it. I put in extra when I can.  It's there in case of emergencies, but for the most part I have a "don't touch" policy with our savings.  It is recommended to have at least enough to pay for your "cost of living" for 6 months in case anything were ever to happen. 

*Find balance.  Determine what is important to you and your spouse. Dave Ramsey says to "Live like no one else now so you can live like no one else later." That is definitely a principle I agree with and we try to make smart, frugal financial decisions. BUT, I also believe you have to find balance. We are not promised tomorrow and we can't take it with us when we go.  We really like to travel, so to us it is worth is to spend the extra money to take a few big trips every year.  

*{Last but definitely not least...} Tithe 10% of your income. Don't cheat God. It's all His anyway.  He allow us to work and provides our jobs and resources. The Word tells us to give to the Lord and he will bless us and entrust us with more. I have always tithed and never gone without anything. Sometimes human nature takes over and I want to be greedy, but I don't want to miss the blessing from giving. I remember one time I was at church and felt the Lord telling me to give above and beyond my tithe. I didn't want to do it, but I did. When I went to the car after church, I had three voicemails asking for pitching lessons (extra money) that would pay me three times the extra amount I'd just given. It's amazing to see how God will multiply when you are faithful with the resources he gives you.
Well, there you go! I'm certainly not an expert, but Big Jon & I have researched & studied, read Dave Ramsey, and made some wise choices to get us in a pretty decent place with our finances.  As of right now, our only debt is our mortgage, and our goal is to pay our house off in 15 years while building up equity!!  Of course we don't have as much as we'd like in savings, (things come up!), but we are working on that little by little.  It'll get there.

I know times are tough right now and lots of people are struggling.  People are unemployed, can't find jobs, have had major setbacks, and other issues that make these tips difficult.  Jon and I are both very thankful for stable jobs and income.  We're grateful for the opportunities we've had that allow us to be in the position we are in.  I just wanted to share some of what we've learned in hopes to help others take it for what's it's worth.

  Hopefully you  learned something, and feel free to ask any questions!! (If I can't answer them, I'm sure Ryan can! P.S., if you're looking for an accountant, he's awesome!)

What are your favorite financial tips??

What is the smartest thing you've done regarding your finances??


Always Learning said...

We always spent less than we made. The only debt we ever had was our home and we paid that off as soon as possible. Buy furniture and appliances on Craigs List...Great deals! Lastly, be content with what you have!

Erin said...

Dave Ramsey was very helpful for us and we were able to adopt many of his philosophies to rid our consumer debt. I am so thankful to only have school loans right now (unfortunately for Dave, pharmacy school doesn't operate on a pay-as-you-go plan)! Paying off debt is such a great feeling! I will be so glad when we can pay off our school loans.

We have many of the same financial philosophies and #1 is always tithe, tithe, tithe. God has shown me many times over how tithing what seems to be your last pennies... well, never is. He is everything.

Anonymous said...

These are some really good tips!!!

Kelly Ford said...

Great tips. Except we would NEVER buy whole life insurance. There are better places to invest your money. We did term and hope to be debt free (house and all) by the time the term runs out.
The last piece of advice I'd add to this is to plan for your own retirement BEFORE your kids college. The fact is, there are low interest loans available for kids who attend college. But there are no low interest loans for your long term end of life care. So by planning to make sure you are well taken care of, it takes a burden (emotional and financial) off your children.

Emily said...

i ALWAYS thought "pay off highest interest first" but after reading dave ramsey it totally changed my outlook on that. He suggests writing out ALL your debts from the lowest amount owed to the highest and not to take into account the interest rate. You make each MINIMUM payment and put ALL your extra funds towards paying off that lowest debt amount. Then once that is paid off you apply that minimum payment plus the extra amount you were paying in to the NEXT lowest amount. It really snowballs FAST and we paid off about $10000 in medical debt from Zach's back in about 8 months! Our goal is to be debt free other than our house and cars (we then will put all the money towards the house...our car situation isn't worth paying them off, we'd rather hit it up on the house!). Also I agree with Kelly on the whole life insurance thing. Zach sells life insurance and we have term. We are looking into changing it over to a VUL which will help us save for retirement as well. I also agree with Kelly about retirement coming first, college coming second. For us the goal now is the debt. Once we can quit throwing every extra penny to pay off debts we will then use those funds towards retirement savings :)

*Butler, Party of 4* said...

Yea, I can't really contribute to the whole "paying off debt" convo because we don't have any except our house, and we are working on paying that off. I've heard about snowball & skimmed it briefly, and I've definitely heard it's the way to go.

I agree about retirement also. Definitely first priority. My parents didn't have to pay a dime toward my college...(although they DID play a huge part in helping me get scholarships that paid 100% for my undergrad and left me with spending money each semester). They also let me live with them for a couple years while I earned my Master's and Specialist's, but that meant they didn't have to help me at all and I didn't have to take out any student loans.

I'll have to look into the whole life again, but the way it was described to me it sounded more secure & was only about $15 a month.

Anonymous said...

Great tips! Love your blog!

*Butler, Party of 4* said...

Here's what Ryan said about his reasons for choosing whole life:
"My IRA earned 3 % for the first six months of 2011 and my whole life insurance with Northwestern Mutual earned 6%. The theory behind my strategy is to not only invest in diversified mutual funds, but to diversify your investment vehicles."

Makes sense to me!

Kelly Ford said...

His explanation sounds good... but if you look into how much it costs, its a BIG amount to tie yourself to paying as an investment. Whole life insurance, on average, is about double the amount of term. Obviously, there's a reason... it has a cash payout... but only after you've invested for a min of (typically) 12 years. All other investments you can prioritize and if for some reason you just cant put the money into it one month, you can choose to skip (like Roth IRA's). But with whole life, you're locked in. Some people may really like that. But as a parent with 2 kids, i dont want money locked in that way. I need for my investments to be flexible with our budget, as the budget varies :-)

And truly, in this economy whole life is not a bad investment. HOWEVER, it used to be and will likely be again when the economy improves. But if you buy it, you buy it for life... so you cant "move" your money to a better investment later on.

Theres my 2 cents :-)

I cant speak to the debt thing either (thank you Jesus) but I've always assumed "highest interest first" too. Honestly, i didnt really read the debt payoff stuff when I did the ramsey class. HA! But I'm sure its MUCH more motivational to do it the snowball way!

Emily said...

kelly you're so stinking smart haha you are one of those people who knows a LOT about EVERY subject!!!

i wish we didn't have to know about the debt junk either :( medical bills suuuuuuck! be thankful you both have wonderful teacher insurance ;)

Danielle Phillips said...

We follow Dave Ramsey also and down to 1 car payment (we don't have house because we move every three years and the Army provides living quarters for us) and we are looking to purchase some land in GA to build on once Jason retires thing we are looking at seriously is the Dave Ramsey plan for children. I can already see the gears moving in Clayton's head (he's 3) in the money department. I beleive it is never to early to start teaching life essentials like finance! I't makes me happy and optomistic for the future that so many of my friends who are really just starting out in the big scheme of things getting started on debt and savings!!

Kae said...

this really helps! I am going to save this one! Thank you!

Lisa said...

I love this post. My husband has always been money savvy and smart. My brother in law introduced us To Dave Ramsey also. While we don't follow him to a T, he definitely has good advice and i'm happy to be debt free also. We're now focusing on our retirement plans and kids college funds. :)

Our Happy Married Life... said...

love this post! People who don't buy/like whole life insurance don't totally understand it. I sell it. I get it. It's one of the best products out there right now. If you are planning to get rid of it in a few years, no, but if you plan to keep it (which you should) it's great. In some cases term is better for some people/situations but overall whole life is the way to go!