Friday, December 7, 2012

Common Sense Approach to Finances

In planning for becoming a parent, this is something I have been thinking a lot about lately. It’s so important to raise your children to be productive, independent, hard workers, and financially savvy. I have seen the devastating effects of financial struggles – particularly on relationships- so I have been thinking about what I need to teach my children to ensure they make wise financial choices.

SO MANY PEOPLE are plagued with debt and are drowning financially. It is so sad to see, and my heart aches for those who have no control over it. (These are the people we want to help! That’s what God calls us to do.) But… I do not feel sympathy for people who are poor stewards and make unwise financial choices. Much like anything else worthwhile, it takes discipline, and many people lack that. Our society tends to think we ‘deserve’ things & shouldn’t have unfulfilled longings.

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I cannot STAND to owe anyone anything, and I sure as heck hate the idea of paying interest!! Obviously you can’t plan 100% for the future and you never know what will happen, but as of right now we are on track to be debt free in the next 5-7 years, and that’s with me leaving my full-time teaching job to be a SAHM in May (so thankful for the blessing of an incredible “plan B” income opportunity).  Right now our only debt is our mortgage, but I know that no debt is ‘good debt,’ so we are working fervently to pay that off as quickly as possible. The less time we are paying interest on it, the better!! I cannot imagine what an awesome feeling of freedom that will be, and how it will allow us to be so much more giving. We both have a big heart for helping those who are TRULY in need.

Anyway, I’ve thought a lot about our upbringing because I know it’s OUR responsibility to teach our children how to manage money. Finances are something most of us tend to keep private, but I have learned that there seems to be a rather high percentage of people who have poor money management skills.  And I think that’s because they were never taught HOW to manage money.

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Jon and I have talked about it a lot (thankfully we see 100% eye to eye on financial issues- something I think it’s important to discuss before marriage) and decided that we take a very COMMON SENSE approach to our finances, and that works well for us.  (In fact, I’m pretty certain it would work well for anyone that applies the simple principles.) And that is what we plan to teach our children. I’ll talk a little bit more about some of our “financial concepts” at the end of the post and get some ideas from others, but first I wanted to share a little of what has shaped us.

My dad is THE hardest working man ever…(well, him & Jon are tied)….and Mom too, so I grew up seeing that daily in our home. Jon’s parents are also both incredibly hard working people as well, so I’m thankful we both had that example growing up. We were also both very spoiled!!  I can remember people commenting on that my whole life, & I’m sure people thought the same thing about Jonathan.

This is the deal though. Although both of us were spoiled, we both learned to be hard workers at a young age too.  This has been one of THE most important factors that has helped Jon & I with our finances. (I know other people who were not spoiled, but their finances are a wreck. I think it’s way more important to focus on the things you ARE teaching your children than what you do or do not give them.) When we were younger, Jonathan and I both had really good grades, were very involved in school, and worked extremely hard in sports too. We were expected to work hard in each of those areas. I think that taught us both to be DISCIPLINED, which is a huge part of being financially savvy. We both had part-time jobs by age 15 and have worked multiple jobs ever since. I can’t remember the last time in our lives either of us were “just” working one job. When other people are at home watching t.v., we are usually both still working some sort of plan B (or C) income. We don’t do that so we can be rich or have more to spend more (we are both also VERY frugal!!)…we do that because we know if we work hard now, we can be debt free.

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We have also chosen (or been blessed with the opportunity of) a “plan B” that allows us to work together- and we have a BLAST doing it! We don’t care WHAT we’re doing, honestly, as long as we’re together…so may as well be doing something productive that will help our family achieve our goal of debt freedom (rather than watching 8 hours worth of Duck Dynasty!). Right? That’s why we’ve worked so hard the last 5 years. We wanted to save enough that I could stay home with our babies and it not be a financial burden on our family. We had to start planning and preparing for this a long time ago…and that’s where most people get into a mess. They can only think in the moment and do not plan for long-term or set financial goals for the future.

Two of the main things I have taken from my parents is the importance of being a hard worker and the importance of giving. 

Those are both HUGE an SO important! But there is another aspect of that which needs to be taught too, and I think this is where lots of parents miss the mark. We have to teach our children about spending, saving, budgeting, prioritizing, and the difference between wants and needs. it is okay to go without. THIS is what really sets people apart regarding finances.

Here are some of the other concepts Jon & I live by that we plan to teach our children…

  • GIVE, GIVE, GIVE. The Lord LOVES a cheerful giver, and you can’t outgive God!! I’ve heard people say they can’t “afford” to give 10% to the church, and that blows my mind. The way I see it, you can’t “afford” not to. Tithing is a non-negotiable for us, and it’s the very first thing we so when either of us get paid. It’s God’s anyway, so you might as well give back to Him what is HIS! (He’s the one who allows you to have that income and can just as easily take it away.) And I have always tithed on my “gross” pay. I think of it this way…do you want a ‘net blessing’ or a ‘gross blessing’??

“If among you, one of your brothers should become poor, in any of your towns within your land that the Lord your God is giving you, you shall not harden your heart or shut your hand against your poor brother.” –Deuteronomy 15:7

“The wicked borrows but does not pay back, but the righteous is generous and gives.” –Proverbs 37:21

  • If you don’t have it (as in CASH, IN the bank), DON’T SPEND it. God is not going to continue to bless you if you’re not a faithful steward of what He has already blessed you with. Yes, this takes discipline, but discipline is a choice and a habit that becomes easier with practice. We do have one credit card that we use for points, but I only use it like a debit card. I wouldn’t dare put anything on it if I didn’t have the cash to pay for it ASAP. Actually, we put everything we can on that card because not only does it give travel points, but it also has a spending tracker that is very detailed. It breaks down your spending so you have an extremely accurate record accessible at any time (also helpful for taxes and budgeting). I do NOT recommend ANY credit cards unless you are 100% sure you can only use it like a debit card. If there is even a slight chance you will be tempted to charge, don’t even allow yourself to be in the position.

“Owe no one anything, except to love each other, for the one who loves another has fulfilled the law.” –Romans 13:8

  • You MUST work hard to prosper. I have found that lots of people are just plain lazy and unwilling to work hard. They want something for nothing and think they are “owed” something by society, their parents, grandparents, company, the lottery, whoever. We want to work hard now (especially before we have a family- we want to be around for our kids!) so we have more freedom later. There was a period for a stretch of a few years where Jonathan & I were working around 6 jobs between the two of us. I know I’ve said it a million times, but I am so thankful Advocare came into our lives because it has allowed us to eliminate most of those side jobs, and like I said, I won’t be teaching after this year so I can stay home to raise babies (but will still have income). It’s perfect for us because it’s a company that rewards hard work, and you get out what you put in. So now we’re not working any harder- just smarter.

“The soul of the sluggard craves and gets nothing, while the soul of the diligent is richly supplied.” –Proverbs 13:4 

“For even when we were with you, we would give you this command: If anyone is not willing to work, let him not eat. For we hear that some among you walk in idleness, not busy at work, but busybodies. Now such persons we command and encourage in the Lord Jesus Christ to do their work quietly and to earn their own living.” –2 Thessalonians 3:10-12

     

  • No debt is “good debt.” Thankfully our only debt is our mortgage because it allows us to be laser focused on paying it off (since our money isn’t going 8 million directions), and it’s also a great “investment” that is going to yield a pretty high return if decide to sell in the future. We refinanced to get the lowest possible interest rate, but we do still OWE money to someone else. And that’s not cool. We calculated exactly how much additional money we would have to put toward the interest to pay the house off in 5, 7, or 10 years, and work hard to do that every month.

“…The borrower is the slave of the lender.” –Proverbs 22:7

  • Do not bank on money coming in that you don’t have yet. This seems absolutely absurd to me, but people do it all the time. They know they have a tax return, a bonus, a raise, etc. coming, so they spend it before they even have it. This makes ZERO sense to me. What if it falls through? I always plan based on what we HAVE, and if we do get the extra, that’s fantastic. I plan for it ahead of time (which typically includes saving the majority of it), but do not SPEND any of it before I have it.
  • Live within your means. It is so important to create a BUDGET and stick to it. Re-evaluate the budget often. Write down spending. I was talking to someone the other day who said they had no idea how much it costs them to live per month, and I thought “Wow, how scary!” So many people are trying to keep up with the Jones’, and that is a yucky cycle. If you have steak taste and a hamburger budget, it’s imperative to be disciplined about spending. I think many people are also spending more than they realize. I remember one point when we realized Jon was spending an extra $25 a week on drinks at the gas station. I can think of LOTS of things we could do with an extra $100 a month. Saving to put it in an IRA would put you 1/5 of the way there! The point is, sometimes we have lots of little expenses that add up and we don’t even realize where our money is going.
  • Be aware of the costs of hobbies. Hobbies can be CRAZY expensive! I am blown away by what some friends spend on their hobbies. And although I do think leisure/hobbies/entertainment are important, I think it needs to be in moderation, because it can be VERY easy to become obsessed and overspend. Our “hobby” is working out, so we pay around $45 a month for a gym membership. We also like to eat out on weekends, so we budget for that too, but that means we don’t eat out during the week, and we have also stopped going to the movies.
  • Start thinking long term NOW. Start saving for retirement. Open an IRA & DON’T touch the money. Put at least $5000 in per year (that is the maximum allowed anyway). My accountant told me that an individual who puts money into an IRA annually starting at age 30 will have DOUBLE the amount of an individual who puts money into an IRA starting at age 40, even if they put double the amount of the 30 year old. Basically, you need time on your side and should start saving, like YESTERDAY. I know I’d rather live like no one else now so I can live like no one else later. (Put money into retirement rather than new clothes, etc.)
  • SAVE! If you don’t make enough to save some money, you have two options: 1) Cut some things out that you don’t need (yes, there are things in your budget you can do without!); or 2) Find a way to earn extra income. Get another job. My vote is direct sales because it is typically something you can do on your own time, working WHEN you choose (so you don’t have to take time away from your family), and you can reap a pretty high return for your efforts if you choose the right one for you. I have read that both Dave Ramsey AND Clark Howard (two figures I have a great deal of respect for concerning financial matters) both suggest direct sales as one of the best ways to make a significant amount of money in today’s economy. (I know I tried the other route- getting additional degrees- and that sure didn’t work!) One of the reasons some people are not successful with direct sales is they do not follow the direction of their leadership and they give up too soon.

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  • Plan for the unexpected (and the expected). You never know when you’re going to need a major car repair, have a health issue, lose a job, whatever. That is why it is so important to SAVE….so when things come up, they don’t ruin your finances. As much as it stinks, there are things in life we HAVE to pay for, but that we don’t like to spend money on. Like tires for example…who in the heck wants to spend their hard earned money on a set of TIRES? But it’s a necessity, so it’s important to plan appropriately and have enough money to cover it. There is no sense in paying extra for them- more than they’re worth- because you have to finance them (can you even finance tires?) or have to put them on a credit card. When we were getting ready to buy a house, for example, I saved up enough to furnish and decorate our house (a planned expense) and stuck to the budget I allotted. It was such a relief to be able to pay cash for that!

So here’s what I want to know…

What has shaped your finances the most?

What did you parents teach you or model for you that helped you become financially savvy?

What is your biggest struggle with finances and what (if anything) could have prevented that?

What are you teaching (or do you plan to teach) your children??

11 comments:

Amanda said...

I love this topic! I am somewhat of a financial nerd, and believe it or not, that has NOTHING to do with my job!

My main motivation was watching my parents struggle. It was tough for them to budget as neither of them has any financial discpline and my grandparents were horrified. I watched what NOT to do and learned that way.

My biggest struggle is my boyfriend. We have been together for 10 years and share all of our bills and accounts. His parents did him a huge disservice by not teaching him a thing about money and always spending more than they made. They also did everything for him, did not require him to have a job, and just did not help him when he needed to learn. They kept quiet. He wants to do better but we both struggle with it.

When we are blessed with children (and marriage-God's timing?) then we want to teach them what our parents failed to teach us. Fiscal responsibility. We want to be open with them about real life issues and saving.

As far as saving goes, GO GIRL! I am proud of both of you!

Amanda

Danielle said...

Love this post, so I figured I'd share a little...

1. What has shaped your finances the most? - Right now I have an okay job that pays a 'decent' amount of money (by decent I mean we can pay our bills each month but have 0 left over), but Josh has been in school almost non-stop since I've known him. He has also had two several month stretches of unemployment (at times it's hard to find work in a small college town) and the jobs that he can get while in school are not high paying nor does he take a lot of hours. Right now for us, his grades are number one so when he graduates this summer he can have a better chance in his competitive area of study.

2. What did you parents teach you or model for you that helped you become financially savvy? - My mother was a SAHM until very recently when she went back to school and is now a nurse (all us kids were grown and gone). My dad was and still is an amazingly hard worker who provided for a family of 6 on one income, this meant lots of time away on business and long phone calls in his home office. My dad is very successful financially now and he worked very hard to get there, so I know it takes an unbelievable amount of dedication to get to a place that you can call comfortable (which is different for each person). The number one thing he always stressed was to make sure you have a large savings account for the unexpected, which I'm sure he experienced a lot of when we were all younger!

3. What is your biggest struggle with finances and what (if anything) could have prevented that? - Luckily we learned at a young age that credit cards are not our friends. We had to pay a VERY large amount of money and after that we ditched the idea all together because we knew we were unable to handle it. And again with Josh a full time student, we don't have that double income to help us save for the things like tires (which yes you can finance them, but we did not) so we do have to look forward to times like tax return season and student loans to help out with the extra life expenses that my paycheck doesn't cover. Our basic struggle is having 'extra' money, it's almost embarrassing to say we don't have any in our savings account no matter how we re-budget our daily lives.

4. What are you teaching (or do you plan to teach) your children?? - This is something we discuss almost daily. No joke, it is a very serious issue to us to make sure our child has a better understanding of the way the financial world works than we do. We have talked about weekly allowances, working while in high school, and part time work while in college. For us, we are more grades/education focused so we have decided that we want to be able to provide for our child 85% (basic needs like tuition, rent, and insurances. spending money will be up to them) while they are in school so they can still work part time and have plenty of time for studies. Our parents didn't go to college until later in life, so when it was time for guidance or career/college talk we didn't get much insight. We ended up both taking the long road (which is fine because we have learned SO much while doing it), we hope to be able to steer our child to the right profession at the right schools so they will have open doors no matter where they go in their life.

(sorry those were really long answers, tried to keep it as short as possible. hope it was what you were looking for!)

Danielle said...

I had this HUGE comment all numbered and typed out, I hit post and all it did was show me Amanda's comment :(

But I really like this post so I am going to try again!

Right now Josh (the hubby) is still in school, graduating this summer [Woo-Hoo!!!]. This is an incredible burden on us financially and gets more stressful the older we get. Thankfully he's done in a few months, but for the past couple of years we have not had any money. Both of us are very grades/education focused and it is more important to us that he just has part times jobs and finishes school with high grades. We are hoping for a pretty decent payback on this investment since his field is largely defined by grades and schooling, and he really enjoys it. I do work full time and it's okay pay, my paycheck pays the bills each month with nothing left - so we are getting antsy for Josh to graduate!

Our parents did not have much advise to give. Josh's parents both work and do well and his mother is also currently back at school full time. My family always done well on my dads one income, my mom was a SAHM until she just got her nursing degree last year. The only advise we were able to get, and really see how important it is, is to have a large savings account for the unexpected. Since we make 'just enough' money to live things, like tires, are a struggle for us. We do have to look forward to times like tax returns and student loans to help with the unexpected. We know that once Josh is done and gets the jobs he's had his eye on we will be more than fine with the double income, but for now it's a little tight.

I feel like we are at the age that we should be getting our stuff together and planning for the rest of our lives. We do want a small family and we discuss on an almost daily basis how we are going to teach our child about money and life. We do have some ideas that we are going to try, but we have YEARS before we will get to test them out. The one thing I remember from high school economics class, and often remind myself of, is 'there's no such thing as a free lunch'. This little saying is pretty powerful and even though I know NOTHING about money and economics, except what's going on in my house, I do know that this phrase makes me work harder and re-plan my budget on an almost monthly bases to make sure we can stay comfortable in our current situation.

It's so awesome for you and your family that you will get to be home with the kids. I really appreciate all my dads hard work to make sure that my mom could be there for us when we were younger and I'm sure your children will too! So many families have to have two incomes to survive and seeing relationships fall apart by financial issues is really heartbreaking.

Emily said...

I am thankful you wrote about this!!! We were SO hardcore about paying off medical debts...got it all paid off super fast and not even two months later had 5,000 in medical debt all over again b/c kye's surgery...then zach's er visit...now my foot. I can feel daunting and makes it tough to keep working to pay it off. I plan to revamp our entire budgeting process in jan! I am eager to sit down and work it all out. We actually pay a LOT extra on our house every month but I know Dave (Ramsey of course!) would rather us pay off those medical debts rather than the house. Also we have to get right with our taxes. I put aside 25% of Zach's income for taxes and EVERY year end up having to dish into that in order to live...then we go do our taxes and didn't need the money anyway. I'm planning to put aside less for taxes and that way I won't feel SO stressed all year!!!

We teach our children a lot about finances. I talk with Kye about it and when he asks for something I explain to him that buying that thing is not being a good steward with our money. He's learning young ;)

I was raised in a CHARGE IT! home growing up so I'm COMPLETELY opposite now from what I have always known!

Anonymous said...

Love the post!!!?

Amy said...

I absolutely love this post!! Thank you so much. This topic has been weighing heavily on my mind lately because my poor husband works almost nonstop 7 days a week. We definitely live within our budget and only go out to eat once a week....just trying to find ways to save more so he can work less. We have no children and our friends who have kids seem to be living it up!! We often wonder what we are doing wrong to be struggling so much with 3 jobs between us and no children. It's disheartening really. But thank you for this post. I'd love to see more like this.

Unknown said...

We are following Dave Ramsey's advice hardcore right now and plan to be debt free in 2 1/2 years, aside from mortgage. We have two cars and an home equity line that we are working diligently on, the right way now! We plan to save after that for a bigger house! Living in a two bedroom house with 2 small kids is extremely challenging!!! I grew up in a charge it home as well, so I learned what NOT to do. I may not have made the best decisions but I knew we'll enough how to keep myself from having to dig myself out of a big mound later in life.

Anna Catherine said...

What has shaped your finances the most? Giving. I've always believed that giving comes first. I believe in 10% to my local church, and then giving on top of that. I think putting your giving at the top of the list helps put everything else in order. I also believe God blesses those who realize it is all His anyway and we are just stewards. Give, give, give. I just can't explain the financial and spiritual blessings I have received from it.

What did you parents teach you or model for you that helped you become financially savvy? Like yours, hard work. My dad was a farmer, my mom was a SAHM for a long time, but my dad worked so hard, took on extra jobs, and then my mom became a real estate agent and did well with that. They were always self-employed, bought a business when I was in high school and have worked to see success in it. I never thought of a job as an 8-5 kind of thing. It was always whatever time you need to put in to get the job done. Up until a year ago, I've always had multiple jobs, just wanting to get ahead and stay ahead. I'm so thankful for the lesson of hard work.

What is your biggest struggle with finances and what (if anything) could have prevented that? Right now, I think it's having no accountability. I'm single, and I keep a budget, and stay out of debt, and overall think I do a good job in the finance area, but still occasionally make purchases that may not be very wise. I think I need to find a trusted Christian friend to bounce purchase ideas off of.

What are you teaching (or do you plan to teach) your children?? Give, work hard, give more than expected with your money and your time in everything.

Elizabeth said...

I love this post! Finances are so over looked and they cause so much stress and heartbreak in relationships and family.
I have always been super diligent about savings and investing in my future. I'm single and always save between 50-80% of my net pay.
I've never had a credit card, paid cash for my car, the only debt I would consider is for a home and right now I'm working my tail off so that I can throw as much cash at it as possible and pay off the mortgage asap.
The thing that shaped me the most in finances was the fact that as wonderful as my parents are, they are both HORRIBLE with money. They made a lot of bad choices financially and it caused a lot of stress and tension and hurt in their relationship. I learned from their mistakes.
(Note- my parents are freakin' fantabulous, so I'm not bashing them. But, they would be the first to admit that money matters are not their strong point.)

Tracy said...

You need to go into business helping get others on a budget and help hold them accountable! Thanks for sharing!

Courtney said...

What has shaped your finances the most? I was raised in a single low income home.
My Mom worked super long hours just to provide for us kids. She did without so that our needs could be met. The downside is she spent a lot on alcohol (I grew up in a non-Christian home). Mom had quite a bit of debt so she attempted to reduce that by moving into a smaller house, this worked until 2 years later when she had several massive strokes. She spent several months in hospital and couldn't work for at least a year and the debt piled back on. While she was in the hospital it was my responsibility at 17 to pay the bills and run the house. I didn't want to be in debt like her so I have always worked hard as well as working 3 jobs in high school and working throughout university.

What is your biggest struggle with finances and what (if anything) could have prevented that?
I am currently still in school and so I owe a fair amount of student loans. I have been extremely frugal so I owe a whole lot less than the average student. My fiance makes a decent salary and could pay my loans but he has respected my decision to pay them myself. Luckily I don't start paying interest on them until I am finished school. I often choose to not have a social life such as going out to dinner or shopping with friends since I don't want to spend a penny more than I have to and it can be daunting sometimes.
My other struggle is my fiance, Matt. His family was better off and always spoiled the children. They were raised to never buy anything they couldn't afford and to live within their means but his parents bought almost anything he desired, within reason. He has finer taste than I do and we sometimes have a difficult time when I think he shouldn't buy the new item on his want list.

What are you teaching (or do you plan to teach) your children??
I would like to teach my children to live within their means but also have them apply it. I think a small allowance for chores is a great way for them to learn that you have to work for money and to learn the responsibility of managing that money. That said if they have an allowance you cant give in to every whim they want or they wont need to manage that allowance money or even work to earn it.


Side note: A coworker I had one time told me that his wife and him, when getting a mortgage financed with only one persons income. If you finance with the lowest income than you are prepared if the the higher income person looses their job for whatever reason. You can still cover the mortgage payments while looking for new employment. That has always stuck with me and we are currently planning on doing that as were looking into buying a house now.