Handle Money Well – 100% DAD

Handle Money Well

Handle Money Well

Here are just some basics when it comes to money and handling it well. Build your net worth, tithe your gains, never borrow money, control your expenses, income, investments, and giving, do not fund irresponsible people or programs, and work hard for your money. 

 

A great resource to learn more about money is Dave Ramsey’s Financial Peace. You will notice most of this chapter is very much in line with Dave Ramsey’s philosophy. For a more in depth and instructive read on personal finance read his book!

 

Personal Finance

Writing a check is a lost art, but very easy. Reconciling is a little more challenging, but still very easy. Reconciling is making sure that you record what you buy and then compare it to your bank statement to check for errors. That way if somebody steals your information they won’t get away with making small purchases. It also ensures that you don’t spend money that has already been given to somebody else. If you write a check, the other person may lose it in their car for a few months. When they clean out their car six months later and cash the check you want to make sure that amount of money is still available. 

To reconcile your account, record your purchases and deposits. Most people use a software program. When you reconcile, you go down your bank statement and check off each transaction making sure the amount it accurate. Anything that does not match up or get crossed off needs to be looked into. 

Expenses

Spend according to your budget. We spend in proportion to our income and we always live on less than we make. The larger your income, the easier that goal becomes. If you do have a very large income DO NOT increase your spending just because you got a raise. The only time it is okay to increase your spending is when your net worth goes significantly up. Otherwise you will make $500K a year and be in debt and broke. Live off as small of a percentage of your income as possible, as applicable to your financial situation. If you make $35k and can live off $25k great. Put away $10k a year and pick up some extra work to move your income up. If you make $500k a year try living off $30 or $40k a year. Pretend to be broke, so you can stock up cash and investments like crazy. Then you can buy a brand new car for cash a few years later when you are a multi-millionaire. 

If you’re having trouble controlling expenses use a cash system by filling an envelope for each category in your budget for the month. Keep those in a lock box or a safe place. You don’t want to lose it, have it stolen, or get burned up in a fire. Only carry a comfortable amount for you. Put the rest in your savings account and invest anything over your emergency fund for future planned expenses. 

When Making Purchases

Always on the lookout for a bargain. The bigger the purchase the more time you should spend looking. We recently bought our boys a nice bunk bed set for 70% off store price. Ask retailers for a better price or more value, the worst they can do is say no. If I can’t receive a better deal, I usually try and create a value add in some other way. Trade for services or other items when making purchases. When purchasing always look at how it will affect your net worth, especially with larger purchases like vehicles. If you buy a $50,000 car know what it will be worth five years down the road. Chances are it will lose tens of thousands of dollars by the time you sell it. On the other hand, if you buy a $4,000 car, in five years you might only lose one or two thousand dollars. 

Can your net worth afford to lose tens of thousands of dollars?

How a Budget Works  

One thing I often hear is how few people know how to budget the right way. Most people I meet think a budget is a myth or some record of what happened. Tracking your spending is not a budget. That’s an expense report.

Budgeting is a clear and hard line detailing exactly how much you are allowed to spend in each category. It’s not a suggestion. Once you have spent the money in a respective category you are now out of money to spend.

FYI – we currently and almost always have had a budget category for fun and enjoyment. The occasional adjustment needs to be made, but perpetual adjustments mean you have no self-control! A budget tells your money where to go. It’s a directive for how you will spend your money. That way there are no surprises. Have extra money at the end of the budget every month. Always be in control of your money because in the end it is not our money, it is God’s money. He lets us manage it and we don’t want to give Him a reason to fire us as managers. 

Credit Cards

Credit cards are stupid. Say it with me. “Credit cards are stupid.” Follow Dave Ramsey’s advice here and never, ever, ever have credit cards. I did it. I was naïve and it caused me to go bankrupt. I did it to start a business, on the advice of broke bankers. There is absolutely no reason to have a credit card. Let’s think about reasons people will tell us we need a credit card. 

 

  1. It’s how you build your credit score. Your credit score is stupid. Why would you want a credit score? To borrow more money? You don’t need a credit score to buy a house. You only need it to go into more debt. Since that’s stupid, so is owning a credit card. 
  2. You can’t rent a car. Yes you can. With a debit card. Go do it now. I do it all the time. 
  3. Credit cards have more protection than debit cards. False. They are the exact same. I run my debit card like a credit card. I never enter my pin. 
  4. It’s for emergencies. No, your cash emergency fund is for emergencies. 
  5. It is for the points or miles and I always pay it off.  I went broke with the same rationale. So I will never have these cards again. The credit card companies are massive companies with huge R&D departments. They have done intense studies and found out that if they “give” you free points or miles then you spend 30% more than you would if you had no points or miles. So your free miles are paid by an extra 30% in expenses you would not have otherwise made. 

 

To sum it up, with credit cards you spend more with plastic than cash and there are high risks of getting yourself into trouble. Sounds to me like cash is the best option. But I won’t be mad at you for using a debit card as long as you have a firm budget in place so you do not overspend on impulse. 

Don’t Borrow Money

I know there are people that have made fortunes borrowing money, but there are more people that are broke because of borrowing money. This is what I know to be a fact. If you never go into debt, live on less than you make, and invest the difference, you will retire very wealthy. 100% of the time. No matter your income level or intelligence. 

If you borrow money to build wealth, it’s a crap shoot. Too many outside variables can bring you down at any time. The biggest problem is many of those variables are of no fault of your own. Say a law changes or some outside force throws a wrench in your plans. It happens a lot. I went broke borrowing money. It absolutely crushed me, because I was too smart and talented to go broke. That’s why I started borrowing. I was leveraging my opportunities. Don’t go into debt. Ever. Even for the reason you’re thinking of now. To this day I still am offered opportunities I have to turn down, because I can’t do it with cash and I am so thankful for that. Because some of those deals collapsed and I would have lost a ton!

Saving

Learn how to save money. A lot of Americans come from families that are broke and are living paycheck to paycheck. That’s why you want to learn how to save. Without a strong savings muscle it doesn’t matter how much or how little money you make, you will spend everything you get. Whether you make $10 million year or $10,000 a year you must set money aside in savings. That’s money you don’t ever touch. There are stories of janitors who never make more than $25,000 in their life retiring with nearly a million dollars. It is because they lived like they were broke and saved money constantly. Unfortunately, there are more stories about high income people going broke because they have no savings muscles. I love seeing my savings account go up and up. Then I reduce it to a base level and watch it build again. (When I reduce it I make a large planned purchase and/or invest it.) In order to save, you have to live on less than you make. If you make $3000 a month, then live off $2000 and put $1000 per month into savings. If you can live off less, great. Put more into savings! This is the muscle that will build your net worth and make you a millionaire, than a multi-millionaire. Consistency is key in saving. Make saving a strong habit. 

Emergency Fund

An emergency fund savings account is 3-6 months of expenses. It should equal what it costs to live for six months with zero income. This gives me that warm fuzzy feeling that if everything goes bad, I’ll still be okay. I can lose my job, have the car break down, and break my hand on the same day and not panic.

Giving

I tithe 10% of our income to our church until we are out of debt. I tithe off of gross income because I like to give as much as possible. After we are debt free we tithe to our church and give even more to worthy causes that handle money well. It’s our family responsibility to continue the family legacy. We manage money well for God. It is His money and it’s our responsibility to grow our wealth so it can produce more, so that we can give more. We find great uses for our giving. We do not give to people who will waste it or abuse it. We should also not give it all away because then we can no longer help anybody else. Handling wealth is a great responsibility and should not be influenced by ignorant or stupid people. 

When People Ask for Money

Depends who it is and your ability to help. If you have debt and/or are struggling to make ends meet then you just have to say no. You can’t help because you’re in debt. You don’t have enough money to help out and you should not impede on your own future to help this person. Get yourself out of debt and prosper. That way you can help out even more people!

Family members are the hardest to say no to, but you have to take care of yourself first. When it comes to giving individuals money I’m usually hesitant. A lot of times you are enabling bad behavior. If you throw money at them you are enabling them to continue those behaviors and that is hurting them in the long run.

Money Isn’t Everything 

Money makes life easier. It is true that you cannot buy happiness with money. There are many people with money that are miserable. Many people look at those stories and say money truly is the root of all evil. They haven’t read that Bible verse properly. “The LOVE of money is the root of all kinds of evil” (1 Timothy 6:10). Money is a blessing. It buys us comfort, time with family, reduced stress, and increased opportunities to improve our health. The feeling of helping others and truly impacting the world in a positive way is a wonderful and glorious feeling. Money is a resource that allows us to help and impact the world in a positive way. 

 

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