Personal Finances Part 1

A couple weeks ago I heard about a free finance class being taught in the community, and decided that S. and I were going to attend. We were both expecting it to be only a one-time event. When we arrived and found out it was going to be a 3 month long, once-a-week course, S. was a little hesitant about spending that much time, but by the end of the class, we had changed our minds and were ready to make some changes.

The information we are learning is so exciting, financially freeing, and couple-unifying that I want to share the knowledge. I hope that as you read and learn, you and your spouse will be able to make life-style changes along with us. Who knew saving money could be so addictive?

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PART 1
SAVINGS

The amount of money saved does NOT depend on the amount of money earned. Saving money must become a priority for you and your spouse. You always begin by paying the Lord first, yourself second, and paying your bills last.

7 Babby Steps to Saving Money
1. $1,000 in an emergency fund, or $500 if you make less than $20,000 a year.
2. Pay off all debt except the house
3. Have 3 to 6 months living expenses in a fully funded emergency fund.
4. Invest 15% of your income into Roth IRA’s and pre-tax retirement plans.
5. College funding
6. Pay of your home early
7. Build Wealth and give

What is your attitude toward money? Wise people save money while foolish people devour money.

Save money for 3 basics: 1. Emergency Fund 2. Purchases 3. Wealth Building.

1. EMERGENCY FUND
Could you pay cash for a $5,000 emergency if you had to today? Unexpected circumstances ARE going to happen – it’s Murphy’s Law.

The best place to keep your emergency fund is in a money market account from a mutual fund company. A money market account pays about the rate of a CD, there is no fee if money must be withdrawn, and you are a little less inclined to use it for wants that may seem urgent. The emergency fund is not an investment, it is your insurance. Do not use it for purchases. It must be your FIRST savings priority, and you must do it QUICKLY.

Where can you cut corners to start saving? Stop buying pop, juice, coffee, cigarettes, bottled water, and lunch (5 days a week). Lunch @ $5 day/week = $160 a month. If that $160 was invested at 12% from age 16 to 76, you would have $20,663,319! Is it worth it in the long run???

Begin working on your emergency fund now. The credit card should not be the emergency fund.

2. PURCHASES
Instead of borrowing to purchase something (credit cards, 90 days (NOT) same as cash), save up each month and then pay for it with cash using a savings fund approach.

Example: borrow $4,000 to purchase a dining room set. Most furniture stores will sell their financing contracts to finance companies. So, you will have borrowed at 24% with payments of $211 per month for 24 months, and will have paid $5,064 plus insurance for that set. But if you save $211 per month for only 18 months, you will be able to pay cash. When you pay for it with cash, you can usually negotiate a discount, and be able to buy it even earlier.


3. WEALTH BUILDING
Save $ for Wealth building. It takes much DISCIPLINE, and can be hard. You must focus on something to get you through it.

Pre-authorized checking withdrawals are a good way to build in discipline. The money is taken out of your paycheck and put into savings before it hits the checking account. Wealth Building works with compound interest and time. So you must start NOW!.

Getting rich quick never works. You will lose your money. Saving diligently over time will always build up wealth.

Example: If you had been taught to save, and saved $2,000 per year ($167 a mo.) beginning at age 19 through age 26 (8 years) at 12%, and then stopped saving and just let it grow, by age 65 you would have $2,288.996, and only invested a total of $16,000. For you don’t start saving until after college, around age 27, and start to invest $2,000 a year ($167 a mo.) for every year until the age of 65 at 12%, you would have $1,532,166, and invested a total of $78,000.

Time is Money. The interest rate is very important.
CONCLUSION:
Make savings a priority. START NOW by getting baby step #1 completed as fast as you can!!!!

The emergency fund is your backup plan when unexpected events occur. Discipline and focused emotion are key to saving.

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Following this first class, I reflected on how we were budgeting and saving. I was doing a great job of tracking our money in a spreadsheet, but not budgeting or telling our money where to go, and not saving enough. We felt good about already being a few one step closer. At the end of the class the quickie budget sheet was handed out. I took one look and new it did not contain enough categories for our budgeting needs.

Having heard many good things about mint.com , I turned over a new leaf and created an account. It is a FREE budgeting tool that helps you to see all your accounts, cash flow, assets, debts, and savings. You set up your budget, set savings goals, track expences and it budgeting so much easier! I spent a good amount of time getting everything set-up, but now it’s done, I just have to be disciplined and stick to our budget. I hope this will help you catch the fire of saving and debt elemination as it has the Green's.