Manage Money Wisely

The following is one of numerous short blogs I wrote for my kids as they graduated from high school. Each received 12 blogs, tailored to each one, in a book.

Manage Money Wisely

Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this. --Dave Ramsey

Try to save something while your salary is small; it’s impossible to save after you begin to earn more. --Jack Benny

Scripture

Dishonest money dwindles away, but whoever gathers money little by little makes it grow. Proverbs 13:11

Whoever increases wealth by taking interest or profit from the poor amasses it for another, who will be kind to the poor. Prov 28:8

Story

Though I have made a lot of financial mistakes, I think I got enough right to be on the plus side. When our company began to produce money (finally!), we had more than we needed. There were these two oil fields I invested in, (bad bad ideas), and there were 8 homes we bought in Memphis TN. These homes were real assets that paid us cash every year. In fact, when the business could not pay me as much, it was the cash flow from the real estate in Memphis that supplied what was lacking. Now we have a regular cash flow and a growing net worth there. At the same time, we socked a bunch of money away in the college funds rather than increase our lifestyle. That was super wise as well.

When I was in high school a friend of mine was behind their payments on their house. I had enough money to make one of their payments. I thought I should give them the money, and I did secretly. Right after that, I got the highest paying summer job I ever had. To this day, I suspect that my willingness to give away my money was significant in my getting that job.

Lesson

Trying to come up with the most important lessons about money is like picking my 5 favorite cookies. They are all delicious and likewise, there are many important rules for managing money! But, I think these are the 5 most important.

Start with a BUDGET. You can never spend more money than you make and think you will get ahead. In fact, you must spend less money than you make. This is your foundation. Step 2 in your budget is to fund an emergency fund with 3 to 6 months salary. This money will be there for surprises like losing your job or health issues. A budget is the logical response to the opportunity cost of money. Whenever you spend money on one thing, you don’t spend that same dollar on something else. Intentionally asking yourself if the something is indeed more valuable than the something else, will prevent countless instances of buyer’s remorse. I am using a great app called You Need a Budget (YNAB.com) and recommend it for you.

With your excess BUY ASSETS. Assets are better than expenses because when you spend money, it is gone. When you buy an asset, it continues to give back to you, strengthening your foundation. 

One of the assets you should buy is index mutual funds. You should buy these because the MARKET IS EFFICIENT.  That means no one knows any financial secrets anymore. So you don’t need any fancy brokers. If someone tells you they have a tip on a stock that’s “going big” ignore it. You make money in the stock market based on asset allocation not by stock picking. Buying mutual funds also diversifies your risk across many companies. Index mutual funds ensure your costs are low so you keep more. I like real estate too because you can stop entertainment and vacation and club sports, but no matter what, people need places to live and work. 

There will be financial risks you want to mitigate using INSURANCE (auto, life, home, health…) You should only buy insurance when the risk of failure has the potential to materially squash your financial future. Your savings is the way to mitigate the small risks. As for health insurance, look for a policy that insures you against major problems and then save money to fund your day to day expenses. A High Deductible plan with HSA is likely what you will prefer.

Finally, the last cornerstone of financial freedom is to GIVE AWAY a lot. Give to non-profits, give to God, give to friends, neighbors and your parents. Whoever increases wealth by taking interest or profit from the poor amasses it for another, who will be kind to the poor. Prov 28:8. 

I need you to realize your childhood has been UNIQUE. It is rare that a family can support itself at such a high standard of living with one parent working. When you are on your own, do not expect to live at the high standard of living you are used to. You and your familiy can be very happy without all the stuff you have grown up with. 

Managing money wisely is rare in this world. If you do it you will be happy, free, and wise. 

Works Cited

Index Funds: The 12-Step Program for Active Investors, Mark T Hebner, IFA Publishing, 2012
Kiyosaki, Robert T. Rich Dad Poor Dad. 2nd ed., Plata Publishing, 2017.

YNAB.com

Questions

1. How would you manage a budget?

2. How would you feel spending excess money on buying an asset rather than spending it on something fun? Could you overcome the desire for cool stuff?

3. What should you do if someone tells you he is great at picking stocks and wants to manage your money?

4. List some insurances you might buy and others you should not.

5. What are 5 places you would consider giving money to?