This is the handout from a class I taught tonight at Relief Society. You just miss my stories. :)
Money Management and
Budgeting 101
RULE 1: Always pay a full tithe!
The promise of help from Heavenly Father is more valuable than
anything else you could buy!
RULE 2: Make a plan for the
financial future you want.
RULE 3: Use a budget and discipline
to create that future.
Some
people argue that a budget is too restrictive. It takes the fun out
of things. The gospel is also restrictive, with rules and guidelines
that appear to limit our freedom, but in reality give us much greater
freedom in the future. A budget and money plan do the same
thing.
President Tanner: “It
has been my observation in interviewing many people through the years
that far too many people do not have a workable budget and have not
disciplined themselves to abide by its provisions. Many people think
a budget robs them of their freedom. On the contrary, successful
people have learned that a budget makes real economic freedom
possible” (in Conference Report, Oct. 1979, 121; or Ensign, Nov.
1979, 82).
Part 1: Money Planning
If you don't have
a plan, you will wander endlessly and never reach your ideal
destination.
Step 1: See debt as a 4 letter word.
It is your enemy! Make a commitment and do all in your power to
avoid debt.
Joseph
B. Wirthlin: Remember this: debt is a form of bondage. It is a
financial termite. When we make purchases on credit, they give us
only an illusion of prosperity. We think we own things, but the
reality is, our things own us.
Some
debt—such as for a modest home, expenses for education, perhaps for
a needed first car—may be necessary. But never should we enter into
financial bondage through consumer debt without carefully weighing
the costs.
We
have often heard that interest is a good servant but a terrible
master. President J. Reuben Clark Jr. described it this way:
“Interest never sleeps nor sickens nor dies; it never goes to the
hospital; it works on Sundays and holidays; it never takes a
vacation. … Once in debt, interest is your companion every minute
of the day and night; you cannot shun it or slip away from it; you
cannot dismiss it; it yields neither to entreaties, demands, or
orders; and whenever you get in its way or cross its course or fail
to meet its demands, it crushes you.” 2
Elder
Joseph B. Wirthlin (1917–2008) taught: “All too often a family's
spending is governed more by their yearning than by their earning.
They somehow believe that their life will be better if they surround
themselves with an abundance of things. All too often all they are
left with is avoidable anxiety and distress” (“Earthly
Debts, Heavenly Debts,” Liahona, May
2004, 42).
President
N. Eldon Tanner (1898–1982) taught: “Those who structure their
standard of living to allow a little surplus, control their
circumstances. Those who spend a little more than they earn are
controlled by their circumstances. They are in bondage” (“Constancy
amid Change,”Liahona,
Feb. 1982, 46).
Elder
Ezra Taft Benson said: “Let us live within our income. Let us pay
as we go. … Let us heed the counsel of the leadership of the
Church. Get out of debt!” (Pay
Thy Debt and Live, Brigham
Young University Speeches of the Year [28 Feb. 1962], 12).
Step 2: Build an emergency fund of
$1000 to $1500. Go crazy. Sell things, work extra. If you don't
have at least a small emergency fund, you are at the edge of a cliff
waiting to be pushed off.
Step 2B: Pay down consumer debt.
Use a debt snowball. Starting with smallest debt first will give you
momentum. Restructure debts to reduce interest rates, sometimes you
can get a lower rate just by calling and asking. Destroy the cards so
you don't just buy more stuff. Or freeze them in ice. Make them very
inaccessible. Be cautious about closing accounts as that can affect
your credit score.
http://www.free-online-calculator-use.com/rapid-debt-reduction-calculator.html
There are many other versions. Print it off and put it somewhere
where you will see it everyday, on your mirror or the fridge.
Consumer debt is like a fire that needs put out!
President
Gordon B. Hinckley (1910–2008) taught: “Set your houses in order.
If you have paid your debts, if you have a reserve, even though it be
small, then should storms howl about your head, you will have shelter
for your wives and children and peace in your hearts” (“To
the Boys and to the Men,” Liahona,
Jan. 1999, 66; October 1998 general conference).
Step 3: Build a buffer and live off
last month's income. (Your emergency fund can be part of this.)
The freedom from this is amazing and life changing! Same money,
different timing = freedom and empowerment! You can pay all regular
monthly bills on the first. No more paycheck to paycheck or worrying
about checks clearing.
Step 4: Build a savings of 3-6
months of income. This can be saved in a conservative Roth IRA,
CD's, or regular savings account. If you don't have a Roth IRA, start
one. They are a great savings vehicle. Another option is to open one
CD per month and roll them over, so one is always available in case
of job loss or other emergency, but you earn a bit more interest than
regular savings.
Step 5: Set up retirement/long term
savings. Roth IRA's, rental properties, 401K. . .
*If your employer has a 401K with
match, start this step earlier to not leave free money on the table.
I like Roth IRA's. You can withdraw the money tax free in
retirement. You can withdraw your principle penalty fee at any time.
You can't touch the interest until retirement except in certain cases
of “hardship.” If your income is lower than $60,000, you may also
be eligible for the saver's credit on taxes (form 8880) which is an
instant return on your investment of 10-50%. You can use this year's
tax refund to make last years IRA contribution, you just have to put
the money into an IRA by April 15th. If you are in a high
tax bracket, a traditional IRA may be better because you get a tax
break now, and pay later.
Step 6: Pay off mortgage early.
ICCU offers a Freedom Mortgage: 10
years no closing costs. Other banks have other options. Long term
savings are substantial.
Part 2 Budgeting
Spencer W. Kimball said “ with regard
to family financing in the home. Every family should have a budget.
Why, we would not think of going one day without a budget in this
Church or our businesses. We have to know approximately what we may
receive, and we certainly must know what we are going to spend. And
one of the successes of the Church would have to be that the Brethren
watch these things very carefully, and we do not spend that which we
do not have.” One For the Money pamphlet
I use, and love, a software program
called You Need a Budget www.ynab.com
You don't have to have the program, but it saves me a good bit of
time each month and makes budgeting easier. It makes the rules I
follow automatic and I feel it's worth every penny! I can
update/check my budget on my phone and import transactions and verify
everything cleared. They have great support and free classes.
However, you can also use a spreadsheet, paper and pencil, or an
envelope system. The system itself doesn't matter, having something
you'll use does.
We tell our kids to decide in advance
not to smoke, do drugs, be chaste, etc so they are making the choice
without being influenced by peer pressure or hormones. Budgeting is
making the money decisions in advance so the retailers/advertisers
aren't deciding how to spend YOUR money for you.
If you haven't used a budget, start by
tracking your spending for 30 days. Every penny. Carry an index card
in your wallet. This will help you have a starting place for your
categories and know where the leaks are, so you can plug them or
decide to keep them. $3 a day is $90 a month or $1095 a year, and
almost $110,000 at 7% interest for 30 years. The goal isn't to cut
out all pleasure or treats, it is to spend consciously. Sometimes,
the chocolate is worth it.
Rule 1: Pay tithing and fast
offerings first, pay yourself second. Paying
yourself can take many forms: paying past debts and releasing
yourself from bondage, saving for a down payment on a home, saving
for retirement. Basically anything that increases your net worth
qualifies. You are paying for freedom in the future. Freedom
to avoid debt, retire, travel, and be able to go where the Lord needs
you to go. I don't want to have to say, “Sorry Lord, I can't serve
a mission, I chose to have nice things on credit instead.” Having
nice things isn't the problem, having nice things before you can
afford them is.
Rule 2: Give every dollar a job.
Start with what you have now. Don't budget Monopoly money. (Money you
hope to get, but don't currently have.) This is best done WITH your
spouse. Have a budget meeting at the first of the month. One person
can put it together, but the other signs off on it. Essential
obligations first, freedom accounts next, disposable money last.
Question every category at first.
Is this a need or a want, can we reduce it? Reduce or eliminate the
wants if they are less important than the big picture goal. Watch for
hidden fees.
Rule 3: Save for a rainy day.
Freedom Accounts, budget category where positive balance rolls
forward until needed. Start with things you know, car insurance,
Christmas, school clothes, deductibles. Then move onto saving for the
less regular “emergency” expenses that aren't really emergencies.
Every appliance in your home, every piece of furniture, and every
part of your car are breaking down and will need replaced. If you are
not saving and planning to replace them, you are living beyond your
means. Each time you use your brakes, you are one time closer to
needing new brakes. Ask
about discounts for paying 6 months or a year upfront if you can.
Build rainy day funds to get there. You pay it anyway, but changing
the timing, you save. Cash is king!
Rule 4: Roll with the
punches. Whack-a-mole is normal! Make conscious choices about
where you will move the money from. If I overspend on groceries, I
will have to take it from vacation or clothing or something more fun.
If you consistently overspend in one area, adjust the budget. It is a
tool, not the master.
Part 3: Teach Your Children
Give children opportunities to earn
money. Teach them to save and make a plan for their money.
Kids need to learn the principles of
working for money, saving, and budgeting.
Our kids have 3 “accounts” for
money they earn or are given as gifts.
Spending money can be used for
whatever they want, candy, toys, whatever. Mom and Dad have no say in
how it is spent, but it earns no interest.
Short term savings may be for
things like scout camp, saving up for a special toy, etc. Spending
must be parent approved, and we pay 1% interest each month. (Set up
to give the interest monthly via ipad app IAllowance.)
Long term savings are only for
mission, college, or buying a home (or other approved future items)
This money is held in an online savings account and we match it 100%
when it goes into savings.
Part 4: Miscellaneous
Don't forget things like life
insurance, wills, etc. Once a year or if you have a big life change
reevaluate everything dealing with finances and make sure it is up to
date. Pick a time/date for your review. Your anniversary, a holiday.
I do it in March, after I finish taxes, before all my insurances are
due. I get quotes from at least 3 companies before I renew. I like
insurance brokers (Premier, WW Deal) who can run my info through
several companies.
Ways to save:
Cutout “ stupid taxes.” (Mine is
library fines.)
Do a spending fast. Stay
out of stores as much as possible. Use a list and stick to it. Plan
meals around sale items or what is in your freezer. I like to do this
every February.
Make being frugal a game. Put savings
toward something fun. Make a plan for “extra” money.
Put back one
item from your cart or shop with cash. Specifically at Costco for me.
For Costco, only
take in the amount you plan to spend. Leave the rest of your money at
home or in the car. If you find a killer, must have deal, you will
have to make an effort to go back for it, which gives you time to
evaluate whether it is really worth it and usually, it's not.
Look for free
money and take advantage of it. Rebates, free days at
museums/activities, coupons.
Keep it in front
of you. Subscribe to emails, listen to podcasts, post your Debt
Snowball or goals where you see it, have a monthly budget meeting,
enter transactions at least weekly at first. . .
Good
books/resources:
Church
counsel on finances https://www.lds.org/topics/finances?lang=eng
Free
Courses on Personal Finance through BYU
http://personalfinance.byu.edu/
Personal
Finance Manuals from BYU (free online)
http://personalfinance.byu.edu/?q=node/1389
Richest
Man in Babylon, story format, good for discussion with teens (Short,
quick read. I have a pdf copy I would be happy to email you,
or the library has it).
Dave
Ramsey's books and website
Tightwad
Gazette by Amy Dacyczyn (Some
great ideas, some extreme ideas)
Mary
Hunt's books
YNAB
forums, blog, and podcasts. Great hints and success stories.
www.MrMoneyMustache.com
Great tips and ideas here, but quite a bit of foul language. He
makes you look at money and retirement, especially early retirement,
differently.
Free workshop/classes Feb 13th
in Boise: http://www.smartwomensmartmoney.com/
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