My wife and I have been teaching a Family Relations class at church that includes a section on money management. Writing all of these posts on finances has come in handy as I have a lot of material on the topic of money.
I want to share some of the principles and take-aways from our last lesson which focused on the basics or foundation to good money management.
Live on less than you earn
If you aren’t familiar with it already, that video clip is a duplication of an old Saturday Night Live sketch with Steve Martin.
Hopefully, you already know that you should live on less than you earn. But actually doing it can be pretty hard sometimes.
“I have discovered that there is no way that you can ever earn more than you can spend. I am convinced that it is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money.”
Read the first line of that quote again if you need to – I did. The message is simple – there are always things to buy and ways to spend money regardless of how much money you make.
The key to happiness is to avoid the bondage that comes with debt. Money and interest can be a very cruel taskmaster when used improperly.
Owe no man anything
A hundred years ago, having a mortgage would have been considered filthy or immoral. If you wanted to own land or a home, then you worked and saved for it.
Most families built their own home.
And yet, debt financing a home today is the standard. Saving enough money to buy a home seems unfathomable to so many.
Banks and lenders have done a great job teaching us that we need their money. It’s a lie. A complete and total lie.
That lie created the collapse in the housing market over the last several years. Consumers believed that we had to won a home – it’s the American dream. Banks believed that we’d never foreclose on the American dream and that home prices would always go up.
Unfortunately, inflated home prices caught up with too many and the bottom fell out.
So how do you avoid having a mortgage?
Dave Ramsey tells a story that I love. He describes a young couple that make a combined $80k a year. They rented a small place and lived on $30k and saved $50k every year. After four years, they had $200k in the bank. They found a modest home for $150k and then spent the other $50k furnishing it however they wanted to.
I’m sure you are thinking, “Yeah, well, I don’t make $80k a year,” or, “I have more expenses and kids and blah blah blah.”
If you are thinking anything like that then you need to change your paradigm. You need to change how you think about money.
It might take you longer than four years but you can do it. You can own a home without a mortgage. You can own a car without a car payment. You can have what you want..in time.
Learn to be patient.
If decide that you just have to get a mortgage, then at least save enough to secure a 15 year mortgage. You will pay substantially less.
Tips for spending less than you make
Saving that much money takes a lot of discipline and time. Let me give you some pointers.
- Setup auto-savings – Determine how much you are going to save each paycheck – let’s say 20%. Use direct deposit or automatic transfers to put that money into a separate account that is not easily accessed or spent. Basically, make the money disappear and forget it’s even there. Don’t rely on yourself to make the decision every paycheck to save the money.
- Develop and live within a budget – One of the most crucial factors in your success will be how well you live by a budget. Just to be clear, budgeting is not tracking how much you spend. Budgeting is setting limits to how much you spend and then living by those budgets. Some more bugeting tips.
- Cut up your credit cards – Just be done with them. If you have an issue with overspending, then take away your ability to overspend. I don’t care about the rewards – they are just gimmicks designed to take your money. Studies have shown that people who use credit cards spend more than those without. Fact.
- Use cash only – If you find that even with just a debit card you find yourself racking up overage charges or going onto an overdraft credit line, then move to a cash only system. Only use cash. If the cash is gone, then you are done spending. That simple.
I may not have said too much in this post that you haven’t already heard or read. However, I do hope that you’ll walk away better motivated to make needed changes.
Take a look at your life today, target some specific areas for improvement and then go for it. But go all out and make it happen!