If I Were a Financial Advisor for a Dayby
Bill Barnwell
My formal academic training is not in economics and finance, beyond a spattering of several college courses. In college I first studied political theory and got a couple years worth of experience in running political campaigns and slandering opponents. I came extremely close to running for office myself. I did that for two years. Fortunately, I said goodbye to it all and was later called into Christian ministry. For the past four years I’ve accumulated higher degrees in Bible and ministry and spent a great deal of time serving people. So no, I am not a trained "economist." Chances are, neither are you. But none of us need a state-granted degree to be wise with our finances and educated about our flawed money system. Most people, however, do not bother educating themselves and have dug financial holes for themselves that they appear to have no clue how to climb out of. These people need help. Sadly, their children and the emerging generation appear to be following in their elders’ footsteps and marching towards the same cliff. The amazing thing is that most people could avoid these problems if they took some simple, preventative measures as they start their independent lives, careers and marriages. The following advice is not brain surgery. It’s nothing new. It’s actually quite elementary – but most people just aren’t getting it. So if I were a financial advisor for one day, here are eight easy, basic principles I’d drill into everyone’s head, which if followed, would make any individual much wealthier and much more responsible. #1 Put a portion of each paycheck into personal savings People love to spend money. For some instinctive reason, the moment most of us get a paycheck, we want to spend every dime of it on goodies and toys after we pay off our necessities. Personal savings is not a major priority for most Americans even though almost every household is concerned about finances. When people get into a hole, they don’t turn to their dried up savings accounts, they turn to lenders and dig themselves into debt. How about instead taking a portion of each paycheck and putting it away. Even if it’s a small amount, it will accumulate over time. Would you rather prefer to steadily build up debt over time or personal savings? Thinking about having children or have children already? Want to help them with college someday? Well, aside from teaching them responsibility as they get older and making them chip into the outrageously high tuition fees today, perhaps open a savings account before you even have kids specifically for that purpose. Put in 20 bucks a week. By the time they are 18, it won’t pay all the bills if you send them to a costly institution, but it will certainly help. Savings are important. Forget government subsidized "safety nets." Start your own safety net. It’s never too early. I started full-time ministry at the age of 22. My salary is very modest. Yet I’ve managed to save more money in the past couple years than most people my age that have much higher-paying jobs. It’s not as challenging for me as I do not have children. But whatever your circumstances, you need to find a way to save. "But we can’t, everything we make goes to our bills!" you may object. In that case, see the next two points. #2 Live well below your means your first few years on your own and marriage It’s amazing what it takes for most people to be happy. They need or desire brand new cars, TV’s, stereos, etc. Remember those elementary school lessons that taught us the difference between a need and a want? Do we really "need" most of the things we desire? Sure, they may be nice, but are they necessary for our happiness and survival? One of the best ways to save is to kick the demon of materialism between the teeth. Also, saving money requires that an individual or family live below its means rather than spend right up to the limit every time they get a paycheck. Most people today are one or two paychecks away from bankruptcy. The reason? They live right up to their means and are forced to spend their entire paychecks each week. Do you need a brand new car that depreciates in value almost immediately? Do you need to borrow all that money for the big house? Look for places and areas you can cut. If someone is willing to give you a few hand-me-downs and they are in reasonable condition, then go for it. Learn the difference between a need and a want. Put off your higher spending for later on in life when you’ll be in a better financial position to make such purchases. You won’t regret taking that step when you get older and everyone around you is drowning in debt. Does living modestly mean you’re going to live in a cardboard box? No, it certainly doesn’t. You can have all your essentials, be happy, and save a lot of money if you spend lower. This is particularly important as a person or couple just gets started off. If you’re young enough, take your first year or two and live real modestly. Then if you want to have kids you’ll be in a better financial shape to do so. You’ll also learn some principals about thrift, hard work, savings, and what really makes you happy in life. If prizes and possessions is where your ultimate happiness lies, then you have a deeper-rooted problem than this column can cover in the present essay. #3 Continue to live fairly modestly as you get older As you get older and your assets get stronger, then you should allow yourselves more freedom to spend more. You’ll be able to do it without the debt and you’ll have your own "safety net" in place. But you should still live realistically within your income levels. Even if your income is average or even below average, you can still save up, spend wisely and live comfortable and happy lives. Just don’t get tempted to get irresponsible as your assets grow. Continue to resist irresponsible and worldly materialism. Ultimately your "stuff" will never make you happy. If your happiness lies in "things" you will never be content. "Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income. This too is meaningless" (Ecclesiastes 5:10). #4 Avoid debt and borrowing unless necessary America is addicted to debt. Countless family units are in giant holes they don’t know how to get out of. If you are in substantial debt you are basically in financial slavery to creditors and lenders. This can be avoided by following the first three points above. Accumulating savings and living modestly will make you a less likely candidate to become a slave to the lenders. Most people have to borrow for a house. If so, then buy smart. Don’t assume the housing bubble is going to last forever and that you’re going to make a fortune in the long run. You may very well not. Keep that in mind when you make a purchase you really can’t afford. Want to borrow for a new car? New cars are a terrible investment. They depreciate in value instantly and are terribly overpriced for various reasons. I’ve yet to buy a new car. I take time and shop around for the best bargains I can and buy used cars. I spend a couple grand on the spot and never have to worry about a car payment. True, used cars can be very unreliable and be prepared for expenses for repairs here and there. But if you take your time and go through trusted friends you can find bargains that run quite well. An elderly woman I know recently sold a car with 37,000 miles on it for three grand. There was nothing really wrong with the car. She could have got a lot more. But she wanted to get rid of it and sold it to someone from her church that needed a car. My only regret is that I didn’t hear about it first! If you have the money to buy a new car, then go for it. Many of us, however, do not, unless we spend most our money on car payments and/or borrow. So I take a risk with used cars. Since I’ve been 16, I’ve been fairly lucky overall with the choices I’ve made and I’ve saved a ton of money. Even if I don’t look as "cool" as some of my friends, I’m also not driving myself into bankruptcy. Then later in life I’ll be able to "upgrade" with a lot less headache. Moral of the story? Don’t enslave yourself to credit. Be independent and spend wisely. #5 Give yourself a pay raise by kicking costly addictions I have never smoked, even before I was a Christian. It never interested me. How much are cigarettes now? Five dollars a pack? For those of you that drink regularly, how much expenses do you have for your "partying"? Do you like to gamble? The odds are against you to profit much off that. In fact, the odds are better in favor of you developing a costly problem rather than outsmarting the house. A man I’m very close to was given a $60,000 inheritance two years ago. Rather than pay off his house and cars and put money into the bank, he decided to waste his assets on gambling. Combined with general irresponsible spending and a love for alcohol and tobacco, just two years later that money is entirely gone. How sad. What do you smoke? A pack a day? Two packs a day? Well, work on kicking the habit and give yourself a nice big pay raise. Do the math on how much you’ll save a year. You’ll be amazed. #6 Tithe and/or give charitably Uh-oh, a money hungry minister telling us to give our hard-earned money to churches and poor people! Yup, that’s right. Almost every consistent tither I know not only has more compassion for his fellow man, he or she is also in better economic condition than the giving scoffers, who horde all their money for themselves and their toys and addictions. I’ve heard the phrase "I’ve never had so much money since I’ve been tithing" a lot. That’s partly because God blesses those who are faithful and partly because people who tithe are more fiscally responsible in general. An easy system is giving 10% of your before tax income after each paycheck to an institution of your choice. If you have some big problem with churches and "organized religion" then send it to a good cause like cancer research or helping the less fortunate. That’s a better way to help these efforts than federally and state mandated confiscation schemes anyway. And to people that complain about money going to churches, understand that like any other organization, a church needs money to operate. The members and participants do the supporting. If you want your church to have an impact your community, a "professional" staff that works on behalf of you, and basic things like electricity and running water then put the money up. Nothing in life is free. It’s that simple. But regardless of where your money goes, be it to a church or a non-profit agency or just helping people in need, learn to get into a giving spirit and develop a heart for other people. Forget waiting on government workers to subsidize the world to make it a better place. Put your money where your mouth is and do something about the problems we face. A charitable spirit will make you a better person and the community you live in a better place. Givers also tend to be less materialistic and more focused on smart rather than wasteful spending. #7 Learn basic economic principles Every person should educate themselves about economics. Most people can not understand why it’s bad to print more and more paper money and why the government can’t just create jobs out of nowhere. Nor do they know anything about investing. They believe government can give everyone free health care, but some mean greedy politicians are depriving everyone of this free gift. They also seem to think their favorite politician or political party can just "create jobs" and that bad politicians can "destroy jobs." The latter has some truth to it, because of politicians enacting crazy economic and fiscal policies, but the only way they can get away with it is because of their equally ignorant constituents cheering them on. Bottom line, learn free-market principals and educate yourself about the economy and what truly does create and destroy wealth #8 Ignore what the politicians and central bankers tell you to do Everything we're told that's good for the economy is an illusion: maneuvering of short-term interests rates, printing more and more paper money along with borrowing to "pay" for the government, economic "health" that is determined almost purely by consumption, rising national and state debts, massive budget deficits to spend and spend and spend, families with debt-financed living and no personal savings, etc. We owe this not just to our own ignorance but our blind trust in our rulers and masters in the federal reserve and to state and federal branches of government who are making our financial pictures worse instead of better because of their harmful advice. Basically, start educating yourself and just forget about what Alan Greenspan and the leaders in both parties are telling you to do. If you’ve had enough of phony credit, debt, and short-term relief at the expense of long-term stability, then ignore them, take the above advice, and start reading up on free-market Misean economics. You’ll learn a lot more practical advice than you will from the political establishment. Conclusion There you have it. There’s my advice. Take it or leave it. I guarantee you, however, that the above simple rules will lead you to a much happier, less stressful life when it comes to finances. You’ll be independent from lenders, develop your own safety net, resist destructive materialism, and you’ll desire to spend your money in much more altruistic ways that will help your fellow man.
Now go out and enjoy life. June 9, 2005 Bill Barnwell [send him mail] is a pastor in Flushing, Michigan. He spent most of his undergraduate college career studying politics and government before feeling called to the ministry. He has completed a Master of Ministries degree and is currently working towards a Master of Arts in Theological Studies degree at Bethel College in Mishawka, Indiana. Copyright © 2005 LewRockwell.com |
And
you don’t have to be an economist to figure this all out. In fact,
judging from the advice you’re getting from the financial establishment,
it’s probably better that you’re not one.