Saturday, October 31, 2015

On Budgeting: When buying what you want isn't really what you want

Good things in life usually take work; occasionally we receive a gift, but even in receiving there is work to be done: being thankful and then putting that gift to good use.

Are you ever working, and, would I love to have tons of money and never work again.  But then on your vacation, toward the end of the week, its been fun and relaxing, but you couldn't live like this forever...Eating out loses its excitement, sleeping in starts feeling lazy, you start wondering about your purpose.

Barbara Corcoran on Shark Tank built a large real estate company and sold it for many millions.  We back on Earth think wow, that's awesome.  If only I could build a company and sell it for $90 million.  The reality is that she became very depressed.  Her purpose was gone.  The money didn't make her fulfilled.

So what is our purpose?  If it was money, wouldn't people that win the lottery be the most fulfilled?  Nope, that usually ends pretty badly.  Maybe fame and success; oftentimes that ends badly as well.  There are many famous and wealthy people that are not happy or fulfilled.

Solomon was the wisest and probably the richest man that ever lived.  He tried it all, everything Earth has to offer and here is his conclusion: "The end of the matter; all has been heard. Fear God and keep his commandments, for this is the whole duty of man."

Oh wait, I was supposed to write on budgeting.  Hmm...  "When buying what you want isn't really what you want."  Have you ever wanted something really badly, and then you finally get it, and its great for a little while, but then gets put away or forgotten.  This is why we should budget.  We think spending all our money each month is better.  We get to buy lots of things...but that doesn't leave you in a better position.  Budgeting does, and over time, definitely builds you to a better position.

I've read many articles on habits of successful people.  Each time I see one, I think maybe there is some easy secret to be successful, something right now that I can do, and kazam!  I'm rich and happy and successful.  Nope, never happens, because success takes work, takes discipline--and it takes work and discipline multiplied by time.

Success = (Work + Discipline) x Time

If you sat down and wrote out your goals for life, what you truly wanted to achieve during your limited time on Earth, and then compare those goals to how you live daily, you would find that what you want often doesn't equal what you do.

New Years is coming up, and many people write down New Year's resolutions or goals.  And also, the majority of people fail to keep their resolutions and reach their goals.  Do they just need more time?  No, there's plenty of time...the billionaires and those living paycheck to paycheck each have 24 hours a day.

And honestly, most people work, some harder than others.  It's the discipline that's lacking.

Those success articles all says similar things...

1. Wake up early

2. Spend less than you make

3. Read (I don't think they mean your Facebook wall :)

4. Exercise

5. Eat healthy

6. Constantly learn and improve yourself

Sure, there are different levels of success, but if a person does exactly what all the articles say, and does them faithfully over time, they will experience that work and discipline over time lead to success.

Choose one discipline that you are committed to, and start doing it daily.  Tomorrow is November 1st.  Try it for two months, and then when 2016 comes, you'll be ready to write those resolutions.

Why budget?  Being disciplined with money over time leads to great results...results that I'm going to assume you'd write down if you make a money resolution for 2016.


I attend a business networking group where we give a 60 second commercial each week about our business.  This week we were asked to incorporate a vanity license plate into our commercial.  I chose "B A TURTL."

I'm sure you've heard of the tortoise and the hare.  The same principles apply to building wealth.  Saving, investing, and budgeting will not reap immediate results.  Financial discipline is a lifelong pursuit, and the tortoise ends up winning.


If you've read or heard of the book The Millionaire Next Door, the typical millionaire doesn't make a huge salary, or drive a fancy car.  In the majority of cases, millionaires are hard-working individuals that live below their income level and save for many years.

The classic example is a Starbucks drink.  Starbucks coffee tastes great, right?  Now if you spend $3 a day on a coffee, after 40 years, you'll have spent $43,800 on coffee.  If you invested that money at 5%, after 40 years, it will have grown to about $137,000.

At 5% interest, that $137,000 is now generating $6,850 per year.  In the off-chance that coffee is still $3 a cup in 40 years, you could now buy six coffees a day for the rest of your life.

This is but one simple example of how small insignificant saving now can pay off in the future.  Try saving $90 a month or approximately $3 a day.  It will take a while to appreciate the fruits of your discipline, but it will definitely reward you in the end.  Don't give up, persevere, and apply the principle of small disciplines each day that lead to success in the future.

As Jim Rohn said, "Success is nothing more than a few simple disciplines, practiced every day; while failure is simply a few errors in judgment, repeated every day. It is the accumulative weight of our disciplines and our judgments that leads us to either fortune or failure."

There is nothing glamorous or necessarily fun about being disciplined, but it is the stuff success is made of.  

From Proverbs 13:11 "Wealth gained hastily will dwindle, but whoever gathers little by little will increase it."

Tuesday, October 20, 2015

Investing in the Face of an Imminent Stock Market Correction

You're faithfully putting 15% of your paycheck into savings; but a true money manager knows that saved money needs invested.  If you leave it sitting around in a savings or checking account, inflation eats away at it and your dollars get lazy.  Saving is the easier part; investing that money is more complicated.

Mutual Funds

You've heard of asset allocation or not putting all your eggs in one basket.  A common way to do this is with a mutual fund.  The mutual fund manager chooses the companies that are included in the fund and then sells and buys as he thinks best or for the purpose of that particular fund.

You may have heard that index funds are the way to go.  The fees are a lot lower because there is no active management to pay, and in the long run, most actively managed funds rarely beat the index funds.  There are a few outliers that have beaten the indexes year after year.

But what if the market looks like this?

The market can't possibly keep going up for long, so if you invest in a fund that tracks the market, you're going to see only losses for a few years.

So what should you invest in when a stock market correction is imminent?

1. Gold

Yep, that shiny yellow metal.  Gold has held its value throughout history and continues to be an important part of an investment portfolio.  Kevin O'Leary from Shark Tank keeps 5% of his investments in gold and similar commodities.  So where can you get gold?  Now of course you should do some additional reading before buying a chunk of gold.  There is a price to buy it, so you should plan to hold onto it for at least a few years.

Here's how Gold has performed compared to the S&P 500:  Gold is a good investment during choppy markets.  Investors fleeing a crashing stock market tend to invest some of that money in gold, thus bringing up the price.  See the inverse relationship between the market and gold below:

2. Fixed Income

Now fixed income can be pretty boring...Certificate of Deposit rates are barely 1% these days, which won't get you far.  But if you're risk-averse, a CD will not lose you money, unless of course you factor in inflation.

A new form of fixed income I found recently is called peer-to-peer lending.  If you have a friend that needs some money, you could give that a go, or you can sign up on

The cool thing about Prosper is that it handles all the work for you.  You can spread your investment across many different peer-to-peer loans from AA rated to HR or higher risk.

If you invest $2500, you can spread the risk across 100 loans with $25 invested in each loan.

3. Stocks that have faced some hard times despite a charging market

Stocks, really?  The market is about to crash, and you're recommending I invest in stocks?  Yes, as Warren Buffet says, "Be fearful when others are greedy and greedy when others are fearful."  

When investing for the long term, you can purchase some good companies even when they've been taking a hit, and ride the wave back up.  I would recommend buying companies that you've heard of though, there are stocks that drop 50% in a day, but if you haven't ever heard of the company or can't quite figure out what they do, find one that you've heard of...

Like                  VOLKSWAGEN

Have you heard of them?  They make cars.  Recently, they've made cars that don't meet EPA standards.  Do you expect Volkswagen to recover from this event?  Did BP recover from the oil spill?  Let's see:  On June 25, 2010, BP stock reached a low of $27.02.  The following year same time, the stock price was about $42 per share.  That's almost a 55% return in a year.  Now of course you wouldn't have known the exact date that would've been the low, but in general, companies that take a beating start ticking back up after a few months.  The oil spill happened on April 20th, so about 2 months after was the time to buy.

Back to Volkswagen:

In 3 days, the stock price dropped from $38 to $25.  Today I decided to test my theory and purchased some shares at $26.26 per share.  I'll keep you posted on how it turns out.

The goal in buying already beaten down stocks is that they will not drop as much as an overpriced stock in the case of a suddenly bearish market.

Have any other ideas for good investments when the stock market is flying high, but running out of gas?

The best way to track your Net Worth

You're on a cross country trip to the other side of the country, staying at a hotel, looking for a place to eat.  You find a restaurant with some good reviews, and need to know how to get there.  What do you do next?  You find out where you are.

Oftentimes, the first step in getting somewhere is finding out where you are.  You've decided to tithe 1st, pay yourself 2nd, and live 3rd.  (Right now you're living 3rd on vacation spending some of that money you paid yourself for working hard...)  You've set some financial goals for your savings, and need directions.

The destination is $3 million by age 65.  But now you're only 25 and want to track your growth.  Net worth is a great way to do that.  It's basically everything you own minus everything you owe.

It can be complicated to track that over time whether on an Excel spreadsheet or on paper. is the best way I've found to track your savings growth.  

-It's Free
-Even fun...if you're making progress

The key to long term saving is slow, steady growth.  There's no better way to show that than a blue graph with time on the x-axis and dollars on the y-axis:

1. Its Free

So how is it free?  You have the option of hiring one of their financial advisors to give you advice, but they don't nag you about it and the free product is great.

2. Its Automated

When you first sign in, you add your accounts so that it can start tracking everything.  As long as you are using a major bank or credit card, it can automatically log in and update the numbers for all your accounts in one place.  If you use a smaller bank or don't have online banking, you'll have to update the numbers yourself.  

For your real estate, it uses the Zestimate from Zillow, which may or may not be accurate, so you'll have to check that number against what your house is actually worth.  You may have recently appraised your house at $223,000, but the Zestimate says its worth $400,000.  Keep that in mind and you can adjust the number there accordingly.

3. Its Visual

The graphics and number of categories you can track are simple and clear.  For example:

Income and Expenses:

Allocation of investments:

4. Progress is fun

Try it out and see if you agree.  If your current net worth is disappointing, keep tithing, saving, and budgeting and your disciplined approach to money will pay off.

Monday, October 19, 2015

Saving for college...You should, but not for your children

I had the idea back when I was in college that students who were paying for their own education would likely have a higher GPA than those who were just spending their parents' money.  Makes cents, right?  In one of my classes, one of the projects was to do a survey and analyze the results; so I decided to see if my idea was accurate.

To my satisfaction and my instructor's surprise, there was a statistical significance to that idea. Students that had obtained scholarships or were working to pay for their education had higher GPAs than those whose parents were paying:

My hypothesis was as follows: "The tentative hypothesis for this research project is that a college student who pays the majority of his tuition and living expenses will perform at a higher level than a college student whose tuition and living expenses are paid for by their parents."

I surveyed 67 students around the campus:

-What percentage of the students had a part time job?

-How do students GPAs differ between freshmen, sophomores, juniors, and seniors?

-How does financial support from parents affect GPA?

So the research supported my hypothesis, but why is this the case?  Don't good parents save for their children's education?

Why the negative relationship between support from family and GPA?

-Less motivation/desire to get good grades because it is not their money being spent

-Students with high GPAs in high school were more likely to receive scholarships thus eliminating the need for family support.  This removes students who had high GPAs in high school from the pool of students who get family support in college.

-Students paying for their own education realize how much they are spending and focus on graduating on time/early by working to get the grades they need.  Students whose school is paid for by their parents are less likely to care about grades and may continue as an undergrad for 5 or 6 years in order to graduate.

So what's a parent to do?  They want their child to get higher education, and they want to support them in that endeavor...but money isn't the answer.

They should work on teaching their children these principles early on:

1. Take financial responsibility for your own education

Now expecting your 2nd grader to pay for their education is probably not a good idea, but encouraging your teenager to get a job and start saving money is going to pay dividends

2. Avoid Debt

There is good debt and bad debt.  At this point, I'd say a bachelor's degree isn't worth going into debt for.  Work a couple years and then go to school.  You'll learn more that way.

3. Work hard in high school and obtain scholarships

Teaching your children to work hard is going to help them more than money.  Giving them money is the easy way out.  Teaching them to appreciate good grades and the rewards that come from working hard will beat any allowance.

4. Get a job in high school and continue to work through college

First, they'll learn how to manage money, and its better to learn when expenses are low than when it counts after graduating.  Work experience through an apprenticeship or internship will give them a head start on what interests them.  Also, they will work with adults and start building connections.

So the moral of the story is (at least when it comes to higher education): You pay, you care.  Not only will teaching these principles to your children help them get a higher GPA, but it'll help them manage money, time, and get a jump on adulthood and being responsible.

About the title: "Tithe 1st..."

I came across the "Pay yourself first" concept this year and wanted to spin it for Christians who tithe the first of their income.  I'll explain more about "paying yourself first," but first why should we tithe?

Tithe is simply 10% of your income.  Leviticus 27:30 says: "A tithe of everything from the land, whether grain from the soil or fruit from the trees, belongs to the Lord; it is holy to the Lord."  Nowadays, our income is in dollars versus grain or livestock, so we tithe with the currency that we have.  Also from Malachi 3:10 "Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this," says the LORD Almighty, "and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it."

Yes, it seems odd that God wants our money, but that is how He's chosen for his people to support their local church and more broadly, the church around the world.  Also, is it really OUR money?  Everything that we have comes from God, and tithing is a great way to remember this.  I'll write more on this in the future, but that's why we should tithe first.  

For those who may be reading who don't go to church, it could be "Give first, pay yourself second, live third."  Giving to others will bring you more happiness than spending that money on yourself.

Each paycheck, give the first 10% away.  It puts everything in perspective and is the best use of your money.

So now, "Pay yourself second."  Normally, when you get paid, the bills are the first priority...the mortgage, food, cell phone, etc; but now we're changing all that and you'll understand why soon.  Saving is a lost art in America due to lack of discipline and easy credit.  But saving is very important for anyone who wants to achieve financial success in life.  Paying yourself second is the idea that a portion of all you earn is yours to keep.  You don't work hard at your job just to pay the bank, the gas company, and Kroger.  Part of your work should go toward a better future for yourself and your family.

Live third: now that you've put God first, and set aside some money in savings, pay your bills.  From Romans 13:7 "Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed."

Now that you've prioritized tithing and saving, you've made the first steps toward proper money management and long term success with your money.  When you get your next paycheck, tithe, pay yourself, and then live your'll find over time that this order in spending your paycheck will make living third that much better.