My five year old told me that she was richer than her friend. Rich. I asked her why she thought she was rich and she told me that she had lots and lots of money. Of course her valuation of the various coins she has is probably not right. Each coin counts as one coin - and so if she has four hundred coins then she has four hundred. Not dollars, not cents, just four hundred. I then proceeded to explain to her that wealth is evaluated differently based upon different assets. I have a relative that some would describe as ‘land wealthy’ because the estimated value of his land might be a high dollar amount. I have a friend who has lots of possessions that are worth a lot of money all together.

My daughter’s estimation of being rich and my desire to some day have accumulated some wealth are very, very different scales but the discussion reminds me of the need to teach her about money and personal finance. If she can start out her life with a better sense of financial stability and a plan for her future financial goals she’ll be rich. Not as much, or maybe more, than her friends but hopefully she’ll be able to teach them a thing or two and they can teach her a thing or two as well. Educating my daughters about faith, finances and most importantly my love for them are things I strive every day to do.

Today I called back a younger guy whom I have discipled in the past at a church I used to attend in Texas.  He asked, “Randy, what do you think about mutual funds?”  And that started off a long 109 minutes of conversation about finances.  A really, really good conversation that was full of his questions and my past mistakes.  You see I wanted to warn a younger person about the mistakes I’d made and give him the chance to be well grounded from the get-go.  The few things I want to communicate about include debt, investing with interest, and planning for the future.

Debt

I warned the young man about the dangers of debt and how debt steels your money from you in the future even if the present you gets something with instant gratification.  I also warned him that a good emergency fund could help reduce the chances of you needing to be in debt due to an emergency.  Debt being what it is he got the idea to ask me if he were to get married should they try to live on one income and save the other.  I told him that’s exactly the idea!  Save up money for the future needs you’ll have as well as the opportunities that you will to invest.

Investing with Interesting

We spent some time with him asking me about various investing opportunities and what the long term gain would be.  We started with the lower investment returns such as 5% so that he could see that even a lower return can build up over time.  Then we moved onto evaluating what higher interest rates would bring.  He was excited to think that even if he didn’t have huge amounts of money to put into things in the near term that long term his wealth could grow.

Planning for the Future

I suggested that he figure out what future goals he have and save up for a good house down payment, save up cash to buy (used) cars ahead of time.  By looking at the future and planning for it this young man can be way ahead of most of the people his age no matter their income.  He’ll be prepared.  Retirement won’t be a mystery, it’ll be a plan.  All of the elements that distract the indebted individual will just not be part of his life.
What would you warn younger people?

I got a mass-mailed letter from Discover card with large lettering on the top stating, “Get a 1.9% APR* and the tools you need to take control.” [they have orange text, so I made this orange] Here’s the killer: control of your finances means not in debt. But Discover does not want you to have zero debt, they want you to manage your debt at a constant volume of greater than zero. To help mask their real motivation with positive spin they have the following information as the main content:

Stay Informed

Go online for an up-to-date report of your current statement and account activity

Keep Organized

Review your past 12 statements and sort them by date, amount, description or category

Set your own limits

Stay in control by signing up for timely email reminders that alert you when you’re close to your credit limit or any other limit you set

You see - this isn’t debt. Nope, its financial opportunity, that comes with fees, high risk, and a false sense of security. Discover’s advertisement gives a false sense of control. There are two very prominent elements on the page that are orange and say control. But Discover wants to control your spending by giving you a false sense of control. Keep spending, you can quit any time you want to. You’ve set up your own limits underneath their limits.  The purpose of the advertisement is to help you feel comfortable with a constant level of debt in your budget.  Their vocabulary is entirely positive and makes all parts of their involvement in your life seem good and normal.  It is a lie and their rewards program gives you a tiny, tiny percent back in contrast the amount that they charge in interest.

The last element on the page is the concept of getting only 1.9% APR interest charged on new purchases between now and February 25th 2008.  Your old balance, which has a higher interest rate, will get payed off first when you make payments so that if you keep a balance over this time period your spending will eventually get the higher interest fees.  The wolf sneaks up on the innocent sheep hoping to not be detected.  The sheep, thinking that he’s safe walks right into the trap.  The debtor is slave to the lender Discover.

I just read this post on firing an employee [caution, it does contain some potty words towards the end] and it struck me that I was lucky to be let go of my first job at only 16.  I was released because I was putting in the least hours of all of the office grunts.  The engineering firm that I was working for had three and I had the slowest schedule.  I learned at that job, making slightly more than minimum wage, that my time was money and that my charging others for my time was going to mean I was giving them something in return, not just a time card.  Its tough to be fired, and its tough to fire someone, but whatever it is that goes on in those situations you have to learn a thing or two, take responsibility for your actions and learn from things!

On September 11th, 2000 I started a new job for a company that I now do contract work for.  At that point in time I was new to the tech industry and my job was to help the guy in documentation handle the heavy load that he had.  Unfortunately a few weeks after I started I was moved onto a web project and I never went back to doing full time documentation.  I helped in a few areas but for the most part the web development took over my position.  A year later I drove into work oblivious to the world events that had taken place and feeling excited that I had been working for the company for a year.  It had been a tough, but good year.  My co-worker walked into my office and asked, “Did you hear about the plane that crashed into one of the twin towers?”  I had not.  What was an exciting day turned into one of the most emotionally intense days of my life aside from marriage and having children.

September 11th rolls around every year and I have a small personal celebration.  September 11th this year will be seven years with the company (though now as a contractor), but I will recall the life altering events of my first year anniversary with great intensity.  That single event helped me refocus my life so that when I think about what I have to do every day I remember my priorities.

I focus on my relationship with God first, my relationship with my wife and family second, and I take the duties of my job to be integrated with my provision for my family.  Finances are a part of my serving my family - they’re a priority because my family matters.  I don’t worship the money, I don’t focus on the money as a priority over my family, but I focus on them because my family is a priority.  I blog about what I’m learning here because I think that there are others like me who have been distracted by ‘the pursuit of happiness’ but forgetting life and liberty.  This blog serves the Internet in an attempt to help remind people that happiness is not through finances, finances are part of life and liberty with an end result that will hopefully include happiness.

Don’t get distracted by advertisements, social pressures, or extended family to be pursuing the ‘new’ American Dream.  The drive for stuff.  Instead recall the old American dream of independence coupled with interdependence.  Take a moment to go encourage someone today.  Encourage them to be vigorous and passionate about what they’ve got going on in life.  Help remind them of liberty, help remind them about what life is about, and remind them to be focused on their priorities - their children’s children will more than likely be effected.

Have you ever come across something that someone else did and you have to fix it?  In buying the house that we live in (a ‘used’ house) I’ve run into little things that drive me bonkers.  Tiny things that the previous owner did when he was getting things done that were shortcuts, mistakes or assumptions in construction of the finished basement or other elements such as putting exposed wires into a hole in my garage wall… so that when a switch that we never used got bumped it flipped the breaker.  These very things have parallels in the world of finance.  Not necessarily for every person but consider some situations with me.

What if you as a parent (assuming you are one) were killed along with your children’s other parent.  Would your legal and financial life be left in order for your surviving children?  Or would any adult left to pick up the pieces be left with confusion and a pile of debt?  There are things I need to get done to have my financial and legal house in order.  Things I should have done long ago.  If something happens to me I don’t want my wife or anyone else left after me to have to deal with my own laziness or stupidity after the fact.

I need to get my will finalized so that I can make sure that our children are taken care of appropriately.  I need to take care of ‘pulling the plug’ orders in case I’m incapacitated, but not dead.  I also need to make sure that I have written some personal letters to a few people.  I have two letters that I have already written to my daughters to give them when they get married (or if they don’t I’ll give it to them later on in their lives).  Letters to let them know about my recollection of their birth from the time they turned one year old.  Those letters are not financial or legal documents, but I need to make sure that they’re in safe places that can be found and opened and are in the instructions of the will.

What else in your life has room for thinking ahead and doing it right?  The not doing it right could have long term, painful consequences.  Consider your family and friends and get your stuff in order.  My list is on my desk ready for me to take charge of it as soon as possible so that I can sleep at night knowing that if I die… everything will go on without even more pain for my wife or children or extended family.  I’m not much for half-done jobs anyway.

I realized that my bank has online check paying for a reason: interest.  If you think about it they get to transfer the money from your account into their account and they make interest on that money until the check gets cashed.  It more than covers any expense that may exist in sending the checks.  Especially since they control when the funds transfer.  Banking needs interest to make it worthwhile to not make fees their source of income.  I’m going to attempt to maximize my high interest savings account over time to make sure that I get the most money in interest possible for short term holding of my own cash.

Are you maximizing the interest you could be making?

I just looked over this article about mistakes women make, the first example is a straw woman argument.  The problem is pitched as being about money, but it really, really needs to be about relationship.  You see, finances are just an expression of your relationship.  If your finances aren’t unified then your finances are one of possibly more pieces of the relationship that are out of order!  Your finances could be in order and they would be out of order if your relationship isn’t together.  By ‘together’ I mean a major focus of your day to day life.  Kids don’t get to be an excuse for the focus and quality of your relationship not being what it should be.  If anything the kids need you to get your marriage relationship together!

The whole article is based on several ideas:

• You should always suspect that your marriage is going to fail
• You should always keep yourself separate from your spouse

Here’s the kicker: by keeping yourself separate from your spouse you’ll probably increase the chance of a divorce!  The more unity that a marriage has in physical, spiritual, emotional, sexual and financial ways the greater your chance of not getting divorced.  When my wife and I got married the pastor, who happened to be my grandfather, sent us down the aisle as a unified, singular person - with two bodies and two wills.  The purpose of the marriage ceremony was for us to publicly declare the union that we were prepared to undertake!  We are constantly amazed when we run into people who don’t understand why we’re so concerned with unity in our marriage.

Take a straw man out of this equation and the financial advice goes away.  In stead the advice should roll down to the relationship and your first priority should be unity.  Marriage counseling may be required, but whatever it is you’re going through in a marriage your focus should be first on the marriage and unity and second on finances.  If the three reasons people get divorced are money, sex and communication… you better get your communication in order because money and sex come and go with time and age (though many sex researchers have been pouring their grant money into studying older people’s sex lives it seems based on the news reports I’ve seen).  If the communication is open and clear then you’ll find the communication will encompass money and sex, but sex and money won’t create communication!

Get out the big, bad wolf and blow down the straw woman, but get ready for communication and unity because that is the one mistake people make, failing to communicate, that has no straw man or straw woman.  They’re you, and you’re real.

Tomorrow I will be going in for a review of my contract with a major client (I am an independent software developer/contractor) and I’m hoping that all of my hard work will pay off and they’ll award me a contract that will at least cover inflation.  If its more my wife and I have already discussed how we’re going to handle an increase in stable income.  Its not that we’re focusing on getting more money, more money won’t make us happier or better people, but instead we’ve already planned where our income will go so that it doesn’t simply become outgo.

Many people get a raise and then immediately find somewhere for that money to go so that they can have more stuff or attempt to keep up with some trend.  While this isn’t absolutely wrong on a moral level I would encourage readers and folks to consider the options that they have when it comes to saving or investing your finances.  We haven’t got six months of living expenses saved up and we’re interested in getting to the point where that is the case so that we can further tackle strong investing ideas.  I have a friend whom I will call Mark who has said for about as long as I’ve know him that whenever their family is the beneficiary of a raise they just tuck the difference from their old salary and the new salary away into the bank.  What this means over time is that if they have to take money out of their emergency fund they can because it is well stocked, and otherwise other than inflation and areas where their cost of living might go up they don’t automatically spend the difference.   They don’t treat it as windfall money, they don’t treat it as spending money, the treat it as an investment into their future.

If you can preview your budget and plan out ahead you will more than likely find events like raises and bonuses to be quite liberating and not a new distraction.  The future you will know how to handle the scenario because you’ve already got a plan for the money and the implementation won’t be something new to handle either.  Keep your focus on your plan and you should see growth accumulating again and again.

I wrote recently about reading the “It’s All Too Much” book by Peter Walsh. The last month my wife and I (but mostly my wife) have been uncluttering our house. We had company in the last week, which is why this blog has been slow, and in the company filled times we’ve managed to keep our sanity due to the lack of crud to step on, things to put back, or junk to distract us. It also helps that our company are really neat folks, but that’s outside the spectrum of this post.

By getting our financial house organized (or at least making a plan) and by keeping our physical house organized we really have seen a lot more peaceful, undistracted time. I realized this morning as I watched “Clean Sweep” (the show that Peter Walsh is on) that I didn’t have the urge to go get something cleaned up because the cleaning burden has been significantly reduced to a manageable level. I have two projects left to do to help get the house where it needs to be, and when they’re done I’m going to be able to relax and work on other things that are important to me: like my wife and two daughters. I’ll have time to continue to hone our budget down to the machine it needs to be, time to do some music, and hopefully have some time to learn some new things about investing. Good stuff considering we have been overwhelmed with stuff and finances for far too long.

If your budget is out of whack and your stuff is overwhelming, check out the book and get your life in order - you’ll thank yourself!