I’m excited about the start of a New Year, the opportunity to pursue some important new goals, and the opportunity to share ideas with you on how to live with the freedom and joy that come from getting the money thing right. As we reset the calendar, this seems like an appropriate time to explain what’s at the heart of all that I write and teach about money.
Financial Success That Deeply Satisfies
I believe successful money management is about knowing our purpose and following a trustworthy process. We have to know our purpose first because if we just focus on the how-to’s we run the risk of making great time but moving in the wrong direction. Starting with purpose gives us the best chance of achieving financial success that deeply satisfies.
Purpose is universal. No matter what your religion, race, or favorite reality TV show, there are three overarching purposes to each of our lives. First, we were designed to live for something bigger than ourselves. For me, as a Christian, that’s God. But no matter what you believe spiritually, even the best secular researchers have found that living for something bigger than us is the only route toward a truly satisfying life.
Second, we were made for relationships. The happiest people are those who are connected to others in meaningful, supportive relationships. And third, we were designed to use our unique talents and passions to make a difference with our lives.
The most effective uses of money are those that are in synch with these three purposes.
First Financial Things First
As for process, the first step is to have a plan – a tool that enables us to pre-determine how our income is going to be used and that gives us feedback as to how well we’re following that plan. Yes, that’s a budget, which I believe is simply the most powerful tool available for effective money management.
When it comes to what we actually do with money, there is a way of prioritizing money that works extremely well. As counterintuitive and countercultural as it may sound, our first financial priority is generosity – using a portion of all that we receive to help others either directly or by supporting a cause we believe in. We were designed to be generous.
Our second financial priority is to save a portion of all that we earn. If you have any debt other than a reasonable mortgage (the ideal is to spend no more than 25% of monthly gross income for the combination of mortgage, taxes, and insurance), getting out from under that debt should be a very high priority. Build a small emergency fund, go after that debt, and then build your emergency fund up to six months’ worth of living expenses. Once you’ve done all that, you’re ready to invest.
I believe in the timeless fundamentals of investing. Don’t try to time the market. Do get your asset allocation right. And unless your last name is Buffett, go with low-cost index funds.
In order to make all of the above possible, it’s important to be really smart in how we spend on everything from cars to clothing. That doesn’t mean choosing the cheapest option available because it turns out that cheap often comes at a steep cost – not just the financial cost of having to frequently replace cheap stuff, but more importantly, cheap stuff often comes at a human rights cost, a health cost, a relational cost, and an environmental cost. Spending smart is about knowing how to get the best deals on the truly best stuff. I plan to write a lot more about this topic in the months ahead.
It’s All in the Execution
Smart money management isn’t rocket science. However, I do think it requires a willingness to take a path other than the one suggested by our culture.
I also realize there’s a lot of seemingly non-financial stuff that can impact how we do the whole money thing – different priorities among spouses, temperament, early life experiences with money, and more. I’ll do plenty of writing on these topics in the New Year as well.
I especially enjoy helping young people get started in the right financial direction. And I enjoy helping people navigate some of life’s most important turning points (first full-time job, first home, marriage), solve some of life’s biggest financial problems (debt, financial friction between spouses), and answer some of the most important financial questions (how much insurance to carry and what type). Look for some added emphasis on money and relationships this year, since I have a new book on the topic coming out in March.
I have loads of article ideas covering the topics above, but I’d love to hear what turning points you anticipate going through in the year ahead. What are your biggest financial problems? What are your most important financial questions? What financial goals are you intent on achieving in the New Year? Let me know by adding a comment below and I’ll make sure I cover that topic.
So, that’s it. That’s where I’m coming from financially. If that sounds good to you, stay with me this year and I’m confident you’ll find yourself in much better financial shape this time next year.
All I ask is that you read this blog with an open mind and participate. I want to hear what you disagree with, and I want to know what other ideas you have that add value to each topic. If you know others who could benefit from being part of this conversation, please send them a link to this blog. And if you haven’t signed up for a subscription yet, please do so.
I’m thrilled that you’ve taken the time to read these words and I would count it a blessing and a privilege to be able to help you go further in achieving financial success that deeply satisfies. Here’s to a great 2011.