Matt About Money https://mattaboutmoney.com Simple. Meaningful. Success. Thu, 12 Sep 2019 21:05:44 +0000 en-US hourly 1 9092505 Profitable Ideas: Lessons Learned on the Journey Out of Debt, You’re Not Doing Enough to Prevent ID Theft, and More https://mattaboutmoney.com/2019/09/13/profitable-ideas-lessons-learned-on-the-journey-out-of-debt-youre-not-doing-enough-to-prevent-id-theft-and-more/ https://mattaboutmoney.com/2019/09/13/profitable-ideas-lessons-learned-on-the-journey-out-of-debt-youre-not-doing-enough-to-prevent-id-theft-and-more/#comments Fri, 13 Sep 2019 13:30:33 +0000 https://mattaboutmoney.com/?p=7600

Weekly roundup of some of the best personal finance articles from around the web.

Smashing 6 figures of debt & learning what doesn’t apply to me (She Picks Up Pennies). Getting out of debt has much to do with how you frame the conversation.

Two years after huge Equifax breach was revealed, consumers are still too vulnerable to identity theft (CNBC). We hear about huge hacks seemingly all the time, and yet we do far too little about it.

How buying and selling a home could soon be as simple as trading stocks (MarketWatch). How technology is changing the game.

This financial planner’s no-fail secret will have you effortlessly spending less (MarketWatch). It’s so simple you’ll think it won’t work, but it does.

Why college became so expensive (The Atlantic). Parents feel tremendous pressure to help their kids pay for college, and it’s taking a toll.

How my shopping habits changed after simplifying my home and life (Becoming Minimalist). The positive ripple effects of minimalism.

Why you need a healthcare proxy (The Balance). It’s just one part of an estate plan, but it’s an important part.

Avalanche vs. snowball: Which debt payoff method is best? (Clark Howard). Should you go after your highest interest rate debts first or your lowest balance debts?

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Success Goes to the Steady, Not the Speedy https://mattaboutmoney.com/2019/09/10/success-goes-to-the-steady-not-the-speedy/ https://mattaboutmoney.com/2019/09/10/success-goes-to-the-steady-not-the-speedy/#respond Tue, 10 Sep 2019 13:30:19 +0000 https://www.mattaboutmoney.com/?p=2639

We’re all drawn to stories of people who achieve “overnight success.” They make for great headlines and sell a lot of magazines and books. Problem is, they’re a myth.

In the business classic, “Good to Great,” author Jim Collins explored the reasons why some companies break away from their pack of competitors and achieve remarkable, sustained success. While there was usually a point in time when they did, in fact, break away, it was not at all about some new idea that suddenly rocketed them to the top. It was the result of steadily doing the right things over a long period of time.

Steady plodding brings prosperity; hasty speculation brings poverty. – Proverbs 21:5

Collins calls it, “turning the flywheel,” and there’s an important lesson here for all who want to achieve uncommon financial success.

Steady Progress in the Right Direction

A flywheel is a heavy disk that helps to maintain a constant speed of rotation in a machine or to store energy. Collins describes it as “a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds.”

Imagine trying to get it to turn.

It takes every bit of muscle you can muster. You push and push. After several hours you get it to make one full rotation. You keep pushing. Eventually it moves a little faster — a little faster. Hours later you’re getting that crazy contraption to make two rotations per hour.

People laugh at you. They tell you to stop. They say whatever you’re striving for isn’t working.

But the flywheel represents the steps you’re taking in pursuit of your dream or a goal that matters to you. So you keep going, and finally it becomes easier. In fact, at some point you notice that the wheel is moving from its own momentum.

Collins found that in all of the companies he studied — the ones that achieved unusual success — this was their pattern. They found one thing that mattered to them, focused all of their energy on that one organizing idea (their “hedgehog concept”), and they just… kept… going.

In the early years, no one noticed. There were no media articles, no shareholder parties. Just a lot of steady plodding, until one day they realized it wasn’t taking so much effort. Sales went up, and kept going up. The distance between them and their competitors became greater and greater.

The media started calling. Headlines were written about the company’s “overnight success.” But there was nothing overnight about it. They had been pushing the flywheel — for a long time.

This is a perfect illustration of how things work with money.

The Financial Flywheel

Look at the chart below. It shows the result of someone — let’s call her Jean — steadily putting $100 into an investment that generated an average annual return of 7 percent. The red represents Jean’s money. The blue represents the money she earned.

During the first 10 years, it’s pretty much all red. After 20 years, it’s about even. It would be easy for doubt to creep in. Or fatigue.

But then there’s a breakthrough. After 30 years, earnings are now greater than principal. But look at 40 years, and 50. The earnings tower over the principal.

This is the financial flywheel in action. Lots of steady plodding. Compounding doing its thing. Eventually, momentum.

Beware the Doom Loop

Over the years, Jean stayed the course. She followed an unbiased investing process she understood and trusted. Along the way, cousins talked over Thanksgiving dinner about a stock that was destined to take off. Conversations were heard around the water cooler about a “can’t miss” real estate deal.

Collins has a term for such ideas: “The Doom Loop.” It’s the company that bets it all on a big win. Or the leaders who doubted their direction, so they changed course, and then changed again.

Jean listened politely to her cousins and those around the water cooler. And she kept investing her $100 each month — stayed with her strategy, her process — one turn of the flywheel at a time.

She did it during good times, and she did it during bad times.

Seems like I heard this lesson somewhere else. Something about the race not being to the swift.

There are many applications beyond investing. Getting out of debt. Saving for the down payment on a house. Living within your means. Having monthly conversations about money with your spouse.

Steady plodding. Little steps in the right direction for a long time. It isn’t glamorous, but it’s what it takes to achieve uncommon success.

Where do you see the flywheel in action in your finances?

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Profitable Ideas: The Benefits of Being a Late Adopter, Life-Changing Money Habits, and More https://mattaboutmoney.com/2019/09/06/profitable-ideas-the-benefits-of-being-a-late-adopter-life-changing-money-habits-and-more/ https://mattaboutmoney.com/2019/09/06/profitable-ideas-the-benefits-of-being-a-late-adopter-life-changing-money-habits-and-more/#respond Fri, 06 Sep 2019 13:30:18 +0000 https://mattaboutmoney.com/?p=7582

Weekly roundup of some of the best personal finance articles from around the web.

The joys of being a late tech adopter (NY Times). There’s a lot of wisdom—and money to be saved—by being a late adopter.

I got a promotion and I regretted it (Fast Company). When taking the next step up the ladder might be a mistake.

What to do when you keep failing at making financial changes (The Simple Dollar). Change can be hard. Here are some ideas that may help.

Life support (Humble Dollar). When and how to stop giving your adult children financial help.

You need a password manager — right now (Engadget). Passwords are a pain—and it’s never been more important to manage them well.

7 estate planning essentials (Retirement Field Guide). A helpful guide to the paperwork you need.

You better love this (Collaborative Fund). A fresh and helpful look at the advice, “Do what you love.”

Six simple money habits that changed my life (Get Rich Slowly). Practical steps to make the whole money thing work better.

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Shoring Up Your Walls of Protection https://mattaboutmoney.com/2019/09/03/shoring-up-your-walls-of-protection/ https://mattaboutmoney.com/2019/09/03/shoring-up-your-walls-of-protection/#respond Tue, 03 Sep 2019 13:30:02 +0000 https://www.mattaboutmoney.com/?p=2808

A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences. – Proverbs 22:3

With Hurricane Dorian churning in the Atlantic, I’ve been praying for loved ones who may be in its path, and I’ve been thinking about our homeowner’s insurance coverage.

I still get a feeling of dread in the pit of my stomach every time there’s a severe thunderstorm or tornado warning in our area. It’s been that way ever since the summer of 2010 when we were living in the Chicago area and experienced one of the worst storms our community had ever seen.

It was dinnertime when the skies turned an ominous color and the winds started howling. I flipped on the radio just in time to hear that a tornado had been spotted nearby, so we took shelter in the basement. Since the news reports said the storm was moving quickly, I figured we’d be back upstairs soon enough.

But then I heard a disturbing sound coming from our basement bathroom, the sound of water gurgling. It was coming up through the drain in our bathtub. That prompted me to check our laundry room, where to my horror I saw water flowing quickly into our basement from a floor drain.

After asking my wife to take our three young children into the stairwell, I started frantically pulling what I could off the floor. Within a very short time, we had at least three inches of water covering our entire basement. When I took a minute to glance out our front window, I saw that our street was completely flooded. With the storm drains overwhelmed, the water had no where to go but up into the drains in people’s basements.

For the next three days I spent hour upon hour pulling things out of the basement, talking to various people at our insurance company, and hiring a company to rip up our laminate flooring and dry the basement with heavy-duty dehumidifiers and fans.

Here are some lessons I learned through that experience that may help you better prepare for a natural disaster.

Do You Have the Right Insurance Coverage?

If you have a basement, see if you have sewer and drain backup coverage on your homeowner’s policy. If not, strongly consider signing up. This is different than flood insurance. Fortunately, we chose to have this coverage. In fact, in reviewing our policy several years ago, I found out that our coverage totaled just $2,500 and did not cover furniture. We increased it to $5,000 and ended up needing every bit of that amount. I have since increased our coverage to $10,000.

During that same policy review, I asked about flood insurance and was encouraged to weigh the cost (about $400 per year) against the likelihood of a flood in our area. You can assess the risk of a flood in your area at FloodSmart.gov (Under “Understand your risk,” click on “Flood Map Service Center,” and then type in your address).

Since we’re not all that close to a river, and because the FloodSmart site described our neighborhood as an “area of minimal flood hazard,” we’re going without the coverage.

Here are some other items to check on your homeowner’s insurance policy.

  • Do we have inflation guard? This adjusts the value of your home as the cost of building materials rise.
  • Do we have building ordinance or law coverage? This covers any added costs of rebuilding associated with new building codes.
  • How much living expense coverage do we have? Find out how long your policy will pay your living expenses if damage to your home would force you to live elsewhere while repairs are made.
  • Are we covered for the replacement cost of our possessions? This covers the full value of what it would cost to replace your possessions, as opposed to cash value, which factors in depreciation.
  • Do we even know what we’ve got? If you lost all that you own, would you know what you lost? Take an inventory, at least of the major items.
  • Do we have proper riders? If you have any pricey jewelry or expensive electronic gear, check to see if it’s fully covered under your standard policy or whether a rider may be needed.

It’s also a good idea to use a video camera to create a visual record of what you own. Just walk through your home, capturing all of your stuff and describing it along with your estimated value as you go. Update your inventory at least every five years.

Some Final Lessons About Preparing for Storm Season

Another lesson we’ve learned is that when storing anything in the basement, use shelves; do not store anything directly on the floor. And store your items in plastic containers, not cardboard boxes.

And one final point: think twice before stepping into a flooded basement. As the water spread throughout our basement, I called a neighbor who actually knows something about electricity and he told me if the water is below the electrical outlets, it’s probably safe.

I risked it, walking through the water to switch off our fuse box until the water drained out of our basement, and I’m still around to write about it. However, all of the advice I’ve read since then says not to set foot in a basement that has taken on water. Instead, you’re supposed to get your electric company to turn off the power from the outside of your house.

Have you learned any lessons about homeowner’s insurance or disaster preparedness that could benefit others?

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Profitable Ideas: The Company You Keep, Insuring Against a Disaster, and More https://mattaboutmoney.com/2019/08/30/profitable-ideas-the-company-you-keep-insuring-against-a-disaster-and-more/ https://mattaboutmoney.com/2019/08/30/profitable-ideas-the-company-you-keep-insuring-against-a-disaster-and-more/#respond Fri, 30 Aug 2019 13:30:28 +0000 https://mattaboutmoney.com/?p=7555

Weekly roundup of some of the best personal finance articles from around the web.

Frugal friends: 4 ways your inner circle influences your finances (Money Ning). How much you spend has much to do with the company you keep.

Easy home improvements for under $100 (Real Simple). Not sure about “easy,” but if you’re handy here’s how to change the look of certain rooms inexpensively.

The spy in your wallet: Credit cards have a privacy problem (Washington Post). “Where does it end? Nobody really knows.”

Having “the money talk” with your parents as they get older (Marriage Kids and Money). Good ideas for broaching a tough topic.

Banana Republic joins the clothing rental craze (CNN). “Craze”? Personally, I think this is kind of crazy. How about you?

How to win at money (Becoming Minimalist). Six good suggestions — steps to take, ways to think.

How a decision matrix can help you make big choices with confidence (Gen Y Planning). Faced with a big decision? Break it down into smaller decisions.

Hurricane Dorian: What does insurance cover after a disaster? (USA Today). Also check to see if you have drain backup insurance, which is different than flood insurance. 

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Saving Money is All About the ‘Why’ https://mattaboutmoney.com/2019/08/27/saving-money-is-all-about-the-why/ https://mattaboutmoney.com/2019/08/27/saving-money-is-all-about-the-why/#respond Tue, 27 Aug 2019 13:30:03 +0000 https://www.mattaboutmoney.com/?p=4672

I know a man who started saving for his daughter’s wedding when she was just a little girl. Long before she ever met the man she would marry her father was setting money aside for her special day, even when money was tight.

Over the years, he could have spent more on himself, buying a better brand of clothing or indulging in more expensive cars. Instead, motivated by his love for his daughter, he built up a savings account earmarked for her wedding.

When she eventually got married, I think it was deeply satisfying to him to be able to give his daughter the gift of a beautiful wedding. Of course, it was a great blessing to her as well, as it was to me since that man is my father-in-law!

Putting money in savings can seem incredibly boring—painful even, when you think of what you could spend that money on instead.

That’s why it’s important to be clear about why you’re saving. If saving money feels like a burden or responsibility, chances are you won’t. But when saving money is tied to your most valued relationships, chances are better you will.

Saving money helps you love people well

Some people truly do live on the financial edge. They can’t save. Paying the bills really is a paycheck-to-paycheck proposition.

But it’s been my experience that many others who don’t have enough in savings actually could save more. If that’s you, you’re probably not interested in a finger-wagging lecture. But maybe what would be helpful is seeing more clearly the connection between your finances and your most important relationships.

I once commissioned a national survey that asked people how stressed they felt and how much they had in savings. By far, the people who were the most stressed were those with the least in savings. Build a sufficient savings account and it’ll help dial down the stress in your life and your relationships.

Saving money helps you love God well

Whenever I get to the savings section of a financial workshop, I read the classic savings verse: “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has” (Proverbs 21:20). There you have it. Maintain a reserve. It’s biblical. What else do you need to know?

For some, that is enough. Because they want to live as the Bible instructs, that verse motivates them to save.

For others, it sounds like one more item for their must-do list. Duty. Obligation. Burden. If that’s you, have you ever considered this? Following that counsel, as with following any counsel found in Scripture, is a way of loving God.

Jesus said, “If anyone loves me, he will obey my teaching” (John 14:23). In the Bible, obedience is intertwined with love. God loves us and His counsel is always for our good. Following it—in this case, maintaining a reserve—is one way we love Him back. Think about that next time you make a deposit in your savings account!

The three types of savings

I encourage you to save for three distinct purposes, preferably in three separate savings accounts.

An emergency fund. I agree with the conventional wisdom—three-to-six months’ worth of essential living expenses is the target. If you have relatively few breakable moving parts in your life—you’re single, rent an apartment, have a somewhat secure job or at least skills that are in demand—you may be okay with three months’ worth of expenses in savings. But if you’re married, have kids, and own a home, better to be on the six-month side of the spectrum.

A periodic bills and expenses fund. This money is for items you need to pay for at some point each year, but not every month. Examples include vacations, Christmas gifts, an annual life insurance premium, a semi-annual car insurance premium, and property taxes if you pay for them separately from your mortgage. Take the annual total of all such items, divide by 12, and automatically transfer that amount into savings each month.

A big-ticket item fund. Do you own a car? If you own a house, does it have a furnace? An air conditioner? A roof? All such items wear out eventually. And they all cost a lot of money. It’s a good idea to be setting aside money for them each month so you can pay for their replacement with cash. Oh, and do you have any children whose weddings you’d like to help pay for?

My recommendation is to save 10-15% of your monthly gross income. If you have debt (other than a reasonable mortgage), once you have one month’s worth of essential living expenses in an emergency fund, take the money you had been saving and redirect it toward debt repayment. Once your debts are wiped out, build a fully stocked emergency fund. Once that’s in place, redirect most the money (8% if you had been saving 10%, 10% if you had been saving 15%) toward investing. Use the other 2-5% to build a big-ticket item fund.

If all of this sounds a bit overwhelming, just start where you can. Simply opening a savings account would be a great first step. Setting up an automatic monthly transfer from checking to savings would be a great second step. Just get that process started and eventually you’ll have a healthy savings account.

How are you doing on the savings front? What motivates you to save? What holds you back?

Are you a member of a church? I’d greatly appreciate it if you’d tell the person in charge of small groups or stewardship about my small group study, Money, Purpose, Joy.  Based on the idea that the purpose of money only becomes clear once you’re clear about the purpose of your life, this video-based study teaches the practical application of seven biblical financial principles. Ultimately, it equips people to use money as a powerful expression of who God made them to be.

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Profitable Ideas: Whether to Give Your Teen a Credit Card, Pricing Strategies That Make You Overspend, and More https://mattaboutmoney.com/2019/08/23/profitable-ideas-whether-to-give-your-teen-a-credit-card-pricing-strategies-that-make-you-overspend-and-more/ https://mattaboutmoney.com/2019/08/23/profitable-ideas-whether-to-give-your-teen-a-credit-card-pricing-strategies-that-make-you-overspend-and-more/#respond Fri, 23 Aug 2019 13:30:20 +0000 https://mattaboutmoney.com/?p=7541

Weekly roundup of some of the best personal finance articles from around the web.

Give your teenager a credit card? Some financial experts say yes (NY Times). Better for them to learn while they’re still under your roof than to figure it out when they’re on their own.

Don’t wait for a life-changing event to change jobs (Fast Company). Changing jobs can be difficult and disruptive, which is why many people put off even thinking about it—often to their detriment.  

5 simple steps to stop overspending today (Money Ning). Simple, effective ideas for taking more control of your spending.

Four way to cut college textbook costs (Reuters). It isn’t just college textbooks that have gotten super expensive. One of the required books for our high schooler was $50!

To successfully pass down your wealth, first share your intent (Kiplinger). Estate planning is about more than just having the proper paperwork in place.

The trick that makes you overspend (BBC). The pricing behind many companies’ products or services is highly scientific, highly psychological. 

Four essential documents that could save your financial life (CNBC). Do you have these documents in place?

Does your job title really matter? 6 career experts weigh in (Go Banking Rates). In short, yes. Here’s why.

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What If… https://mattaboutmoney.com/2019/08/20/what-if/ https://mattaboutmoney.com/2019/08/20/what-if/#respond Tue, 20 Aug 2019 13:30:55 +0000 https://www.mattaboutmoney.com/?p=3214

“Live for today.”

“You only go around once.”

You’ve heard these phrases; maybe you’ve even said them. They represent a popular philosophy – in essence, grab for all you can get right now since you don’t know what may happen tomorrow.

Similar words are even found in the Bible. When the apostle Paul sought to describe a philosophy of life if there was no heaven, he said, “Let us eat and drink, for tomorrow we die” (1 Corinthians 15:32).

Paul’s comment was made within the context of a big “What if…” What if there is no life after this one? If that’s true, Paul said, then what else is there to live for but the pleasures of today?

But what if there is?

Of course, Paul believed to the very core of his being that there is a life to come.

What in the world does this have to do with money? Quite a bit.

The Faith/Finances Connection

Money isn’t the only area of our life influenced by our spiritual beliefs, but what we believe spiritually has the single greatest influence on our use of money.

If we believe this life is all there is, then it’s especially easy to get stuck on what psychologists call the hedonic treadmill, always reaching for something more in our pursuit of happiness, and then discovering when we get it that we still haven’t found what we’re looking for.

Even if we believe in heaven, the degree to which that belief is more head knowledge than heartfelt can leave us running on the same treadmill, overspending in our pursuit of happiness.

Eternal Economics

What if we lived with an unwavering belief in a life beyond this one? What if we had complete confidence that we will one day experience that life? And what if we were absolutely convinced that the life to come will far exceed the joy we have experienced during our absolute best moments in this life?

Wouldn’t we do the whole money thing differently?

Wouldn’t we be more content with what we have and less discouraged over what we don’t have? Wouldn’t we be less anxious to have today what we can’t afford? Wouldn’t we live with more patience?

Be Transformed

The verse that keeps coming to mind as I wrestle with these ideas is Romans 12:2.

Do not conform any longer to the pattern of this world, but be transformed by the renewing of your mind.

Our culture is relentless in its promotion of a buy-now-and-you’ll-be-happy world that only leaves us chronically disappointed and weighed down by debt.

I’m far from perfect at this, but I firmly believe that if we would stop looking to the things of this world to deliver the meaning and happiness they’re incapable of delivering, we would actually enjoy them more. If we saw them for what they are—good gifts, but not the basis of our identity, self-worth, or ultimate happiness—our finances would improve, and so would our joy.

It isn’t easy. In fact, it isn’t even possible through our own efforts. But it is possible through the transforming power of our relationship with Christ.

How has your belief about heaven impacted your use of money?

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Profitable Ideas: Unseen Identity Theft, Overdraft Protection Isn’t What It Seems, and More https://mattaboutmoney.com/2019/08/16/profitable-ideas-unseen-identity-theft-overdraft-protection-isnt-what-it-seems-and-more/ https://mattaboutmoney.com/2019/08/16/profitable-ideas-unseen-identity-theft-overdraft-protection-isnt-what-it-seems-and-more/#comments Fri, 16 Aug 2019 13:30:39 +0000 https://mattaboutmoney.com/?p=7530

Weekly roundup of some of the best personal finance articles from around the web.

Lost amid Equifax and Capital One hacks: Children with no credit histories are increasingly lucrative to identity thieves (MarketWatch). Some good advice for parents.

H&M, Zara, and other fashion brands are tricking shoppers with vague sustainability claims (Fast Company). “Sustainability” is all the rage, but what does it really mean?

The 4 legal documents your college-age child really needs (Kiplinger). You got them some back-to-school clothes and a dorm-size fridge, but is their paperwork in order?

Never mind (Humble Dollar). Removing the pressure to keep up with the Joneses. 

Three financial aid mistakes that could make college more costly (CNBC). The early bird gets the aid.

Why you should never sign up for overdraft protection (Clark Howard). There’s more in it for your bank than for you.

Who really owns your digital assets? (Wise Bread). Estate planning in our modern age.

Driving the same car for 53 years (YouTube). Do the basic maintenance (and keep the miles low!), and it’s amazing how long your car might last. 

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Are You Financially Healthy? Rate Yourself Using These 9 Qualifications https://mattaboutmoney.com/2019/08/13/are-you-financially-healthy-rate-yourself-on-this-9-point-scale/ https://mattaboutmoney.com/2019/08/13/are-you-financially-healthy-rate-yourself-on-this-9-point-scale/#comments Tue, 13 Aug 2019 13:30:11 +0000 https://www.mattaboutmoney.com/?p=4823

A recent study published in Mayo Clinic Proceedings quantified how many Americans have a healthy lifestyle. Can you guess what number it came up with? Less than three percent!

In order to qualify, a person had to meet four criteria: Moderate to vigorous exercise for at least 150 minutes per week, a diet score in the top 40 percent on the Healthy Eating Index, body fat of under 20 percent for men and 30 percent for women, and not smoking.

It made me wonder what percentage has a financially healthy lifestyle. Of course, that would require some criteria that define “financially healthy.” I gave it some thought and came up with the nine qualifications below.

Go through the list and see if you can say “yes” to each one. Some questions will be easier to answer than others. For the more subjective ones, just do you best and go with your initial response.

1 – Do you understand and follow what your faith teaches about money? I make no secret about the fact that I’m a Christian. If you are as well, do you know what the Bible teaches about money and do you consciously strive to use money in a way that’s in synch with that teaching? I know I have some Jewish readers as well, and perhaps people of other faiths. Do you know what your faith teaches on this topic and are you following that teaching?

2 – Do you use a plan to proactively manage money? Yes, I’m talking about a budget. Not a general sense in your head as to how much you can spend on this or that. An actual written plan, either on paper or a computer, that shows your income allocated across the various categories of giving, saving, investing, and spending on everything from groceries to clothing to vacations and all the rest. Along with a method of tracking the actual inflow and outgo of money in your life, and regular reviews of how your actual use of money is lining up with your plan.

3 – Do you give generously? For most, I’d define this as giving at least 10 percent of your gross income. For some people, this may feel legalistic. But 10 percent is where God started his Old Testament followers, so it seems like a good starting point for us as well. I realize that some people reading this are in significant financial difficulty. If that’s you, feel free to define “generously” differently.

4 – Do you have adequate savings? Having three months’ worth of essential living expenses in a separate savings account would get you a “yes” here. Having six months’ worth gives you the right to use an exclamation point.

5 – If you have a mortgage, is it “reasonable?” In other words, does it cost no more than 25 percent of your monthly gross income to cover the combination of your mortgage, property taxes, and homeowner’s insurance? All the better if it takes less than 20 percent. Housing is most people’s largest expense, and I’ve found that 20-25 percent is the max most people can spend in this category while still living generously, saving and investing adequately, and living with financial margin.

6 – Are you debt-free (the only exception is a reasonable mortgage)? That means no vehicle debt, no student loan debt, no credit card balances carried over from month to month—no debt other than reasonable housing debt. Or, if you have debt, working a plan to get out of debt gets you a passing score here as well.

7 – Are you investing knowledgeably for your later years? That means you’ve run some numbers to determine how much you may need to have saved by the time you’re ready to retire, and how much you should invest each month right now to get there. It also means you’re making those investments (for most, that means investing at least 10 percent of monthly gross income), and are using a trustworthy process for choosing specific investments in an informed way.

8 – Are you adequately covered by insurance? If you’re married, and especially if you have kids, you need life insurance. You also need adequate homeowner’s or renter’s insurance, vehicle insurance, health insurance, and possibly disability insurance (although, depending on how long you’ve been paying into Social Security, you may qualify for disability coverage that way).

9 – If you’re married, is there financial transparency in your relationship? That means both spouses have a good sense as to what’s going on financially in the household, or at least have easy access to all of the financial information.

I realize that answering these questions may be discouraging. That isn’t my intent. Instead, I hope this process helps you identify areas to work on. I’d also like to create a dialogue around this topic. Which questions do you disagree with? What other ones would you add?

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