Money, Saving and Preparing for Life

 Date:   1/28/2021

Dad Joke:  Don’t trust atoms.  (Pause) They make up everything.   

A rubber band pistol was confiscated from algebra class because it was a weapon of math disruption.

Random Thoughts on a Passing Scene:  

After a three-plus-hour-semi-ordeal for us, with JLOB waiting patiently in the car, I received my first Covid vaccine shot.  For the record, this was the Moderna version.   No pain in the arm where the shot was administered.   Afterwards, I was a bit headachy which may or may not have anything to do with the vaccine.  JLOB is scheduled for her first shot this Saturday.   Maybe, just maybe the end game (for us, as far as holding the pandemic at bay) is afoot!

More to do than can ever be done:  Save more than enough money to thrive financially in your retirement years.  Interested?  Read on!

More to see than can ever be seen:  I saw EAB I jump off an incredibly high cliff into the raging surf of the Pacific Ocean to rescue Maria from a bale of revenge seeking sea-turtles.   Okay, maybe the cliff was not “incredibly high; the “raging surf” was more like gentle swells; and neither Maria nor sea-turtles were directly at hand.   BUT, he did jump from an impressive enough cliff into deep water.   This was adjacent to our favorite beach in Kauai.

 More to know than can ever be known:   Management of Finances and Creation of Wealth

There are certainly more important aspects to a life full of treasure and wealth than those aspects of financial management and wealth creation.  Those important aspects connected with being a human such as: family, loved ones, health, friends, happiness, sorrow, enjoyment, time etc. – matters critical to  the heart and soul of being you – are separate topics from today’s post which focuses on money matters.

My children will clearly know that I have more than a few opinions, guidelines, and advice to impart in regard to money.   You also know that I think it is important for you to integrate these tried and true financial wealth principles into your “money life”.

I fully recognize that throughout my life I have gone a bit over-the-top in regard to financial security, saving for the proverbial rainy day emergency, and being a penny pincher to greater or lesser degree.  I do know that I have made sure – since I was about 19 – that I would pay and provide for everything needed.   This did not mean paying for everything wanted.  (Don’t worry - I did pay for plenty of Wants overtime.)   Better yet, I was equally yoked with JLOB in matters “money” from the times of our courtship, wedding, early married years, through the child-rearing years, and now into our retirement years.   Our underlying premise has been “the family will have all that we can provide”.   There were tough times, there were times when the concept of work-life balance was way skewed to the work side for my part.     

There could be more work-life lessons to share in the future.  For now, let’s advance into the subject at hand.   Up front, let me state that all of you already have professions, financial assets, and income situations far surpassing what JLOB and I had at your ages.   All of your financial situations look very promising for the years ahead.   Even the youngest of you (EHB) has a job that allows her to live comfortably on her own, and, has more saved in 401Ks than I had when I was 40 years old! 

Financial security and the creation of wealth takes:  1) time, 2) income (the rules apply whether a lot or a little earnings), 3) compounded earnings (meaning investments that grow, like stocks and interest earned) and 4) (here is the tough one) deferred gratuities.  

My basic rules are simple:

1)      Establish and adhere to a budget.  Budget for everything – vacations, Christmas, medical, eating out, expensive car maintenance, home appliance replacements, unforeseen out-of-pocket expenses (a reserve).   For a few years, JLOB and I had little spiral bound pocket-books and logged every cent (literally) that we spent and what we spent it on.  [Ed. Note: I believe each of you were “gifted” with one of these in your memory boxes, so you can have a glimpse of our details.  Some are hilarious.] Remember, these were in the days of cash – not credit cards, debit cards, and instant paying apps.  JLOB and I have worked for decades from a line-item budget that is documented and accounted for each month.

2)      Save every paycheck – this doesn’t matter if a few dollars or up to 20% (or more) of income.    If your employer offers any sort of matching retirement benefit, contribute all you can afford.   When I started at Barrick, we could only afford 15 dollars a paycheck (the lowest they ever saw).   From that start to where JLOB and I ended up is another “rest of the story”.

3)      Be generous – I would have you consider tithing to whatever church or reputable charitable organization you support.

4)      At all costs, avoid any Credit Card Debt.   JLOB and I have practiced this for decades.  Pay off credit card balances every month.   There are even Credit Card programs that offer cash-back incentives.   (We use one of these cash-back cards.)  Credit card debt is a hole that keeps getting deeper due the enticingly low minimum monthly payments with the exponentially growing interest debt.   So be very, very aware of this inherent trap.

5)      Avoid buying brand new cars as they depreciate upon driving off of the dealership.   Instead buy good lower mileage used cars.    Also, if you can avoid any debt for cars, do so.   Fixing and maintaining a paid off car makes more sense than months of car payments for a new one.

6)      Go into debt only for assets that appreciate in value like land or homes.  I could add some educational debts as assets that appreciate.  Almost everything else you purchase – food, cars, restaurants, vacations, durable goods, computers, “toys”, appliances, books, swords – depreciate and lose value from the moment you purchase them.    

See money as something to save and invest rather than as income to spend.  (Meaning, when you get a raise or a bonus, have a little fun and enjoy some discretionary expenditures, but don’t immediately make your fixed budget match the pay increases, i.e., don’t buy new cars, new house, up the life-style because now you can better afford something.  In short, defer gratuities and buying too many “wants”.

In retirement, JLOB and I are doing fine.   We have social security benefits and income from substantial nest eggs that look good for the long haul.    However, I do fret the budget (as we are living on less than a quarter of the income we had prior to retirement) and it is not comforting for me to see net worth /assets at status quo or declining rather than growing through savings every month.    As a word of caution for your financial planning:   I would not count on Government sponsored Social Security benefits for your generations.   (I think Medicare or Federal Universal Health Care will survive.)     Thus, one million dollars for retirement savings will likely not be enough for middle class living.   You should shoot for 2 million or more.  (2 Million Dollars – you have got to be kidding!  Well, I am not kidding and you have the means and the time ahead, to accomplish this retirement goal.)

This sounds daunting with houses, cars, kids and colleges ahead for you all.   Hopefully, JLOB and I have done things correctly enough that you won’t have your parents as a financial burden.   Remember, steady-as-she-goes is the mindset to have, as time is on your side for savings and investments to grow.   Hey, when JLOB and I started our journey we had 300 dollars in savings and most of a VW Van paid off.   (We were “living on love” and doing just fine!) There was a time our combined take home pay was around 800 per month and we still made it a point to put aside over 100 dollars per month in savings.

Savings

Here are a few more bullets in regard to finances and wealth.    These focus on savings.  They are in the form of progressive steps.

1.           Step One:   Save $1000.00 in cash for emergencies.   This is the first necessary goal to move beyond “living from paycheck to paycheck”.   If you have to use this for an emergency, build it back up as rapidly as you can.     I literally keep this on hand as cash!

2.           Step Two:   Prioritize (No, go beyond prioritizing to valuing this!) getting out of debt for everything but the home mortgage.   Start with any credit card debt, then move to cars, then to any loans.

3.           Step Three:  Build a savings account cushion to deal with big unexpected expenditures, or periods of no income (such as unemployment).   I would suggest setting staged goals on this.   Celebrate when you have saved two months of budget needs, four months of budget needs and then hit the goal of minimum of six months of on-hand savings.

4.           Step Four: (I know this is often happening alongside Step Three since most employers are offering retirement savings and even matching some percentages!)  Work toward a target of saving 15% of every paycheck in IRAs, 401Ks, or other such employee/employer contribution pensions.   (True pensions are rare in today’s retirement plans of IRAs, Roths, 401Ks etc.)  As you grow in your careers and your budget allows, I would suggest you target the maximum annual amount allowed for your contributions.  I can financially argue either deferred income tax vehicles (like the 401K) or after income tax vehicles (like the Roth IRA). 

5.       Step Five:   As your budget picture allows, it is never too early to start saving for future college tuition for your children.

6.           Step Six:    Get debt free on your house.   I can’t tell you the financial peace you will feel when the house is owned free and clear.   Also, your budget will breathe a sigh of relief and you will have a good chunk of extra money.   Don’t forget, you will still have to budget for property taxes and insurance etc., so home ownership is not exactly free when the mortgage is paid off.  (I have to add that in this era of record-low mortgage rates, home loans are not necessarily a bad thing as far as financial planning. Some advisors would argue that maximizing home loan amounts in order to maximize security / stock investments is a better use of your money.  I digress.)

7.           Step Seven:   This is the building wealth stage.   Your investments and savings have time, compounding interests and re-investment of earnings working for you.    You have conservatively deferred gratuities, fun stuff, and extravagances.   You have only bought a few swords (HAH!) and only when you could afford them (True – well, sort of, at least that was how I rationalized this obsession.).

More on Finances

The following are just recaps – but are worth reiterating to you all as they are very important life lessons and “ways of living”.

Where did all this come from:  I am the son of a Great Depression era Father who understood savings and debt and carried the financial scars incurred by those tough times of his pre-WWII youth.  His message was simple:   Save all you can for the rainy days – NO DEBT for anything that did not appreciate in value.

Then, JLOB became fervent about budgeting, tithing and giving.  I know I harped too much about where the money went – and still do (Uugghhh).  [Ed. Note:UUGGHHH!!]  But, as I recall, it was JLOB who came up with the little spiral –bound pocket expense books and, to this day, she sets up our line-item budget sheet, tracks expenses on another monthly sheet, and allows me to balance the books and do the necessary accounting and money handling.  

Along the way, I was impacted by Larry Burkett, Dave Ramsey and Barry Cameron – all Christian financial advisors.

From all this I learned four basics:   

    1) Pay God first from every check (the 10% tithe).  For us, this came after we had our savings discipline in order and our debts “zeroed out” except for the house loan.

    2) Put something in savings every check – no matter how small the amount.   The habit and consistency is more important than the percentage or amount saved at the start.   We still save every month even while in our retirement fixed-income years.

    3) Get out of debt and stay out of debt.  When you are in debt, you are the equivalent of being in bondage to someone else.

     4) Make a budget and adhere to it (your budget should have no. 1 and no. 2 above built in).   Your budget should also have a concrete plan to consolidate and/or pay off all debts (no. 3 above) – except home loans.

Remember, the problem will never be what you are earning – it will be what you are spending!    Know where you are spending and start with No. 1 and No. 2 above – the balance is what you have to spend!  Remember the “Needs First – Wants Later” Rule of thumb.

Here are 9 Steps for overall financial planning:

1.                   Write Down Your Goals.

2.                   Figure out what you have by making a net worth statement.

3.                   Focus, Focus, Focus on making and following a BUDGET.  (This is understanding your cash                 flow.)

4.                   Zero in on Debt management and elimination.

5.                   Get your retirement savings on track (Brace yourself – target should be $ 2,000,000!)

6.                   (With the guidance of financial planners if needed) Set up the right balance for your investment             portfolio.

7.                  Review your insurance needs (with young children you may need significant insurance).

8.                  Know your income tax situation – neither large tax refunds nor large tax amounts due are good.

9.                   Keep current on your “estate plan”.  This starts with having a will for your children – guardians             and welfare - and your beneficiaries.

That is enough for today so….

There you have it.

TAB