Study Guide for Your Money Map: A Proven 7-Step Guide to True Financial Freedom

Transcription

1 Study Guide for Your Money Map: A Proven 7-Step Guide to True Financial Freedom by Bev Marshall-Goodell Grace United Methodist Church 300 W. Marengo Road Tiffin, IA graceumc@southslope.net Bev Marshall-Goodell

2 Study Guide for Your Money Map: A Proven 7-Step Guide to True Financial Freedom by Howard Dayton Your Money Map Includes Seven Destinations It is never too soon to begin your journey to financial freedom. We will begin with an overview of the trip, and then examine each destination more carefully. Remember, Roadside Assistance Online! is free and always available. Log on to CrownMoneyMap.org. Destination 1 Destination 2 Destination 3 Destination 4 Destination 5 Destination 6 Emergency Savings Begin using a spending plan (budget) Save $1000 for emergencies Credit Cards Paid Off Pay off credit cards Increase savings to one month of living expenses Consumer Debt Paid Off Pay off all consumer debt (auto loans, student loans, etc.) Save for Major Purchases Begin saving for major purchases (home, auto, etc.) Begin saving for retirement Begin saving for children s education If you want to start your own business, begin saving for that Buy Home and Begin Investing Buy an affordable home Begin prepaying home mortgage Begin investing wisely Home Mortgage Paid Off Home mortgage paid off Children s education funded Confirm estate plan is in order Final Destination My retirement is funded I am free to be more generous with my time and money The key to reaching the final destination on your journey to financial freedom is to understand the proper division of responsibilities in the handling of money. God s Responsibilities 1. God owns all your possessions 2. God is in control 3. God provides our needs.

3 Our Responsibilities as Managers 1. Be faithful with what we have 2. Be faithful with 100% 3. Be faithful in little things 4. Be faithful with other people s stuff We are called to be faithful stewards of all God has bless given us. A faithful steward: Is completely honest Works hard Gives generously Spends wisely Save regularly Avoids debt Invests steadily Trains their children to do the same Assignment #1 Complete the Financial Statement indicating all your assets and all your liabilities. Then begin writing down everything you spend for 30 days using the 30-Day Diary. These two documents will be used to help you develop a realistic spending plan (budget). A sample Percentage Guide For Family Income for a married couple in included with this document. Other family size guidelines are available at CrownMoneyMap.org. Distinguishing Between Poverty, Stewardship, and Prosperity POVERTY STEWARDSHIP PROSPERITY Possessions are: Evil A responsibility A right I work to: Meet only basic needs Serve Christ Become rich Godly people are: Poor Faithful Wealthy Ungodly people are: Wealthy Unfaithful Poor I give: Because I must Because I love God To get My spending is: Without gratitude to God Prayerful and responsible Carefree and consumptive Giving Giving helps increase our intimacy with God, builds up our treasure in heaven rather than on earth, and helps us better appreciate what we do have. The Old Testament recommends giving away AT LEAST 10% of our income on a regular basis. Most Christian financial planner suggest you give that 10% to your local church and then give to other ministries and needs as God directs you. Honesty God requires complete honesty in all we do. We cannot practice dishonesty and love God. We cannot practice dishonesty and love our neighbor. Honesty confirms God s direction in our ves. If you have acquired anything dishonestly, you must return it to the rightful owner and make

4 restitution. Likewise, it is wrong to give bribes that might influence people to so something illegal. Paying taxes is a legal obligation that you must take seriously. Learn to Celebrate When Good Things Happen Celebrating your progress along the journey to financial freedom will help you focus on God s blessings, continue to move forward when the going gets tough, stay motivated, and maintain good relationships. Fortunately, celebration DOES NOT need to cost you a lot of money. God Has a Purpose for You Your job is to identify God s purpose for your life. Consider three steps to help you recognize your purpose. Pray. Read the Bible regularly. Experiment with different kinds of service. It is helpful to write down your long-term and short-term goals. As a start, try completing these statements: Long-Term Goals Relationship with God Family and friends Service to others Career/Skills/Education Long-Term Financial Goals Giving Spending/Lifestyle Saving/Investing Debt Other Short-Term Goals Relationship with God Family and friends Service to others

5 Career/Skills/Education Short-Term Financial Goals Giving Spending/Lifestyle Saving/Investing Debt Other Making the Most Out of Your Job God honors honest work, and gives us job skills to be successful. Be sure you are in a job that is well suited to your aptitudes and interests. Becoming a lifelong learner so you can continue to grow your capacity to earn. Destination 1: Saving for Emergencies Objectives are to save $1000 for emergencies and to start using a spending plan. This step requires discipline. Limit your exposure to things that tempt you to spend. Cultivate contentment with what you have. Pray for God to provide. The most effective way to save is to make it automatic. Sign up at you bank to have a fixed amount transferred from your checking to your savings account every month. Then, forget about the money in your savings account. A spending plan is a tool that is easier to use than a budget. Once you have recorded all your spending for 30 days, you will know what you have been spending your money on. Now, examine your spending to see where you can save some money. Consider options like eating out less, buying fewer clothes, and cutting back on services like cable TV, cell phones, and Internet service. Decide what will work for you. Your spending plan should also include your charible giving. Next, choose a system for your spending. One simple system used by many of our grandparents is the envelope system. Label an envelope for each spending category. When you receive your paycheck, divide the money according to the spending categories. When an envelope is empty, there is no more money to spend in that category. Many people prefer to use a checkbook and a paper ledger system. All expenses are recorded in the proper spending category. When you have spent the allocation for a category, you must wait for the next pay cycle. The same kind of ledger system can be developed with PC-based or web-based software. Pick a system that works for you. Once you have your spending plan in place, continue to review how you are doing and make adjustments as needed. If your income is variable and unpredictable, it is particularly important for you to develop a cash reserve. You can develop a monthly spending plan based on 1/12 of your annual income, and develop a spending plan accordingly. Many budget systems have standard spending categories. Choose categories that work for you.

6 Destination 2: Credit Cards Paid Off They recommend paying down your credit card debt before other consumer debt, because credit cards tend to have a higher interest rate. How can you possibly continue to save while you pay off your credit card debt? The simple answer is, control your spending. This means, first of all, limiting the future use of your credit cards to expenses that are already part of your spending plan, so that they can be paid off during the first billing cycle. Second, once you have an effective spending plan in place, you will have a better idea of your regular monthly surplus. Your spending plan should include making the minimum payment on all your debts. Next, start saving one half of your monthly surplus, and using the other half to begin paying down your credit card debt. Your savings goal for this step is to save one month s worth of expenses. When you reach that savings goal for Destination 2, you can use any other surplus to speed up the process of paying off your credit card debt. If you owe money on more than one credit card, focus on paying off the high-interest credit card with the smallest balance first. This practice will permit you see the progress of eliminating one debt more quickly. If you carry credit card balances at high interest rates, consider transferring your balance to a card that carries a lower interest rate. This step can save you a lot of money in added interest. Do not fail to make the minimum payment on all your credit cards, because if you do the credit card company can significantly increase your interest rate. When your first high-interest credit card is paid off, switch your surplus payments to the credit card with the next smallest balance. Continue with this strategy until all credit card balances are paid off. If you get a pay raise during this process, you may need to rework your spending plan. Consider adding the pay increase to you monthly surplus, so that you can accelerate your saving and paying off your debt. Destination 3: Consumer Debt Paid Off The three most common debts are auto loans, student loans and home equity loans. Car debt is one of the biggest obstacles for most people on their journey to financial freedom, because some people never get out of it. Just as they are ready to pay off a car, they trade it in and purchase another car with credit. Here are some suggestions to get out of auto debt: Decide to keep you car at least three years longer than your car loan. Pay off your car loan. After making your last car payment, start saving the amount of your former car payment each month. When you are ready to replace your car, use the money you have saved plus your trade-in to purchase a replacement vehicle. It may not be a new car, but a used car with no debt is a better value. Avoid the trap of leasing a car. Leasing is not cost effective, because you will be free from the monthly payments, like you will with a car you own. Consider purchasing a more fuel efficient vehicle that will also reduce your monthly spending on gasoline. Also, remember to carry adequate insurance on your car while you have a care loan so that you will be able to pay off the loan if your car is totaled in an accident. The level of student loans the average student carries has nearly doubled in the past ten years. Government-subsidized loans tend to have a lower interest rate than privately-held student loans. If you have loans from multiple sources, you may be able to reduce your interest rate by consolidating your loans and setting up an automatic payment plan from your bank account.

7 Home equity loans are simply additional mortgages. They use the equity in your home as the collateral that secures the loan. Home equity loans are attractive for major purchases, because they may offer a lower interest rate than other types of loans. They also may offer taxdeductible interest if you itemize deductions on your federal income tax. However, failure to make payments on a home equity loan could result in your losing your home. If you are in debt over your head, consolidating your loans may be a way to lower your monthly payments. However, if you have not resolved the situation that got you into debt in the first place, you will likely end up worse off. The key is to spend less money than you earn. Destination 4: Saving for Major Purchases Saving money prior to the time when you need it will result in your spending far less that purchasing on credit. Four categories of future needs that you may choose to save for are: Major purchases such as a car or home Children s education Retirement Starting a business Each household must decide their own saving priorities based on their life purposes and goals. The Money Map program recommends saving enough money to pay cash for you next car and saving at least 20% of the purchase price as a down payment on a home. Parents and children can reduce or eliminate the need for student loans by saving money before it is needed. It is never too early to start saving for retirement. If your employer offers a retirement plan, begin investing in it right away, particularly if they offer to match your contributions. The amount you save will be determined by your income, how well you manage your spending, and how much debt you have. Once you have paid off your debts, you will have more money available to save. While high interest rates work against you when you are in debt, they work in your favor when you are saving. The most successful savers are those who save regularly over long periods of time. The longer you save, the more compound interest works in your favor. As many as 72% of Americans have considered starting a business. Although business loans are an option, saving before your start up a business will allow your business to begin earning more money faster. Before you start a business, be sure you have a solid business plan. Destination 5: Buying Your Home and Paying it Off Once you have saved enough for reasonable down payment (20 percent or more) for the purchase of your home, you are ready to focus on Destination 5. This step includes buying an affordable home, beginning to invest, and prepaying the home mortgage. Your total housing expenses (mortgage payments, real estate taxes, utilities, insurance, and maintenance) should not exceed 40% of your gross income. The goal of this destination is to own your home free and clear so that your cost of living will be greatly reduced. There are several different ways to pay off your mortgage early. One option is to go for a 15-year mortgage rather than a 30-year mortgage. Another is to pay extra on the principal of your loan each month. The stage is good time to begin investing wisely. The rule of thumb is to routinely spend less that you earn and regularly invest the surplus. Seek the advice of a professional, and plan to diversify your investments. If you will need the proceeds from your investment in less than five years, choose investments that can easily be converted to cash, such as Money Market Funds, Short-Term Certificates of Deposit, and Treasury Bills. If you will not need your proceeds for

8 the first five years, you can choose more moderate investments such as bonds or riskier investments, such as Stock Mutual Funds, Individual Stocks, and Real Estate. Destination 6: Planning Your Estate Estate planning involves how your assets will be divided at the time of your death. There are three choices for who will receive your estate: your heirs, non-profit organizations, and the government. It is your responsibility to decide how you want your assets to be distributed and how to prepare your heir for what they will receive. If you do not have a will, make an appointment to prepare one. Destination 7: True Financial Freedom Parents have a responsibility to teach their children how to work, how to live within a budget, how to save and invest, how to avoid debt and how to give generously. If you manage to achieve financial freedom early in life, you may be able to retire from paid work earlier than average. This will give you an opportunity to share you time with those who need it. You may also be able to give generously to support the charitable cause that mean the most to you. Part of the Passport to Discipleship Program at Grace United Methodist Church Tiffin, Iowa