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.
Hi Matt, Happy to have found your web page and blog. Looking forward to getting back on my feet after losing my job(my employer closed six plants in three states nearly two years ago).
My spouse and I work two part time jobs trying to make ends meet. Our main part time jobs keep our hours below 32/35 hours to keep from paying us benefits. I hope to hear about a full time job this week and begin the trek of repairing our credit, building our savings, fixing things at the house and being faithful with our tithe.
be on standby because I think we are going to need guidance!! thanks!
Looking forward to following your column in 2011. Your passion for helping people find lasting value and purpose in sound money management is fantastic. Thanks for your dedication and sharing
Stephanie, I’m assuming that the $80,000 figure is the current balance, not the starting balance. Is that right? If so, what was the starting balance?
Usually student loans have a fixed payoff date, so I’m wondering why you’re not making progress. Was the loan renegotiated at some point? If you’re not seeing the balance go down, that means you may just be paying the interest on it. Please let me know more of the details.
If the loan is eating up a disproportionate amount of your monthly income, you might also look into an income-based repayment plan. There’s more info here: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp
But again, let me know more of the details.
Regarding the question, about investing vs. paying off debt, in general, I prefer to see people get out of debt ASAP. It just gives you more flexibility to deal with life’s ups and downs if you don’t have debt. The only exception is if your company provides a match on its 401(k). That’s such a good deal, I’d hate to see you miss that. So, if you can afford to make accelerated debt payments and invest enough to get the match, that’s ideal. If you don’t have enough to do both, I’d recommend wiping out the debt first.
One final point for now, if your husband passed away and you did not co-sign for his student loan, my understanding is that the debt would be discharged.
Please write back with more details about the student loans.
Matt, first of all congrats on your marriage. That’s awesome. And good for you for trying to sort out all the money stuff.
For starters, I’d recommend putting together a spending plan for the year. You’ll see more info and some forms in the resources tab of my site. If you’ve never used a budget before, I recommend starting out with a paper and pencil tool like the one on my site.
Another really important step I encourage newly married couples to take is to try to live mostly on one income. Use the other income for building a small emergency fund, paying off debt, building your emergency fund further, and then saving for a down payment on a house if you don’t own yet. If you guys want to have kids and want the flexibility to have one of you stay home for a while, the best way to do that is to avoid building a lifestyle that requires two incomes.
I hope that helps. Stick with me this year, though. I’ll have a lot more to say that will pertain to your situation. Again, congrats on your marriage.
Matt, you talked about paying off debt before investing. My husband and I have always struggled with this directive – so maybe you can send us in the right direction. We have no credit card debt, we do have a mortgage that we pay every month, but we do have a large student loan of nearly $80,000 dollars my husband accumlated going to chiropractic school(wish we could go back and do that over). It currently has a 4.15% interest rate and takes about $600 of our monthly income. We have had this debt for about 13 years now and have made very little progress paying it off – I think it was in the mid-90’s initially. I have always contributed to my 401k’s over the years instead of putting money towards this loan and now my husband has changed career’s and he also contributes to his companies 401k. Should we not be investing in our retirement and instead be paying off the loan? I was told that after a certain number of years these loans become obsolete and also if Steve passed away unexpectedly the loans would be mute. What do you suggest we do? Should we spend the next ten years paying off this loan and not funding our retirement?
My Dad passed this blog link on to me. I’ll be very interested in seeing what you discuss in the New Year. I’m 25, just married (5 weeks almost!), my wife is starting her first job out of school in less than 2 weeks (I’m employed as well), and we’re wading through all of this new stuff best we can.
It’s been difficult learning all of this new stuff about health insurnace, flexible spending accounts, W-4 filing statuses, 401ks, deductibles, life insurance, etc all at one time, on top of getting out of the relatively moderate level of debt that we have. We sort of feel like we’re shooting from the hip and hoping we at least hit the dart board. We’re excited at our new found freedom, but I’m sure that we’re not the only ones a bit overwhelmed with this new stuff.
Any quick pointers or links that can help out some newbies?
Sam, I recommend at least 10%, moving up to 15% as income increases. You can see my detailed recommendations by clicking on the resources tab.
Jennifer, thanks for the feedback and for forwarding the post to attendees of your upcoming workshop.
You are spot on with the 3 purposes – and I appreciate the way you’ve phrased it that it doesn’t apply only to God & Christians. I’ll be facilitating a Freed Up Financial Living course at our church in Feb. I’m going to keep this blog post to forward to the attendees and encourage them to sign up. Thanks for the great work that you’re doing.
Howdy Matt, what percentage savings of income are ya shooting for? Cheers, Sam