Live Debt Free

Pay off debt. Save. Give. Live your mission.

Should I Get Out of the Stock Market

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The stock market has gone absolutely crazy.  I have had many people ask me over the last week or so if I am going to get out of the stock market.  The answer is definitely no!  Unless someone knows of a better way to build wealth long term, then I plan on staying in.

One of the statements I have heard too often lately is “I’ve lost all of my money in the market” or “I would have been better off burying my money in my backyard”.  Basically, the feeling for many is that they should have never put money in the stock market.  I would like to do some quick math and explain why I still believe it is the best long term strategy to building wealth.

Let’s take a look at a young, married 25 year old couple.  I generally teach young couples to start saving for retirement as soon as they can in order to make compound interest work for them.  The key is to be slow, steady and consistent.  Let’s pretend this couple took my advice 40 years ago, they’re now 65, and went through the recent stock market decline.    They had put $250 per month in mutual funds in the stock market for the last 40 years.

I will use the average rate of return for two of my mutual funds I own over the lifetime of the fund (roughly 12% at the end of July 2011.)  This couple would have had 2.9 million dollars at the end of July, dropping to 2.7 million with the market decline over the last week or so.  That’s right: 2.7 million dollars!  If instead, they had  buried the $250 per month in the backyard, they would have $120,000.  That is a 2.6 million dollar difference!

To summarize, let us think about this for a minute.  Would you rather have had 2.9 million dollars 2 weeks ago and lost $200,000 of it due to the market crash?  Or would you rather have “played it safe” and not lost a penny of your $120,000?

My overall point here is to not buy the hype of losing all of your money if you are in the stock market.  You may argue that I am using numbers over 40 years, which allows compound interest to work, so it is not fair.  But that is exactly the point: the stock market is a long-term investment.  It’s not something you use for a three year saving plan.  Remember, slow and steady wins the race.  If you keep that as your focus, you don’t have to stress out over what your investments are doing from day to day.

Matt’s note: If you’re very serious about an alternative investment you may want to consider investing in peer-to-peer loans as a way to diversify.

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Charitable Giving [How and Why]

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There are tons of articles about saving money written by those of us who do financial posts.  We often write about paying off debt.  We definitely write about doing a budget.  We don’t often discuss what I believe is a crucial part of any financial plan: planned giving.  It may seem very backwards to give away some of your money in order to thrive financially.  You may even think I have just completely lost my mind.  I encourage you to bear with me and hear me out.

Why should we give?

The first question that needs to be addressed is why give money.

When my wife Mandy and I were first married we were giving to our church, but without any plan or structure.  We would throw in a dollar (or five) when the basket went by.  There was no thought about it or planning ahead of time.  It’s like we were surprised everytime the collection basket came by.

A year or so into our marriage, we were challenged by a guest mission at our church to start tithing.  It caused us to really take a look at ourselves and we knew we should give.  We also wanted to understand why we should give.  Through various sources, we came to learn what the Bible had to say about giving our treasure.

Let’s take a look at the following verses for the answer:

“For God so loved the world, that He gave His one and only Son, that whoever believes in Him shall not perish but have eternal life.” – John 3:16

“So God created man in His own image, in the image of God He created him; male and female He created them.” – Genesis 1:27

Combining these verses shows us exactly why we’re called to give!  If we were made in God’s image, we’re made to be just like Him.  He is a giver.  He gave the life of His one and only Son for us.  Now, that is giving. Taking these concepts into consideration we can see how we are most happy and fulfilled when we are more like Him and we’re more like Him when we give.

How should we give?

The second question that needs to be addressed is how to give money.

What does the Bible have to say about how we’re to give?  First, it says to give “first fruits”.  What that means is right off the top.  Give first, then do the rest of your budget.  Mandy and I used to pay all of our bills, then see if we had enough to give.  We realized that we were totally looking at it backwards.  Now we place giving on the top line of our budget form, and I encourage my clients to do the same.

Many people give 10% of their income.  So, if you make $4,000 per month, your giving for the month would be $400.  I know for us it was pretty scary to think about giving a full 10% or our income – that’s alot of money – but we’ve been doing it for a long time now and have been so blessed because of it.

Matt’s note: Betsy and I have a strong testimony for our giving, please read it to draw additional encouragement to give consistently.

Mandy and I realize now that giving is a sign of trust that God will provide, regardless of your situation.  In the past we would often tell people that we trusted God, but putting it into practice was a much harder step of faith.  We have seen many blessings since we started tithing almost eight years ago.  The best blessing of all is that the practice of giving is constantly drawing us closer to God.  That makes us each a better spouse, parent, friend, and overall person.

I would love to hear your stories about giving, please share them below.

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How Much Should We Spend

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I get this question a lot because couples often wonder what is acceptable to spend on different purchases.  It’s natural for people to compare themselves to others, but the problem is you do not know everything going on in their lives.  They might make way more or way less income than you think.  Spending is not a sign of wealth!  Most people think a person driving a $60,000 vehicle with a $500,000 house is wealthy, but all it really shows is that they know how to spend money, not that they necessarily have money.  So, here are a few guidelines for knowing how much to spend:

First of all, spend less than you earn

I know this sounds really obvious, but most people (in the U.S. anyway) don’t actually put it into practice.  If they did, we wouldn’t have the debt problem we have today.  That is how debt happens.  You spend more than what you make and use credit cards, home equity loans, payday loans, etc. to pay for it.  So, the best way to determine if you should spend money or not is to ask yourselves if you have the money in the first place.  Not if you can afford the payment, but if you can afford it at all.

Spend less than you make by doing a budget

Unfortunately, many people do not have a clear picture of what they make.  If I asked you how much money you make, you could probably tell me $50,000 per year.  When I ask what your monthly  take-home pay is, that’s a different story.  It often amazes me how many deductions people have taken out of their paychecks when I work with them as clients.  The work cafeteria, short term disability insurance, double or triple the amount that should be taken out for federal income tax, and deferred compensation are just a few of the things being taken out of paychecks.  The crazy thing is, most people don’t even realize or know about these things until someone else points them out.  The point is to know exactly the amount of money you have coming in each month.   That way, you know what amount of money to budget so that you don’t overspend.

Set limits and stick to them

Once you know the amount of money you have to work with, you and your spouse must determine how much is reasonable to spend on each category.  Is $50 each per month enough for blow money to spend on whatever you want?  Maybe $100 each per month is more reasonable.  The same goes for other categories.  Your income and your fixed expenses (mortgage, taxes, etc.) will help determine the amounts.  The most important part is to set those limits and then stick to them.  A budget on paper is worthless unless you actually live by it!

In case I haven’t mentioned it yet, don’t spend more than you make.  It really is that simple.  Is it easy to do in our culture?  Absolutely not.  But it is simple.  Follow the above guidelines and you won’t have to guess on what you should spend, but rather you will know.  Tell your money where to go instead of wondering where it went!