Take a Step Back From the Edge

What would you do if your transmission went out tomorrow?  If your identity were stolen and your credit frozen, would you be taking the bus to work?  If your uncle offered to sell you his mint condition Ford Mustang for only $5,000, would you be able to come up with the cash?

We’re apt to take many of the great things in our life for granted, up to and including out income.  In our culture, it’s acceptable and a common practice to live right the edge of our income, spending 90, 100, or even 110 percent of our annual income each year.

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A Valuable Heritage

But for centuries (maybe longer), wise people have practiced the discipline of saving money for a rainy day.  Because we don’t know the future, it is necessary to save an emergency fund to have the options and choices we want.

In today’s article we’ll outline what the emergency fund is, why it’s important, and what it’s to be used for.  If you’ll make the decision to adopt this important discipline, you’ll reap the great rewards that wise men and women have been enjoying throughout history.

What’s It For?

The purpose of the emergency fund is to cover expenses that may come that you can’t predict.  Anything you can predict should be included in your monthly budget.  When I first began budgeting, I was tapping my emergency fund every other month, but as we get better at predicting what’s coming, there are fewer times when we need to use the emergency fund at all.  The goal is to have a full emergency fund that is never ever used, but just sits there “just in case!”

Can you estimate how much you spent on car repairs last year?  Take that estimate divided by 12 and this is how much you should allocate each month toward car repairs.  So maybe you’ll allocate $100 to car repairs in your February budget, even if you don’t take the car in.  But if your check engine light goes on in February, you have $200 sitting there, all ready to pay the bill.

If It Can Be Predicted, Figure It Out

Similarly, let’s say you know you want to upgrade your car by $4000, six months from now.  Just divide it out and you’ll find that you need to save $667 per month.  Again, it’s predictable so include it in your budget, not the emergency fund.

Overcome the Little Kid Inside

The tough part is saying no to all the things we’d like to do until the emergency fund is complete, totaling three to six months of your household expenses.  But it’s worth it to have the security; when you really need it and you have the money sitting there, it takes a lot of stress out of the equation.

Spend It All

We’re new and improved!  The latest version of ThriveWealthy is now available, and you can start using it today, for FREE, to create more options and less stress for yourself!

What can this tool do for you?

Good Advice

Here’s a statement you might not expect from a financial expert:   you should spend all your money!  In fact, you should spend the entire month’s income, even before the month begins.  You should spend it on purpose, by creating your cashflow plan before the first of the month.

Now, some of your money should be spent into your savings account.  Some should be spent paying down debts.  Some should be spent by investing into your retirement.  But it should all be spent.  Your income needs to exactly zero with all expenses, including savings and investments.  Why?  Because it isn’t until you lay out all income for January with all expenses in January that you  can make educated decisions about how much to allocate to the various competing uses your money can have.

You’re in Control

The beauty of using a cashflow planning tool like ThriveWealthy is that it puts you more in control of how your money is spent!  Since you are now making educated decisisons and prioritizing the things you value as most important, you are actually able to achieve more, and enjoy some of the better things in life.  Why not give this great free tool a try today?

ThriveWealthy Cashflow Software

Insisting on Balance

Guess what’s coming soon?  Christmas!!  Even though it’s the same date every year, it sure can sneak up on us!  Christmas is a wonderful time, full of joy and celebration.  We give gifts to each other in honor of God’s gift to mankind:  the baby Jesus, born in Bethlehem, that we might be reconciled to God.  It’s good to get carried away in the spirit of the season, but one area we must work hard not to get carried away in is our FINANCES.

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Say Yes to Great Gifts

Before you call me Scrooge, let me say that I do want you to have a wonderful Christmas, to make a special time for those you love, and to elevate the day through special activities and make great memories.  I just don’t want you to experience the January hangover that so many of our friends will have once the presents are all opened.

When You Are Blessed, Bless

If you are experiencing financial success this year, don’t be afraid to spend a little more money on people this year.  In particular, do you know anyone who may be struggling to make ends meet this Christmas?  Why not bless them with a big gift or a big check?  You could even give it to them anonymously for an extra bit of fun!

Borrowing Is Not For the Wise

If, on the other hand, you didn’t experience an overflow of income this year, you may be like many across our country—facing the temptation to go big on Christmas with money you’ve borrowed on a credit card.  Like many short-sighted solutions, this decision would be easy on the front end, and hard on you in the months to come.

Think of it this way:  if you can’t afford to pay cash for presents now, how will you afford the full amount, plus the interest?  Or, put another way, what choice will lead you to have the best gifts for your family for Christmas 2014?  Racking up debt now?  Debt that will deplete your resources from January through July?

Solutions Are Out There

Something funny happens when you insist your budget must balance.  Your brain goes to work.  Once you’ve made the decision that you won’t go negative in December, your eyes suddenly see opportunities all around you.  You notice that stack of DVDs that you haven’t watched lately and you decide to put them up for sale.  You see the snow fall outside and take a few hours to shovel driveways in the neighborhood.  You eat peanut butter and jelly instead of fast food on your lunch break.  All these things may seem small, but when you add them together, you’ll be amazed:  you really can make things balance.

Supernatural Gifts

Another funny thing happens when you make a commitment to keep your budget in balance, particularly when you commit to prayer for the Lord’s help.  God loves to reward those who trust in Him, who rely on Him, and who live His way.  Call on the Lord, and keep your eyes open—you will find Him when you earnestly seek Him, and He is more loving and gracious than you can possibly imagine.

Driving Blindfolded, Looking in the Rear-view Mirror, or Looking Ahead

What would you think of a person who drove his 2013 Corvette convertible around while wearing a blindfold.  How about someone who kept his eyes glued to the rearview mirror as he blazed down the highway?  Would you think that person is nuts?  Would you consider that person dangerous?  Would you be surprised if I told you this is exactly the way most people operate a major aspect of their life?

nice car!

The illustration above is the way many people operate their finances.  Ask 10 of your friends and neighbors if they keep a budget and you’re likely find few who do so.  Of those who keep a budget, many do not truly have a budget (forward looking) so much as they have a spending tracker (backward looking).  You would never drive a vehicle this way, so why would you operate your finances this way?

Not that fun?

Ok, few people are delighted to sit down with a spreadsheet and map out their spending for the month.  Even fewer people like to say no to themselves and restrict their spending on superfluous items.  But, if you will give advance cashflow planning (budgeting) a chance, I promise that the rewards will be worth the small investment of time, and you may just save yourself from careening off the road!

Having Financial Agility

When you’re sitting down with all the information in front of you, you’re more apt to see roadblocks and curves in the road ahead.  You can look at your home improvement fund or your vacation fund and get a gauge foe whether it’s on track for the upcoming expenses.  This lead time allows you to respond to financial challenges earlier: for example, skipping meals out for a few weeks early in the month so you can afford to buy new tires for your car when they’re needed later in the month.

Taking Control

Rather than creating unpleasant restrictions, a budget like that recommended in our ThriveFit page actually makes your life easier and more hassle-free.  While your friends are busy worrying and hand-wringing about how they’ll pay for the medical bill they didn’t plan for, you’ll be peacefully executing your spending plan for the month.  Although planning ahead doesn’t create more money for you from thin air, when you get your spending under your control, it often feels like you’ve gotten a raise.  Anyway, what do you have to lose?  If you hate the feeling of being in control and looking in front of you instead of behind, you can always go back to the chaos method….  😉

Making a Plan That Lasts

Why make a plan  for your money?  Isn’t it more fun to just grab what you want whenever you want it?

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Growing Up

Living your financial life with the foresight of a 3rd grader may be fun in the moment, but to have what you want next week and next month, a longer term vision is required.  Problem is, even when people become convinced of the value of budgeting to their peace and financial freedom, their first attempt to make a budget sets them up for failure.

Make it Today, and For Today

If you’re like most people, the first time you sit down to work up a budget for the coming month, you try to create a generic, one-size-fits-all budget that will represent all future months.  You’re planning for the perfect month from heaven, problem is, that month never really happens here in the real world!

The key in building a successful cashflow plan is to spend this month’s income on this month’s expenses.  Some expenses will be nice and consistent, such as your house payment or water bill.  But if you make your budget too generic, it won’t work in real life, and you’ll be tempted to just give up money management altogether.

Get Started

Today’s always the perfect time to start planning your budget for the coming month.  If you haven’t tried the latest version of ThriveWealthy, click the tab above to find the page and download the tool.  Read over the instructions briefly, then start entering your expected paycheck amounts and dates.  Allocate how you’ll spend all of next month’s income in the different categories provided, changing category names as needed to make the budget fit your life.

Enlist Our Help!

Don’t be discouraged when things come up and you have to revisit your allocations several times throughout the month.  As you continue to plan your spending before the money is spent, you’ll improve at predicting your actual expenses, and you’ll also notice that your money will start to be spent on those things that are important to you–with less “falling through the cracks” or getting spent on things that don’t really matter to you.  Feel free to post successes, hardships, or questions to the comments section below; we’re all in this together, and we are all here to help each other thrive!

Why Give Ribbon?

With Christmas just around the corner, most of us are desperately trying to keep up with all the hustle and bustle of the season.  Among the many other things on your list, you probably have some Christmas gift shopping left to do—some of which is for that relative who’s always hard to shop for.  How in the world can you give him (or her) a gift that he’ll like without spending hours searching every shop in the mall?  Easy—just give him 30 gifts to choose from!

The Gift of Choice

One of the amazing products available through our ThriveMart store is called the Ribbon Gift Collection.  It’s a little bit like a gift card, but far superior in many ways.  When you order a gift collection, a beautiful package will be shipped to you for free.  You’ll give this package to your family member or friend on the big day and they’ll open it to find a catalog and an access code.  At his convenience, your friend will browse through up to 40 incredible products on MyRibbonGift.com and choose his favorite. It will ship to him a few days later, also for free!  And unlike a gift card, a price is never shown, so no one will know how much you spent.

There are many gift collections to choose from, ranging from $30 to $1000, and including items like: a home theater system, outdoor fireplace, 12 MP digital video recorder, miter saw, cookware, wine cooler, and many many more.  Ribbon Gift cards never expire, and both you and your friend enjoy a full 6-month satisfaction guarantee!

Make Great Memories

So which is the better choice this Christmas:  braving the mall for a gift that might satisfy or giving Ribbon, the gift of choice?  Choosing a restrictive gift card that loses value over time or a Ribbon gift collection that never diminishes a dime and comes with a 180-day guarantee?

To learn more about Ribbon or to place an order, just send us a message or contact us through our ThriveMart page, which you can reach by clicking the link at the top right of this page.  And thanks for letting us help make your Christmas shopping simple and fun, and a memorable experience for your friends and family!

Invest or Save

In today’s post, we’ll explore the important distinction between saving and investing — two terms that, though often erroneously used interchangeably, must be treated in distinctly different ways on your path toward a thriving life.

Be Prepared for the Unexpected

Saving ought to be done first — and for a specific purpose.  As we’ve discussed previously, one of the first milestones you need to hit as you pursue the thriving life is to save a full emergency fund of 3-6 months of expenses.  The emergency fund is not an investment; rather, it exists to protect you from the unexpected expenses that will most certainly come your way.

Damage car

Great places to keep an emergency fund include savings accounts and money market accounts (fnbodirect.com is a great place to get started).  Though the interest you’ll typically earn on such accounts is quite low, they provide a few important benefits that you need for emergency savings.  First, your principle is protected.  This means that your value won’t go down in times of economic recession.  This is important because oftentimes unexpected drains on your cash will come during times of economic hardship nationwide.  With your savings in an account at a bank or in a money market account, you can rest assured that the $10k that you put in will be there when you need it.

Make Your Money Make Money

On the other hand, an investment ought to involve significant growth.  While a savings account is earning less than one percent, a good investment should earn in the neighborhood of ten percent.  But here’s the catch: that 10% rarely comes linearly.  Unlike a savings account which will return 0.5% per year, every year, an investment may earn 5% one year, 30% the next, and -15% the year after that.  The returns are a function of the market you’re invested in (e.g., the stock market or the housing market), so you never know how the investment will do in a given year.  But, you can look at history to draw reasonable conclusions at what the investment should do long term.

Exhibit A

Take for example a mutual fund we’re quite fond of here at totalthriver.com:  Fidelity Contrafund.  This fund is primarily comprised of stocks of large U.S. companies such as Google, McDonald’s, and Coca-Cola.  The following chart shows the return for each of the last four years:

2008 2009 2010 2011
19.78 -37.16 29.23 16.93

As you can see, 2010 was a great year for this investment, and 2009 was a lousy one.  Of course if you knew that ahead of time you could make a killing!  But since none of us have such knowledge of the future, we must simply follow the averages.  This fund in particular has averaged 15% per year over the past 3 years, and 8% per year over the past 15 years.

Time Horizon is Important

Because even good investments like this one can fluctuate violently, most financial experts only recommend investing when you plan to leave the money alone for five years or more.  Generally, this is a long enough period to ride out the turbulent ups and downs of the market, and give yourself a high probability of making money with your investment.  For short-term savings (e.g. for a newer car or living room set), you’re usually better off to take the guaranteed 0.5% of your money market than risk losing 20% of your money should the market take a bad turn one year.

Make It Happen

In closing, it’s very important to recognize the difference between saving and investing.  As you make progress toward your financial goals, you’ll need to be very intentional with which of the two you’re doing.  Will you be using the money in the next two years?  Open a money market.  Will you be leaving the money alone for the next five years?  An account with scottrade.com or a visit to your local financial advisor (see the “investing ELP” section at DaveRamsey.com) are great places to start.  And as always, be sure to check back at TotalThriver for help along the way!

 

Overcoming the Unexpected

Most of us have been through the following story at some point in our lives: We resolve to “do better” with our money. That credit card company has taken advantage of us for the last time! We’re angry that we let ourselves get into such a vulnerable position and we’re angry that the credit card company hit us while we were down.

So, we get out the yellow pad or the computer spreadsheet and we get to work on a budget. We allocate our money carefully, taking our best estimate at what we’ll spend in the following month on groceries, gas, and utilities. Everything’s going fine until the 9th of the month…

That sinking feeling

On that day, two tires go flat on our usually-reliable family car. Your dentist sends you a second bill for the work done last month to resolve a clerical error. And your electricity bill is $30 higher than usual. What in the world is happening?!? Why is this all hitting at once???

Unfortunately, these unexpected things do seem to hit us just when we think we’re getting it all together. However, even though they seem like a string of improbable flukes, the root of the issue closer than the mechanic’s garage or the dentist’s office–the problem is us!

When we get used to living life without an advance financial plan (a budget), we quickly lose touch of what we really spend each month. Ask me before I started budgeting what I spent on groceries each month, and I would have said, “like $150 or so.” (reality = $400) Or ask me how much I spent on car repairs per year: “like $450 I think…” (reality = $60 per month)

The point is, our perception of reality is quite different than the truth of the situation, and we tend to underestimate how much we spend each month on these “unusual expenses.”

So be encouraged–you’re not alone when you’re hit by a “string of flukes,” in fact almost all of us have been there! If you’re starting (or restarting) budgeting for the first time, be generous with your grocery budget, and include $60 per month or more for car repairs. You may not need it in the first month, but soon you will, and having $180 sitting in your account waiting to be spent on car repairs makes that phone call from the mechanic a great deal less stressful!

If you haven’t yet downloaded the most recent version of ThriveWealthy, please spend a few minutes trying it out for yourself now. And as always, let us know of anything we can do to improve your experience at TotalThriver.com! Remember, we exist to help you Thrive!