The two areas I wanted to focus on at this meeting were saving and tithing; two areas where people typically struggle with and still find there’s enough left over for their living expenses. Although we went off on several – beneficial- tangents, we did eventually cover these two areas (and I became committed to sticking to our agenda at future meetings).
I had shared with the group a blog post I read by fellow financial planner Michael Kitces about not focusing so much on the small stuff in our budgets (buying coffee, eating out, clipping coupons) and focusing more on the big stuff, like cars and homes. I realized that I seldom focus on these areas (unless I’m hired by a client for cash flow and budget planning), mainly because these larger purchases usually have our egos involved with them.
(Pause for dramatic “Ohhhh, yeaaaah” response)
We do have to factor in our individual needs for social status and prestige while accurately and honestly assessing what we can realistically afford. I’ve seen too many people get into financial trouble because they needed that feeling of abundance and status that certain purchases provide. The problem is, the status symbol doesn’t sustain a person’s self-worth; it’s temporary and that’s why people can become shopaholics: they need another fix
See, beneficial tangents…
We talked about the importance of having an emergency savings fund to cover the irregular or unexpected expenses, such as a car repair or dental work, or in the event one is sick, disabled, or out of work. Three to six months worth of living expenses is the typical recommended amount. No investments towards retirement or other goals should be done until this savings account is established. You can keep this money in a bank or credit union and we talked about keeping money in the house (such as in a coffee can or mattress) and some of the problems that arise with those tactics (be sure to check your old mattress before they haul it away! One man had $20,000 in his…).
Probably the easiest way to set aside this pot of money is through automatic payroll deduction into a savings account, but another option that may be available to you is purchasing United States savings bonds. This strategy may be especially beneficial for those who cannot have access to the money or they’ll spend it. I’ve also heard fellow financial planners suggest contributing to a Roth IRA (if eligible, based on your income-below $167,000 for a married couple filing jointly) because you can access the contributions at any time tax free, but the IRA portion may be enough of a psychological barrier to keep the money in there.
Having a financial cushion also serves as a stress reduction account, because when something crops up, you can rest assured that you have the money to cover it.
Tithing is a Biblical concept that requires the faithful to offer 10% of their income to God. There are some churches and temples that still request or require this from their members, but many do not. I suggest that people consider giving 10% of their income to whatever non-profit they wish to benefit; be that their church, NPR, saving the rain forest, Literacy Volunteers…whatever. My encouragement is based on a few reasons (which are detailed further in my soon-to-be-published book Living Inspired and Financially Empowered.
1. Tithing allows you to focus on being part of something bigger than yourself and your day-to-day problems and worries. It helps you put more energy into helping others, which makes you feel good. It allows you to become engaged in the lives of others, possibly relieving depression.
2. Tithing allows the flow of money to remain open. When people hoard anything, feeling as if they don’t have enough, they never feel as if they have enough; they become selfish and self-centered. This is not healthy or beneficial. Giving to others allows you to release that grip on the thought that you don’t have enough and enables you to realize that, perhaps, you do. This is liberating and loving.
Okay, a few other tangents:
Turn off the TV; we have very little power over the clever advertising that we consume. Plus, you probably aren’t benefitting your body by sitting there, anyways.
If you’re in the process of losing weight and have to purchase new clothes, focus on 6-month increments, such as per season (spring/summer and then fall/winter). Sell your old clothes at a consignment shop, where you may also find new clothing at a reasonable price. Alternatively, you may donate it and procure a tax deduction (if you itemize). Focus on basics and accessorize!
Photos courtesy of ClipArt.