13 Best Money (and Life) Tips From Someone Much Wiser Than Me
I recently asked my father-in-law to write down some of his financial wisdom so I could share it to my readers. When it comes to finances, he’s someone I consistently look up to and has gained a lot of wisdom over the years. Below are 13 of his best money (and life) tips.
1) Recognize all you have is because of God’s blessing. We are merely stewards of what God has entrusted to us. Regardless of whether you have a lot or a little, give back to Him first. Do not be possessive of your possessions.
2) Set aside an emergency cash fund to avoid credit card usage. Stuff happens. Have some cash available to deal with those little things when they come your way.
3) If you don’t borrow money, you won’t get in debt. If you don’t borrow more money, you won’t get deeper into debt. Start by never carrying a balance on your credit card. If you aren’t going to be able to pay it off the balance at the end of the month, do not buy the item(s).
4) Begin contributing to your 401(k) or other retirement account immediately. Save at least the minimum amount required to receive the company match in your 401k. Investing a few thousand dollars while you’re in your 20’s will result in very nice nest egg by the time you’re in your 60’s. Put the power of compound interest to work for you early and often. For example, if you invested $2000 per year at just 6% interest for the eight years from age 23 to 30 ($16k total invested), and let it grow until you were 65, you’d have $152,000. If you wait until you’re 35 and begin investing the same $2000 at 6% for the next 30 years ($60k total invested), you’d end up with only $167,700. However, if you actually want to prepare to retire well, start investing $2000 at age 23, increase your amount invested by $250 each year, and keep investing it for all 42 years until you retire. That nest egg would then be $950,000. (BTW – if you can earn 7.5% per year, you retire with $1.3 mil)
5) Do not buy a new vehicle. Buy a 2-3-year-old car with under 30k miles. Drive it until it has at least 125k miles on it. Use Consumer Reports Buying Guide to select from highly reliable models. Take good care of your vehicle; show pride of ownership, and do the required maintenance. Even a used auto is likely the second most expensive item you’ll purchase in your life. Treat it that way.
6) Learn to do simple repairs and maintenance on your home and auto. You can now get step by step instructions on how to do virtually anything on YouTube. Doing the work yourself not only saves a lot of money, it also teaches great life lessons and skills to your children.
7) Properly insure things that you can’t afford to replace out of pocket. That always includes your health and your house. It almost always includes your auto. If you rent a house or apartment, it includes renter’s insurance on your contents. If you have a family that is depending on your income to feed and clothe them, it includes term life insurance (in an amount equal to several times your annual income). At the same time, do not over-insure things. A healthy family should consider the higher deductible medical insurance plan. The actual total out of pocket cost for the high and low deductible plans are very similar if you use the insurance, and you come out ahead if you’re healthy for the year and don’t use the insurance very much. You don’t need insurance on your pets. In general, home warranty programs aren’t a good, deal except when it’s provided free by a home seller. Extended warranties offered on vehicles, appliances, or electronics are seldom a good buy, especially when you buy ones that are rated highly reliable. Educate yourself about insurance so you can make wise informed decisions.
8) Buying used things is often a very good idea. People sell things (especially cars, furniture, and tools) with significant useful life remaining in them. Take advantage of the fact that they ate all the upfront depreciation. And use your things until they’re worn out.
9) When buying most new goods, never buy the most expensive. Likewise, seldom is it wise to buy the cheapest one available. At the low end, you generally get what you pay for. At the high end, you pay a big premium for the name or label attached.
11) Spend less than you make. A lot less. One of the most impactful areas you can take advantage of this is to buy a lot less house than the bank says you qualify for. The total cost to you of an expensive house is compounded in the taxes, insurance, utilities, and upkeep required. Do whatever you can to make a 20% down payment on your house. That avoids the Private Mortgage Insurance (PMI) which adds significantly to the monthly payment. And always remember that the price of your house can go down. A lot.
12) Don’t be defined by your job. When your career ends, you will want to have a close knit family. Do not neglect them. Don’t miss their ballgames or dance recitals. Don’t rationalize constantly working late hours or weekends by saying you want to provide for your family. Be in their life daily – don’t just fund their life from a distance.
13) And lastly, make sure your servants towel is bigger than your ego. There’s no job to do that’s beneath you. And you’re not more important than anyone around you.