Scripture to Memorize
She opens her arms to the poor
and extends her hands to the needy.
When it snows, she has no fear for her household;
for all of them are clothed in scarlet.
Proverbs 31:20–21
Passage to Read
Pride only breeds quarrels,
but wisdom is found in those who take advice.
Dishonest money dwindles away,
but he who gathers money little by little makes it grow.
Proverbs 13:10–11
Guided Prayer
Dear Lord, I know that pride is at the heart of every quarrel, including the fights in my household over money. I confess that I’ve ignored the counsel of wise money managers in the past. Now I’m ready to listen. I won’t be like the foolish people in this world who think they can get ahead of the money game through gambling, the lottery, or get-rich-quick schemes. They never work. What works is wisdom. What works is gathering money little by little and letting it grow over time. Holy Spirit, I invite you to bring wise counselors into my life who can teach me how to manage my finances more effectively. I thank you in advance for the lessons I’m going to learn and for the strength to apply them. Amen.
Personal
The Proverbs 31 woman had no fear for her household. Few things are more frightening than the prospect of divorce. And one of the surest predictors of divorce is fiscal irresponsibility on the part of one or both partners. Fifty-seven percent of divorced couples in the United States cited financial problems as the primary reason for the demise of their marriage, according to a survey conducted by Citibank.10
Jesus talked more about money than about heaven and hell combined. There are 125 verses in the Bible addressing our pocketbook, and many of Jesus’s parables concerned money management. The Bible reminds us, “A man’s life does not consist in the abundance of his possessions” (Luke 12:15), but it also teaches us the importance of financial wisdom. Clearly, money matters.
One of the best ideas I’ve ever heard is David Bach’s Automatic Millionaire approach. Rather than saving what’s left over, Bach teaches people: pay yourself first. Financial expert Robert Allen agrees. “The secret to financial success is to spend what you have left over after saving, instead of saving what is left over after spending.”11 We all know there’s never anything left over. As of January 2007, the American personal savings rate was minus 0.7 percent.12 However, if you save the money before it ever reaches your checking account, you can trick yourself into acting more financially savvy than you really are! Thanks to technology, this is literally a no-brainer. All it takes is a few hours to set up an automatic savings and investment plan. Trust me: if I can do it, anyone can. And I did it. Once you’ve done this, you are on the road to financial freedom by doing exactly what the Bible suggests: “He who gathers money little by little makes it grow.”
Experts agree you should save 10 percent of your income. If your employer offers a 401(k) plan, schedule an appointment with the person who handles it tomorrow. Your spouse should do the same. Make arrangements for your employer to deduct 10 percent of your income automatically from your paycheck and invest it in the 401(k). Because they take pre-tax dollars, you will hardly notice the difference in your paycheck. Yes, it might “bite” a little, but it’s worth the sacrifice, especially if the company matches your investment. By paying yourself before paying taxes, you save a considerable amount of money. (Learn more in chapter 3 of The Automatic Millionaire.)13
If your employer doesn’t offer a 401(k), or if you are self-employed, you can still easily set up automatic savings and investment accounts. The whole key is to make it automatic. Choose the companies you want to save or invest with, decide how much you want to save or invest monthly, then set up an account authorizing the investment fund to automatically transfer money from your checking account into the savings or investment account every month. Do what the Bible says: gather money little by little. The whole secret is putting it on autopilot. Don’t kid yourself by thinking, Oh, I don’t have to make it automatic. I’ll just save and invest whenever I can. You won’t. David Bach worked as a private financial consultant for years, and he says he can count on one hand the number of clients who kept that commitment. You won’t. Make it automatic.
The sooner you start, the more your money will grow. Just as an example, if you save $100 per month at 6 percent interest, it will cost you $48,000, but at the end of forty years, it will pay you $200,145. If you bump those numbers up a bit, the results are remarkable, thanks to the power of compound interest. According to David Bach: “If at age twenty-five you started putting $250 a month (or $3,000 a year) into an IRA that earned an annual return of 10 percent, by the time you were sixty-five, you’d have a nest egg worth nearly $1.6 million. Even if you waited until you were forty to get started, you’d still wind up with a hefty sum—roughly $335,000.”14
You can set up automatic savings accounts with a fixed percent return, but once you have your three-month reserve in place, you should set up automatic investment accounts. Again, you don’t have to be a Wall Street genius to generate income in the stock market. In reality, few so-called geniuses outperform good old-fashioned dollar cost averaging. As Robert Allen puts it, “You can be a total idiot and still win. You just buy every month, month after month. You buy during good times. You buy during bad times. You don’t care what the headlines are saying. You ignore the experts on TV.”15 Instead, you automatically invest a fixed sum of money every month. When stock prices are low, your dollar goes further and you acquire more stocks. Then when the price goes up, the stocks you bought in the down market yield an even greater return than stocks you buy when the market is riding high. So for the long-term investor, a down market is actually good news. Sounds crazy, but it’s true.
Over the past fifty years, the stock market has averaged an 11 percent annual return. That’s no guarantee for the future, but stocks have never lost money over any ten-year period—and that includes the decade of the Great Depression. Your best choice is an index fund. These are offered by all major investment firms and incorporate stocks representative of a broad range of industries, giving you a balanced portfolio. But don’t just take my word for it. Warren Buffett, the world’s most successful investor, says, “The best way to own common stocks is through an index fund.”16
One thing to be alert to is the management and other miscellaneous fees charged by the fund. These can add up over time and eat into your profits. You can visit www.morningstar.com for a ranking of index funds along with information on the percentage they charge. You should never pay more than 0.5 percent, and some funds charge far less. Index funds mimic the performance of a particular index (the most common is the S&P 500). Because these investment managers are not picking stocks, but rather allocating each dollar invested to the specific stocks represented by the index, they typically charge very low fees. With an index fund, you are guaranteed to earn the market return. In other words, you will earn the same percentage increase or decrease as the market average.
You will certainly want to research investing in much greater detail than I am able to provide as part of your jumpstart. Keep in mind the importance of having a diversified portfolio of assets, the up-and-down cycles of which don’t run in sync: stocks (both U.S. and foreign, as well as large company and small), bonds (of varying maturities), cash, real estate, and commodities.
Trust the Bible’s advice and follow David Bach’s instruction: save little by little so your money will grow—and make it automatic. If you do so, you’ll have no fear for your household’s future.
Affirmation: I invest wisely.
Set up your savings and investment plan on autopilot.