These 25 practical principles of managing your money will help you get a handle on your finances and show you the benefits of planning and discipline as well as the dangers of credit cards, loans, and leases. These maxims are suitable for one person, a couple, or a family.
The bottom line: God owns it all. List your assets. Now start thinking about them as “God’s assets in my care.” We are stewards, not owners. (Psalm 95:3-7, Job 41:11, Haggai 2:8, Mark 10:43-45, 1 Corinthians 4:1-2, Matthew 25:21-30)
Trust God to meet your needs. (Matthew 6:25-33)
Set long-term financial goals. (Luke 14:28-30) Goals benefit you in four ways:
- Goals provide direction and purpose.
- Goals help you crystalize your thinking.
- Goals provide personal motivation.
- Goals are a statement of God’s will for your life. (Proverbs 21:5)
Tithe Give God His Share
That doesn’t mean 10% of your after-tax income to charity; it means 10% off the top line to the church, period. It’s amazing, but for every dollar you give, you’ll get it back many times over.
When you get paid, your first payment (10%) should go to God, the second (another 10%) to savings, and the third to housing. Everything else comes out of what’s left.
Save, Save, Save. Yes, you have a lot of expenses, but you can’t afford NOT to save. Want ten reasons to save? (I could give you 100)
- Your car will break down someday. (Not “might,” but “will.”)
- Christmas and birthday presents.
- Trips home.
- Retirement (Who me? That’s decades away!)
- Down payment on a house.
- New computer.
Save at least 5 to 10% of your income. Use dollar averaging (the same amount every month or every paycheck). It’s tough, but if you don’t put it away for yourself, who will?
Be impatient to get your money working for you; be patient to let it keep working for you.
Spend less than you earn over the long term. In other words, live within your means.
When you get a job that pays you more,
Continue to live as you did before.
Adopt a nonconsumptive lifestyle. Live simply, live frugally. (Luke 12:15) Make tithing and saving your first priorities.
Don’t be “penny wise and pound foolish.”
Economize in sensible ways. Two mix-and-match outfits and three scarves will get you more mileage than six separate outfits and cost a third as much.
Remember the “opportunity cost” of consumption. If you buy something you really don’t need, you aren’t just losing the amount of money that it cost you are losing what that amount could have grown to over time with compounding (interest or investing).
Compounding can be your best friend or your worst enemy!
Understand it. If you put $1,000 in a bank CD paying 5%, in 25 years that will be worth $3,400. If you put the same $1,000 in the stock market and if it grows by 10% per year (about its historical average), your $1,000 will grown to $10,800 in 25 years. Conversely, compounding can work against you of you don’t pay off your credit card bill and it works against you at a whopping 19.9%. If you owe $1,000 on your Visa card and pay it off over 5 years, you will actually pay $1,500.
Here’s a direct comparison of compounding at its best and worst:
- Invest $10,000 in a bank CD at 5% for 10 years and you get $16,289, a gain of $6,289.
- Invest $10,000 in stocks at 10% for 10 years and you get $25,937, a gain of $15,937.
- Pay off $10,000 in credit card debt at 20% for 10 years and you pay $61,917, a cost of $51,917!
Debt of any kind is BAD. Debt always presumes on the future; if you take on debt today, you must repay it tomorrow. And who knows what tomorrow will bring? (Romans 13:8, Psalm 32:21, James 4:13-17).
Four reasons to avoid debt altogether:
- Compounding works against you.
- Getting in debt is much easier than getting out.
- Debt mortgages the future, i.e., because of the interest payments you must make, you are sentencing yourself to a lower standard of living in the future.
- Debt robs you of your freedom of choice. When you have debt, repaying it becomes your overriding number one financial priority.
Say NO to loans. Don’t take out a home equity loan or a bill consolidation loan. Both treat symptoms; neither solves problems.
Don’t lease anything. Ever. (Unless the lease rate is less than the interest you can get on a bank CD of the same duration.)
Buy insurance only for catastrophic losses. Don’t insure against mishaps you can afford.
Pay all the taxes you owe — but not a penny more. (Romans 13:1-7)
Income tax refunds make no sense at all. Far better for you to invest the money for the year and pay your taxes in April than overpay the government and get a refund in June.
Take care of your car. Do routine maintenance (oil changes, washing, etc.) yourself. Use high-quality lubricants and parts. Keeping your car in a garage will add 20% to its life. (One cold start is the equivalent of driving 100 miles.)
Think before spending. Don’t ever buy anything in response to a telephone or TV sales pitch.
Finances are part of the marriage partnership. Communicate with each other! (Eph 5:33, 1 Cor 1:10, 13:4-7, Gen 2:18, 21-24, Ps 34:3, 128:1-4, Prov 5:18, 17:1, 17:14, Eccl 9:9, Mal 2:16, Matt 19:3-8, Phil 2:2, Col 3:8-9, 1 Tim 3:4-5, Tit 1:6, 1 Pet 3:8-9, James 1:19-20)