And other things I’ve learned in the last 4 1/2 years of following Ramsey, downsizing, and “living like no one else” PART THREE
Money doesn’t grow on trees, but money can grow money
One of the best ways to examine an idea is to follow it (and its leaders) all the way to the end. When it has an outcome we don’t like, we need to realize that outcome was a result of perhaps even one bad (or outdated) idea leading to an untold number of unintended consequences. When the initial idea presented itself, it didn’t really bring with it an entire picture of fruition–that’s why we look above the trees and down the road a bit before traveling it. That’s wisdom. And wisdom is not only elevated in Scripture, it’s presented as something precious and worth seeking. That’s also why in Christianity, elders are honored; they have seen and experienced more, and you can learn much from their lives–both the disasterous consequences of their poor choices, and the manifold blessings of their careful ones. But you need to do more than inquire into their theories and methods; you need to look up every now and then from the footprints you’re standing in to see if they are leading you where you want to go.
My own financial education revolved around working for pay (good), earning an allowance (good), learning how to use a bank account and checkbook (good, good), and how to keep an accounting log (good in theory). Other than that, my decisions of what I could afford were based not only on my bank statement, but on what the credit card company, auto loan company, or home loan people said I could afford. It was always a matter of money in, money out, repeat. I never received an education about the stock market (other than I ought to be investing in it for retirement), social security, taxes, leaving an inheritance, etc. And that “etc” is huge!
So most of my financial decisions were based on whatever everyone else was doing, recommending, and setting up for me, and I walked in those footsteps. After our big downsize “get out of the pool” year, we began questioning everything, including those financial footprints.
Like if we’re supposed to follow the advice that our grandparents would give us (ala Ramsey), then how come they all died without more than old cars and bowls to give away? That led to more questions.
Like how come we didn’t learn how to save on taxes more? (Hiring an accountant was–and is–worth its weight in gold). How come we still hear our parents’ and grandparents’ generation talk about being on “a fixed income”? What does that even mean? What if we don’t want to be on a “fixed” income? And how come the nursing home industry is burgeoning but legacies are not? Questions, questions.
We decided it was time to follow the Leader, and not the broad path. What did Scripture teach about money? The love of it, bad. The blessing of it, good. The burying of it, bad. Gaining interest on it, good. Generosity and leaving an inheritance, good. Stuffing our barns full and robbing our children, bad. And so on.
One thing we noticed about Dave Ramsey, for example (and truly we are not trying to disparage the man), is that he gains income not only from his own advice, but from advice we never heard from him. It doesn’t mean he never said it, but it wasn’t a key teaching we picked up on on all of the years we listened and studied. Like working to create cash flow, creating products once to receive royalties upon forever, and paying ourselves first, every month. Keeping only $1000 in the bank doesn’t allow many (any?) cash flow opportunities along the way that may increase your income; it only helps as a stop-gap (which I believe is the intent). Furthermore, a lot of attention is given to not only paying off all debts, but then in saving 3-6 months of emergency money, saving up for college, saving up for retirement, and so forth. Meanwhile, while you’re busy saving all of that money (for debt reduction and so forth), all of that money is going down in value while prices are going up. So it seems very, very difficult for the average person to get to that finish line Ramsey sets up as a win because that line keeps moving. It was discouraging to us, and we didn’t even begin with any credit card debt at all!
How else, other than saving and putting into the stock market, might someone like Mr. Ramsey (or any other wealthy person) be growing in wealth? How about real estate? Does he own rentals? How about royalties from his books and other products? How about from recurring advertising or sponsorships on his shows? Does he gain any dividends from his company or any other companies? And so forth.
When we spoke to our financial advisors (one of whom recommended by Mr. Ramsey) about our retirement, their advice was to keep on paying down student loan and house (mortgage) debt, and to keep on investing in the stock market. Mr. Ramsey’s advisor has since disappeared, but the other one we still talk to is still in business, doing very well. When I step back and see how HE (still-here-advisor) is gaining HIS wealth, part of it is on recurring percentages he earns from his recurring clients and their recurring accounts. In other words, he signs up a client (us), we stay on to grow our money, and he gets a percentage. Forever. He doesn’t NEED to pile up money so that he can retire and shave off that pile little by little as he ages and hope he doesn’t live longer than those (hopeful, not guaranteed) savings and earnings can sustain him. If he has enough clients, his clients can sustain him forever.
In other words, the people who seem to be doing well are either because they got a leg up from an inheritance and invested it well into income opportunities, and/or they have cash flow coming in on work they did yesterday. They also are not likely to go into debt on items or experiences that do not add to that cash flow. For example, they will not buy a $1000 wheelbarrow on credit just because the old one is broken. But they MIGHT put a $1000 wheelbarrow on credit if that wheelbarrow’s $20 monthly loan payment allows them via a landscaping business to rake in (see what I did there?) $250 a month, plus they can write off the wheelbarrow as a tax expense for their small business. That is an example of you using your money to grow money. Otherwise, that person has to spend I-don’t-know-how-many months (years?) saving up for that wheelbarrow (and hopefully the price hasn’t increased by purchase day), and that $1000 saved is gone. And now that person needs to wait more months just to make back the $1000 before he begins earning anything at all. If he had responsibly used credit, he’d already be making more than enough to pay the interest AND have more money available to seed for growth. Maybe now he’d buy more equipment, or hire a helper. You get the idea.
Now, we are not elders who have succeeded (yet). But we’ve popped our heads above the trees a bit, and have had a few “aha” moments. Here are three rules that are guiding our financial decisions right now:
Ask questions. Then ask some more. If you don’t understand something, ask. If everyone is supposed to put their money into a 401K, ask why. Ask what a 401K is. Ask why it is called 401 and not 201. Ask about benefits, risks, guarantees, taxes, penalties, availability to use your own funds, what happens to it if you die, what happens if you live to 120, where that “it will be there” money is coming from, etc. Ask ask ask. Don’t do anything you don’t understand, and for SURE do not do business with anyone who obviously does not want to educate you. Ramsey shines in this: he calls it looking for someone “with the heart of a teacher”. We’re thankful that even the advisors we may disagree with on some points still take the time to answer our questions and educate us about why they suggest what they do. That’s one reason why we still see them.
Pay yourself first. No matter what, we take money off the top for our church and for ourselves. The money for ourselves goes into envelopes that are for cash flow opportunities. In other words, that money helps pay for editors to work on my books so that those books can be published and will (we hope!) bless countless homes and in return provide us some royalties in return. We’ve been married for 26 years and we both wish we had been paying ourselves first all this time. But no–the bills yelled loudest–and we always waited to see if there was “anything left” at the end for charity and for investing. It NEVER worked out that way. Better to put $20 into your OWN pocket and let the outside bills yell than for you to get ever deeper into a rut, month after month. Someday, those $20 bills will add up to a nice downpayment on that wheelbarrow…and you’ll be off.
Stop thinking and saying poor things. I am NOT saying “name it and claim it”, but I AM saying that you don’t have to speak in a self-defeating manner. Don’t say, “I can’t afford it.” Say, “I’m not there yet but I am working on it” or “I don’t want to afford that right now” or “There must be some other way to make this happen (legally and morally)…what could that be?” or “Who could I get some advice from?” And instead of trying to shame people who are wealthy just because they are wealthy or now are the CEO of Wheelbarrow Inc., start taking them out to lunch (use your $20), ask them for mentoring and advice, and follow the leader.
Where to start, and where we are, in the next blog post.
Blessings,
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