Matt Bell's Blog, page 22

Profitable Ideas: 80/20 Personal Finance, The Last Time, and More

Weekly list of curated personal finance articles from around the web.

The Pareto principle never gets old (Contessa Capital Advisors). Read the bullet points for some great 80/20 advice.

Want a 3% interest rate? ‘Assumable mortgages,’ a relic of the 1980s, are here to combat high rates (MarketWatch). Of course, there’s a catch. They aren’t easy to find.

If living with debt is considered normal, I want to be different (Simple Money). Swimming against the tide of our consumer culture isn’t always easy, but it’s so worth the effort.

How parenting and self-control mediate the link between social media use and youth mental health (Institute for Family Studies). “Screen time use has no association with an index of mental health problems for teens who demonstrate high levels of self-control and enjoy a strong relationship with parents who supervise them—a minority of American teens.”

Gen Z workers expect to retire at age 61, and they aren’t afraid to ask AI how to do it (Fast Company). Would I sound like a scold if I asked, “Why such a strong desire to stop working at such a young age? Why isn’t there more desire to pursue meaningful, impactful work?”

Stop believing these common credit score myths (Washington Post). That little three-digit number matters, so it’s good to know what will improve your credit score, and what won’t.

The last time (Sound Mind Investing). An insight about life that’s worth taking to heart.

4 signs you’re a victim of identity theft (and what to do about it) (CBS Money Watch).There’s so much of this going on that people are getting worn out and complacent. That can cost you. See also, Americans have been scammed out of $2.7 billion in 2.5 years on social media—7 red flags to look out for (CNBC).

To weigh in on any of the above, just leave a comment below. And if you haven’t done so already, sign up for a free subscription to this blog.

Setting Financial Priorities: A Framework for Financial Success

It’s easy to make managing money more complicated than it needs to be. That’s because money isn’t just an objective “means of exchange” as the dictionary defines it. Money is wrapped up in our emotions – our hopes, dreams, and fears. And our use of it is strongly influenced by the many messages of our consumer culture.

Knowing our purpose guides our priorities

Last week, we looked at the purpose of our lives—to love God, love others, and make our unique, God-ordained contribution to the world. That gives us the big picture of how to align our use of money with what truly matters. This week, we’re getting more specific by looking at how knowing the purpose of money can guide our day-to-day financial priorities.

Whenever money starts getting a little too complicated, it’s helpful to get back to the basics by remembering that there are only five things we can do with money:

Spend itUse it for debt paymentsSave itInvest itGive it away

Very often, when money gets messy for someone, it’s because they’ve gotten these priorities out of whack.

When culture calls the shots

The order above is the one advocated by our consumer culture. Whenever money comes into our lives, our cultural conditioning leads us to think first about what we can spend it on – what to do for fun, how much clothing we can buy, where we can go on vacation.

When spending comes first, debt always seems to come along for the ride. There’s a financed vehicle in the driveway, a balance on a credit card or two.

If there’s any money left over, we might save and invest some. And if anything is left over after all that, we might give some away.

This order explains a lot about why so many people have so much debt, so little savings, and more than their share of stress.

A better way to prioritize

Here’s the order that works much better:

Give someSave someInvest someThen see how much you can afford to spend on housing, transportation, and all the rest.Have no debt except a reasonable mortgageHitting the money reset button

This order is much easier to teach to young people who haven’t started getting their first full-time salary yet. But what if you’re already out there and your money’s all messed up because you’ve been following our culture’s plan?

Use a Cash Flow Plan to hit the reset button. Fill in the “Now” columns to see where you’re at. And use my Recommended Cash Flow Guidelines (on the same page as my Cash Flow Plan) to fill in the “Goal” columns with an ideal plan. Then start moving toward the ideal.

It probably won’t happen overnight. There may be some credit card debt to ditch and a car payment to lose. It may take some rethinking about how you spend on groceries, clothing, entertainment, and everything else.

But the framework of give, save, invest, spend, and be cautious with debt is the simplest and most effective way of doing the whole money thing I’ve ever found.

Move toward it and you’ll move toward a financial life that works amazingly well.

Do you follow this framework? If so, how’s it working for you? If not, what’s the biggest roadblock standing in the way? Let me know by leaving a comment.

Profitable Ideas: A Big Financial Myth, A Money-Making Machine, and More

Weekly list of curated personal finance articles from around the web.

A big financial myth (The Root of All). Can more money buy you more time?

The 3 types of jobs (A Wealth of Common Sense). I used to think there are generally two types of jobs—those that are inherently meaningful and those that are a means to an end. But these are some helpful distinctions as well, especially for those who are early in their career.

FAFSA vs. CSS Profile (The College Financial Lady). If you have a college-bound child under roof, especially one applying to a private school, you may have to tell all about your finances—twice.

Living with a sense of urgency (This Evergreen Home). Time is more valuable than money, so we should spend it well.

6 keys to helping adult “kids” transition to financial independence (MoneyNing). There’s no need to rush the kids out of the house, but they shouldn’t linger too long, either. Here’s how to move them along.

‘You think it’s going to be a money-making machine’: how modern life killed the hobby (Independent). Thought-provoking piece about the cost of putting a price on everything.

Most Americans expect to outlive their money in retirement. Will you? (Kiplinger). Many are the scary articles about people’s lack of preparedness for retirement, but we should read one every now and then as a reminder to make sure we’re doing enough. 

God takes our stinginess or generosity personally (Eternal Perspective Ministries). “A wise person will regularly ask, ‘Lord, what do you want me to do with all you have put in my hands?’”

To weigh in on any of the above, just leave a comment below. And if you haven’t done so already, sign up for a free subscription to this blog.

The Purpose of Money

Early in my journey of learning about money, I noticed a very odd disconnect.

On the one hand, it was obvious that there’s a ton of personal finance advice readily available. Search on any financial question and within seconds you can find answers—sometimes, even credible answers!

And yet, lots of people struggle with money.

Why is that? With so much guidance so close at hand, why is successful money management so difficult for so many?

I believe it’s because too many people aren’t clear about the purpose of their lives. They’re living reactive lives, bouncing from one tempting use of money to another.

The only way to understand the purpose of money is to understand the purpose of life. And the only way to manage money effectively is to orient our use of money around our life purpose.

Do you know who you are?

The English writer Samuel Johnson once said, “People need to be reminded more often than they need to be instructed.”

Oh we need instruction, but all the instruction in the world won’t do us any good if we’re not clear about who we are and what we were designed to be about.

Our culture would have us believe we’re consumers. It sounds harmless enough, right? But have you ever looked up the definition? To consume literally means to use up, devour, or spend wastefully.

How’s that working out for us?

The word first came into popular use during the Industrial Revolution, the period roughly between 1880 and 1920 that built the foundation of today’s consumer culture.

Our society shifted from agriculture to industry. People went from self-sufficient to income dependent, from making things to buying things. With so many goods spilling off assembly lines, businesses needed people to use stuff up.

To entice us to buy more and more, advertisers began linking products to our identity and happiness. Products became branded, and so did we. No longer were we referred to as citizens or workers. To politicians, the media, and makers of everything from clothing to canned food, we became consumers.

From that point forward, huge sums of money have been spent in an effort to make us believe we are consumers.

What’s in a name?

Consumer is more than a word; it’s a worldview. If I’m a consumer, who’s the most important person in the world? I am, right? Life is all about me – my pleasure, my comfort, my happiness.

If I’m a consumer, where is happiness found? In money and what it can buy.

And if I’m a consumer, life is a competition. It’s a quest to have more. More than I had last year and more than my neighbors have.

People who study happiness say this is the path that leads in the exact opposite direction of where we’d all like to go. It’s like trying to get to New York from Chicago and getting on a westbound train.

They say happiness isn’t found in living for ourselves. It’s found in living for something bigger than ourselves. It isn’t found in loving money and things. It’s found in loving people. And it isn’t found in living a life of competition. It’s found in living a life of contribution.

Remembering who we are

The good news is that we were not meant to be consumers. The Bible doesn’t say that on the sixth day God made consumers who would use up and waste all that He made on the previous five days. It says He made man and woman in His image.

Financially, the Bible describes us as stewards, or managers.

I think a lot of people misunderstand that. The word seems heavy, like a burden. It’s as if they’ve been given managerial responsibility over some stuff and misheard the instructions as: “Whatever you do, don’t break or lose any of it.”

But those aren’t the instructions we’ve been given at all.

In the Parable of the Talents, a wealthy man entrusts three servants with his stuff, goes on a long journey, and then returns to see how they did. One servant got the instructions wrong. He hid what was entrusted to him out of fear and then returned it to his master. He didn’t lose or break any of it, but he didn’t do anything productive with it either. For his efforts, or lack thereof, he received a harsh rebuke.

The other two servants were different. They turned what had been entrusted to them into something more. For their efforts, they received strong words of affirmation. And then the master entrusted them with more.

Of course, the master represents God; the servants represent us.

The art and joy of being ourselves

We weren’t designed to use stuff up. We were designed to create, build, and make something more of what has been entrusted to us.

What is that something more?

The Bible says we were designed to live not just for something more, but for someone more – God. So, the first purpose of money is to use it in ways that glorify God.

The Bible says the second most important priority in life is to love others. It never says that money or things are inherently bad. It just teaches us not to love money or things, but to love people. So, the second purpose of money is to use it in ways that strengthen our relationships with others.

And the Bible says we’ve all been given certain talents and passions in order to make a difference with our lives. So, the third purpose of money is to use it in ways that enable us to make our unique and meaningful contribution to the world.

Let me say it again. The three overarching purposes of our lives are to love God, love others, and make a God-glorifying difference with our God-given talents, passions, and resources. So those are the three main purposes of money: Use it to love God, love others, and make a difference. They are the guiding principles for how we are to use money—the path toward the most meaningful experience with money that’s possible.

Next week, we’ll look more specifically at how the Bible teaches us to use money in the pursuit of those purposes.

If you were to honestly evaluate your current use of money, how well does it line up with these three purposes?

Interested in more ideas and encouragement for using money well? If you haven’t done so already, sign up for a free subscription to this blog .

Profitable Ideas: An $80,000-a-Year Gamble, The Overindulged Child, and More

Weekly list of curated personal finance articles from around the web.

Should I let my kid take an $80,000-a-year gamble on college financial aid with an early decision application? (MarketWatch). It’ll improve the odds of getting accepted, but it’s binding so make sure you’re all in.

Credit bureaus announce big changes for credit reports (Clark Howard). Now you can pull your credit report once a week if you’d like to.

Gradually, then suddenly (Tony Hixon). Where will you be in 20 years because of the habits you practice today?

How to talk about money without stressing yourself out (Fatherly). It’s important to talk about money with your loved ones, but how you talk about it is especially important.

More young adults are living at home across the U.S. Here’s why. (CBS Money Watch). It’s easy to think of this as “failure to launch,” but the reality is more nuanced.

The critical importance of discipling kids at home (National Christian Foundation). Parents, you’re the best person to teach your kids about matters of faith, about money, and more. And if we don’t know the answers, why not let that motivate us to find the answers?

Are you overindulging your kids? Ask yourself these 4 questions (CNBC). To paraphrase an author I like, one of the greatest mistakes well-meaning parents make is doing too much for their kids.

Many savers are calculating retirement goals ‘off the top of their head’ (Money). Far better to run some numbers, and there are some helpful free tools available like Fidelity’s Retirement Score.

To weigh in on any of the above, just leave a comment below. And if you haven’t done so already, sign up for a free subscription to this blog.

Automating Financial Wisdom

I almost titled this post, “You Can’t Automate Financial Wisdom.” But then I realized, you can.

A little background

I have a love/hate relationship with financial automation.

On the one hand, automation can be a wonderful help. In our household, we have some of our bills set up as auto-pay — those that cost the same amount every month. For others, I prefer to check them for accuracy before paying them online.

I also use automation to make my twice-monthly contributions to my employer’s 401(k) plan. And our online budget tool automatically records and even categorizes much of our cash flow—a big time saver.

On the other hand, automation has a downside. My concern is that millions of people are now having financial actions automatically taken on their behalf without really understanding why those actions are being taken and whether they are even the right actions.

The no-thinking-required retirement plan

Many workplace retirement plans now automatically enroll employees, automatically set their contribution amount, and even automatically choose what the money is invested in. Such automation is routinely held up as a great success because it has driven plan participation rates up.

I get that. More participation is a good thing. However, many of those same plans are now having to take steps to prevent employees from borrowing against their plans.

As Rob Austin, director of retirement research at Aon Hewitt, a human-resources consulting firm, explained to the Wall Street Journal, “People are getting statements telling them they have $5,000 in this account and they are asking themselves, ‘How can I get my hands on this money?’”

Apparently, you can raise participation rates and build up investment accounts via automation, but whether that money sticks around long enough for the savers’ retirement is far from certain.

Another issue with automated 401(k) plans is that the automatic contribution rate starts out very low—sometimes 3% of the employee’s salary. Many employees never increase the amount, either assuming it must be the right amount or never really thinking it through.

Putting the cart before the horse

If automation is to work effectively, it can’t come first. Understanding our God-given identity and life purposes, and knowledgeably choosing daily financial priorities that are in synch with that identity and those purposes, have to come first.

If we understand and embrace who God made us to be — stewards of his resources, or as I prefer, wise builders…

If we’re clear about our God-given life purposes — to love God and people well and to make a difference with our lives…

And if we’ve set our financial priorities in a way that reflects that identity and enables us to fulfill those purposes—where we give and save portions of all that we receive, avoid the bondage of debt, invest patiently, and spend wisely…

If automation is used to help carry out all of that, it can be a very good thing. But identity, purpose, and priorities have to lead; automation has to follow.

Identity is the ultimate automation

Knowing who we are is the ultimate form of automation because it guides us in all sorts of decisions—financial and otherwise.

Chip and Dan Heath use an analogous illustration about a science professor in their book, Switch:

Imagine…you had a lucrative opportunity to consult on the toxicity study of a new drug for a big pharmaceutical company. From a consequences point of view, the decision to accept the job would be a no-brainer—the work might pay far more than your university salary. But from an identity point of view, the decision to accept the job would seem less clear-cut. You’d wonder what strings were attached, what subtle compromises you’d have to make to please the client. You’d wonder, “What would a scientist like me do in this situation?”

At times, we may have to consciously ask ourselves, “What would a steward of God’s resources do in this financial situation?” But the longer we live a life of faith, and the more God’s Word is written on our heart, the more our financial decisions become natural, second nature, or something very close to automated.

What aspects of your financial life have you automated? And how have you made sure that your identity, life purposes, and intentionally chosen financial priorities lead and automation follows?

Also, one of the best ways to ingrain biblical perspectives about all things early is to start early. To help your kids grow up with a biblical view of money, pick up a copy of my new book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management.

Take it to heart: “Now it is required that those who have been given a trust must prove faithful.” – 1 Corinthians 4:2

Take action: Check to see how much of your paycheck is being contributed to your workplace retirement plan. Is is enough? One way to answer that question is to run some numbers with a calculator like Fidelity’s Retirement Score calculator.

Read more:  An Identity Theft Like No Other

If you haven’t done so already, sign up for a free subscription to this blog . Twice a week you’ll receive ideas and encouragement for using money well.

Profitable Ideas: Raising Capable Kids, An ‘Extra Strength’ IRA, and More

Weekly list of curated personal finance articles from around the web.

Raising capable kids: why doing less for your kids means more (Becoming Minimalist). A little hard work will do them a lot of good. 

Stop obsessing about having the perfect career plan (Wall Street Journal). Your career path, much like the stock market, probably won’t move up and to the right in a smooth, straight line—and that’s okay.

This account is like an ‘extra strength’ IRA, advisor says. Here’s when to use it (CNBC). If you manage it correctly, an HSA could become a very advantageous source of retirement money.

Why I let my kids go into debt (Frugal Woods). The debt part of this article doesn’t completely line up with what I teach in Trusted, but I’m okay with that. There are a lot of good ideas here. 

Help your kids fight envy (The Gospel Coalition). Gratitude is a very effective solution.

Against the prosperity gospel (Daily Citizen). We would be wise to guard against this type of thinking.

Medical credit cards can be poison for your finances, study finds (CBS Money Watch). Unfortunately, doctors so not take an oath to do no financial harm.

At what age should kids become financially independent? (Fidelity). There’s no one-size-fits-all answer to this, but you don’t want to contribute to their failure to launch.

To weigh in on any of the above, just leave a comment below. And if you haven’t done so already, sign up for a free subscription to this blog.

Parents, Your Kids Want (And Need) You to Teach Them About Money

Two recent surveys caught my eye, both pointing to the need and opportunity for parents to teach their kids about money. 

First up was a study conducted by Lifeway Research among 18 to 34-year-old Protestant churchgoers. It found that one-third do not believe tithing is “a biblical command that still applies today.” 

Next was a study done by Fidelity that found 75% of teens ages 13-17 said investing is important to them but less than 25% have started investing. The study also found that just 52% of teens have talked with their parents about investing. 

Training up children in the way they should go

When it comes to living generously, a quote from one of the wealthiest people who ever lived, John Rockefeller, sums up one of the benefits of early training. “I never would have been able to tithe [on] the first million dollars I ever made if I had not tithed [on] my first salary, which was $1.50 per week.”

As soon as kids have any money flowing into their lives, that’s the time to teach the habit of generosity. Set them up with a three-slotted piggy bank or three mason jars or envelopes—one for giving, one for saving, and one for spending. Teach them to devote at least 10% of every dollar they receive to giving.

Be sure to explain why. One of God’s most defining characteristics is generosity. He gave us His Son, He gave us life, He gives us wisdom, and mercy, and grace, and so much more. The Bible says we were made in His image. That means we were designed to live generously. It’s an essential key to a meaningful, purposeful life. 

As they get older, help them understand that the Bible teaches us to give first-priority gifts (Proverbs 3:9), it teaches proportionate giving (1 Corinthians 16:2), God started His Old Testament followers at 10% (Leviticus 27:30), Jesus affirmed the practice of tithing (Matthew 23:23), giving orients our hearts toward Jesus (Matthew 6:21), and, while God doesn’t need our financial help to accomplish His purposes (Psalm 50:12), He graciously invites us to be part of his life-changing, eternity-shaping work and in doing so we find joy (Acts 20:35).

Kids have an invaluable asset

As for investing, kids can understand more about money, even complicated topics like mutual funds and compounding, at an earlier age than you might assume. I have a colleague who began teaching his daughter how to invest when she was just six years old. In our household, my wife and I helped our kids open their first investment accounts when they were 9, 11, and 13.

With investing, time is one of the most important ingredients that fuels compounding, and kids have an abundance of time. If you invested $100 per month for 50 years, you would have invested $60,000. If you generated an average annual return of 10% on that money, through the power of compounding, it would grow to be worth more than $1.7 million. But if you did that for 40 years instead of 50, you would end up with about $630,000. That 10-year head start made a $1.1 million difference.

The Bible says, “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever” (1 Timothy 5:8). Far too many people reach their later years with far too little money to live on. We can help our kids be part of the minority who are well equipped to provide for their families for their entire lives.

Open the classroom

Whether teaching about generosity, investing, or other financial topics, it is so incredibly helpful to start early. Clearly, kids want to know about investing. And kids need to know about generosity. In both cases, if you’re a parent, you’re the best person for the job!

I have more specifics on how to teach kids about generosity, investing, and more in my new book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management. 

If you have taught your kids about investing or generosity, what are some approaches that you have found to be most effective?

Profitable Ideas: Finding Contentment in Our Consumer Culture, The Money Date, and More

Weekly list of curated personal finance articles from around the web.

Can you be content in a culture of ‘never enough’? (Relevant Magazine). Good ideas for living with joy in our consumer culture.

Screen time is contributing to chronic sleep deprivation in tweens and teens (The Conversation). One of many reasons to place limits on our kids’ screen time. You can find the contract my family uses here.

The easiest way to train any kid to be more minimalist (Lifehacker). Not sure how easy this sounds, but it’s worth a try.

Couples embrace the least romantic date ever: the money date (Wall Street Journal). The most important financial decisions are rarely quick yes-or-no decisions. They’re worthy of longer conversations.

Should I end my authorized user status now that I’ve established credit? (Clark Howard). I’m a fan of allowing responsible teens to become authorized users, but there comes a time when they need to go it alone.

The 30 greatest decluttering tips of all time (Apartment Therapy). There’s bound to be an idea or two on this list that you’ll find helpful.

One thing my parents did right: generous hospitality (The Gospel Coalition). A wonderful legacy — modeling an important part of generous living.

Respect and admiration (Collaborative Fund). Sometimes, the things we chase the hardest are not very important in the end.

To weigh in on any of the above, just leave a comment below. And if you haven’t done so already, sign up for a free subscription to this blog.

A Simple Step Toward a Solid Financial Future

An endless number of studies have documented people’s general lack of financial preparedness for their later years. As just one example, the Employee Benefit Research Institute (EBRI) says that among workers age 55 and older, 44% have less than $250,000 saved for retirement (25% have less than $50,000).

No amount of finger-wagging lectures seems to move the savings needle. The most effective solution has been to take the decision to save out of people’s hands via the growing trend among corporations to automatically enroll workers in 401(k) plans. But even that isn’t enough since the default automatic savings rate is typically less than 5% of salary and most workers never increase that amount.

If you realize you may not be doing enough to prepare for the future, but you’re having a hard time saving more, there’s a step you can take will probably help. And it’s pretty simple. Use a free online calculator to run some numbers and find out how much you really should be setting aside each month for your later years. It seems to motivate people to save more.

According to the EBRI, less than half of all of today’s workers have taken that step, but those that have tend to set higher savings goals, do what it takes to free up cash flow to set aside more for the later years, and end up feeling more confident about their financial future.

Schwab offers one of the simplest free online retirement calculators. In just a few minutes, you can see whether you’re on track toward a solid financial future, and you can easily change certain assumptions to see what it would take to make the numbers work better.

Before giving it a try, it’ll be helpful to know your estimated Social Security benefit. Find out by creating an account with the Social Security Administration.

Keep in mind that different online retirement calculators use different assumptions. So, for extra credit, try at least one more, such as Fidelity’s Retirement Score calculator or the T. Rowe Price Retirement Income Calculator. (You’ll have to register to use the T. Rowe Price calculator, but you do not need to be a paying customer.)

Premium members of Sound Mind Investing also have access (via a small one-time fee) to MoneyGuide, one of the most sophisticated retirement planning tools available and widely considered the gold standard among financial advisors.

Have you ever used a retirement planning calculator? If so, what impact did it have on your retirement savings?

Take it to heart: “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” – Proverbs 21:20

Take action: Use one or more of the online retirement planning calculators today, discuss the results with your spouse if you’re married, and take action this week to make any necessary adjustments to how much you’re investing for your later years.

Read more: The Benefits, and Some Major Limitations, of Financial Automation

Extra credit: If you have kids at home, they could have their retirement largely funded by the time they graduate from high school. I devote a chapter to this in, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management.

If you haven’t done so already, why not subscribe to this blog? Twice a week, you’ll receive ideas and encouragement for using money well.