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A Payment in Time Saves Nine: How to Avoid Digging a Financial Hole so Deep You Can’t Climb Out
By Richard P. Halverson

Please be aware that there are no magic formulas for financial success. Many people believe that there are easy tricks to financial success that a few people are clued in on but they aren’t. That is not true. Successful financial management is mostly personal discipline and common sense. There can be helpful financial tips that cause us to look at our finances in a different way. I hope this article makes a few.

Finances cannot be ignored. We all have to deal with financial matters to survive. We must earn money and figure out how to spend it. Those who handle their finances well lead far happier lives. This is not because they have more toys. Often the best money managers have fewer toys. They are happier because there is less stress. Without question, financial problems are a major source of stress. Financial difficulties cut across all income levels. Certainly it is nice to have a higher income but a high income is not the secret to financial security. You might be astounded how many people earning high incomes are awash in debt and financial stress. Here are a few thoughts that can help anyone at any income level.

A Culture of Saving

A couple I know in their mid-thirties mentioned they plan to have their home paid off in the next five years. (I have other friends who are retiring and still have mortgages bigger than their social security payment.) They have five children and a stay-at-home mom. The go to work dad makes a decent income but not a great one. There never was any big inheritance or help from outsiders. They have a nice home, two mini-vans, and things they need. However, they do not have very many things they do not need! There is no plasma TV. There is no boat or four wheelers. There are no designer clothes. There are no cruises. They even have a dial-up connection on their computer.

Impressed with the idea they could be paying their home off so early I inquired. I was told, “We established a culture of saving from the very outset of our marriage.” This means simply the first thing they pay is their tithing and the second thing they pay is their savings. That savings has come in the form of 401k contributions, other stock and fund investments and accelerated mortgage payments.

It is a mind-set. They see all the fun stuff there is to buy out there just like everyone else. But they made this savings commitment early, now it is part of their culture and they enjoy it. They enjoy the freedom and independence that comes from not being financially stressed. It is never too late to become converted to a culture of saving.

Saving is Not a Matter of Getting a Bargain

Not long ago I was one of several speakers at an event on financial management. I was a little surprised how many of the speakers concentrated their tips on how to find a bargain. This struck me as a little ironic because I knew some of the bargain hunters had maxed out credit cards. Of course, it is nice to get a bargain. Everyone I know — even people with million dollar incomes — shop carefully and like bargains. The trick is not getting great prices on everything you want to buy; the trick is to only want to buy what you can afford. There are people who confuse the two. A great price some times becomes the rationale for buying what really isn’t needed. A great price on a Lincoln Navigator is not nearly as smart as a decent price on a Ford Focus if the latter is what you really can afford.

Needs vs. Wants

This topic is so obvious it requires very little comment. Most of us need dependable transportation. Few of us need leather seats, navigation systems, satellite radios, five-disc CD changers, DVD players, etc. It takes discipline to separate needs from wants. Don’t expect those trying to sell you something to help. Companies are always trying to sell the wants. In most cases that’s where the profit is. In fact, it would wreck the economy if people suddenly quit splurging. But that doesn’t mean you and I have a patriotic obligation to spend insanely. Our personal obligation is to our families, our future and ourselves.

Know All the Costs

Failure to understand all the costs of ownership is a frequent problem in my experience. I do not mean to pick on Lincoln Navigators, but let me continue the analogy from above. I have a friend who owns one. He really did get a pretty good deal even though he still could have purchased two cars for the cost of this one. Now the operating expenses are killing him. The insurance and taxes are far more than on the minivan he traded in. His minivan was getting about 20 miles per gallon, the Navigator is doing about 11. He needed new tires. Even those were far more expensive on this vehicle. The list goes on. Houses are frequently another example. More expensive homes means more expensive utilities, more expensive landscaping costs, more expensive furnishings, etc. It is easy to focus so much on what the monthly payment on a new car or a new home will be and completely over look that there may be permanent increases in ancillary costs associated with the purchase.

You hear the ads all the time, “We will pre-qualify you so you know exactly how much home you can buy.” Or you get the statement from the car dealer, “Good news— you qualify for $ZZZ a month.” The fact that you qualify for $ZZZ a month does not mean you should spend $ZZZ a month. You are responsible for your spending, not the lender. The lender does not know about or care about other priorities in your life, such as tithing and savings and your desire to be out of debt. Working backwards from what the bank tells you they will lend you and then going out and spending it up to the max is irrational. But as you can see from the ads (because they wouldn’t run the ads if they didn’t work), that is what many people do. Start with your needs and shop from that direction.

Keep Track of What You Have Spent

This is a credit card society. Credit cards are very convenient. One huge problem with them is that it is very easy for anyone to quickly lose track of what he has spent. When the bill comes at month end, there is shock and sometimes a lot of domestic arguing. The cycle simply gets repeated the following month and the unpaid balance often rises.

Today it is so easy to keep track of the balance none of us has an excuse. All major credit cards allow you to check your balance on-line. Put the link(s) into your favorites list. Hit it regularly, once or twice a week at least. You will instantly be reminded how much you’ve spent.

Slightly harder but even better is to install a program like Quicken on your computer. The program can be set to update balances from most major financial institutions and credit card companies. You can see the whole picture for the month in a matter of a few minutes.

If you will let it, this little discipline of watching the balances can have the same psychological effect consumers used to get when they were paying with cash. When you pay with cash you know when the piggy bank is nearly empty. An empty piggy bank is a powerful incentive to postpone purchases until there is more money. Being aware of large credit card balance can be a powerful incentive to postpone purchases until there is more money.

Credit Card Convenience with Piggy Bank-Like Discipline

For many people credit cards are a problem. Credit cards are easy to use, therefore they are easy to abuse. For years some advisers have counseled us to get rid of our credit cards for that very reason. But in the modern world the ease of using credit cards makes it almost impractical to give them up. Almost. Today there is an alternative. Debit cards. They look the same. They swipe the same in the machine. They are accepted in the most of the same places. But there is a big difference. When you use a credit card you borrow money from the back. When you use a debit card you withdraw money from your checking account. If there is no money in the checking account the charge will not go through. This live balance feature can work very much like an empty piggy bank to curb spending.

Never, Never, Never Make the Minimum Payment

Forgive a little personal story. Recently, I opened my Discover bill and was stunned by what I saw prominently displayed on the statement. Not the $2,000+ I owed for the month. There was some travel and things so I expected that amount. What I was stunned by was the minimum payment of $29! Boy, if you’re a little short writing a check for $29 sounds a lot easier than writing one for $2,000. That is just what they want you to do. That is absolutely the most profitable thing you can do for the bank and generally the most expensive thing you can do for yourself. That $29 is nearly all interest. Getting in the habit of making minimum payments will mean you are always paying interest and never reducing your debt. Whatever you originally bought for $2,000 will cost many times more than $2,000 in interest charges before it ever gets paid for.

Know That You Are Responsible

Last month I wrote about bankruptcy and lamented that bankruptcy seems so common among Mormons. I received a number of responses. Among the varied responses, some felt I wasn’t tough enough on people who don’t pay their bills and some thought I wasn’t tough enough on the companies that make borrowing so easy. My heart grieves for those who one way or the other have found themselves facing that stressful dilemma. It is awful. I would make a terrible collection officer. Nevertheless, I do not believe society can blame the lenders for lending. Anyone who has read my comments over time will realize I am not very sympathetic with lending institutions. I think you and I should give as little of what we earn to them as possible. However:

We live in a capitalist society. All companies, no matter what they sell, are trying to sell and make a profit. This is not evil. This is how it works. Without it no one would have a job. But I am still responsible for my buying decisions. I do not have to buy things I don’t want or need and I cannot blame their advertising for my unwise decisions. Budweiser wants me to drink beer, but I don’t. The Golden Nugget wants me to gamble, but I don’t. And the bank wants me to borrow, but I don’t. I can’t blame Frito Lay if I pig out on chips. I can’t blame McDonald’s if I pig out on hamburgers. And I can’t blame the bank if I pig out on debt.
Nobody borrows money just to have the money. Think about this. People borrow money to buy things. So if we are going to blame slick advertising for our bad spending we must first blame the auto companies, the restaurants, the home furniture companies, the travel agencies, and so on. The lenders are just a means to an end so blame them last.

Read the Instruction Manual

I hate reading the fine print on a credit card or loan application as much as anyone. But there is valuable information in there. Like every product made, the more you understand how it works the better you will use it. Your credit card, mortgage, or car loan is the same way. These are legal contracts and you will be bound by the terms and conditions in the fine print.

An Important Test of Agency?

Once again let me say, there are no magic formulas for financial success. Successful financial management is mostly personal discipline and common sense. In this regard how we exercise our agency with respect to our money may be a good indicator of how we will exercise our agency with other stewardships we are given.

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