Gather Little by Little

When we first decided to get control of our finances and change the way we were living, I seriously considered whether we should seek the advice of a financial planner. The struggle I had of course was, if I need to get my finances under control why should I pay a financial planner to help me do that? The cost of a financial planner could go towards paying off my debt.

I decided not to use one for now. I say for now, as I feel I understand enough about where I am in my current financial journey to not require one. Once I get to the stage of being debt free and begin investing, I will most likely seek the services of a financial planner, as investing is not something I have a great deal of experience with.

Here are a few DIY (Do It Yourself) tips for financial planning:

Identify and write down your financial goals

Have you ever seen a successful project or effort succeed without a plan? Proverbs 20:4 says “If you are too lazy to plow in the right season, you will have no food at the harvest“. So even God’s word advocates planning. In personal finance, one of the first steps you must take is to identify and write down your personal finance goals. Doing so will provide you with a roadmap for where you want to end-up and will serve as a guide to your decision making.

Remember the words found in Proverbs 19:21 – “You can make many plans, but the Lord’s purpose will prevail“. Make sure your plan is in line with God’s word and with the purpose he has for you and your life. Seek Him and His purpose through prayer.

If you are married, make sure you and your spouse share common goals. Nothing can be more destructive to a marriage than two partners heading in opposite directions or not working together on their finances. Discuss your goals and share your goals, and develop a financial plan that you can work on together.

My wife and I have two primary short-term goals right now: 1) Get out of debt 2) Purchase a home with at least 3 acres of land in the country. Every money related decision we make right hinges on these two goals

Focus on paying down debt

As I have discussed in many previous articles, the biggest step you can take to getting control of your finances is to get rid of your debt. This is also generally the first step that any professional financial counselor will do.

Debt keeps your money from growing and causes a great deal of stress. Contrary to the mainstream beliefs of today, debt is not “par for the course”, is not necessary and is not “ok”. You don’t need it, and don’t make people think you do. Remember, people lived just fine before the credit card was invented.

Spend less than you earn, take the difference and pay off your debt. One you are out of debt, continue to spend less than you earn and save and/or invest the difference.

God wants us out of debt. Read Romans 13:8 and Proverbs 22:7

For some interesting insight, take this contentment quiz.

Start contributing to a retirement plan

At some point in everyone’s life, you will be faced with retirement. For most this is a time to look forward to. My wife and I plan to travel around the country in an RV and see all the things in North America we have not been able to see due to family obligations, financial limitations, and working. We would also like to travel overseas to Germany, Italy, Ireland, etc. as we have never been.

Of course, all of this costs money. Without a job, how will be pay for this? How will we have food, clothing, shelter? Through our retirement plan.

I started contributing 6% of my income to my 401k program the first day I started my job coming out of college. Until about a year ago, I continued contributing 6%. Needless to say, my retirement fund is well on it’s way and by the time I retire, I hope to have close to 2 million dollars. Note though, I said until a year ago.

We decided to stop contributing to our retirement fund for a short period so we could more aggressively attach our debt. We currently put every available dollar towards paying debt.

Starting and contributing to a retirement plan is something everyone should do. If your company offers a 401k, than you should be using it and investing in it. If it doesn’t, than visit your local bank and open an IRA account. The longer you wait, the less money you will have. Start a retirement program today. Retirement accounts grow exponentially and waiting to contribute can cost you more than you realize.

Build an emergency fund

An emergency fund will let you survive the bad weather in your life. An emergency fund will keep you from using that credit card when your brakes need replaced, or the A/C unit on your home dies. An emergency fund will give you peace that you don’t need to worry about what may happen and how you are going to pay for it.

If you are in debt, establish an initial emergency fund. If you aren’t in debt, start build a 3-6 months emergency fund. Bad things happen in life, and you need to be prepared.

Don’t commit to a large mortgage or car payment

With the recent focus and attention on sub-prime loans and the significant increase in foreclosures this is a topic that many people can now relate to. It amazes me how people get take on huge mortgage and car payments. I was talking with a friend the other day who bought a new car and is paying almost $700.00 a month for it!

Your monthly mortgage (including taxes and insurance) should be no more than 28% of your gross income. Total debt payments should not exceed 36% of your gross income. These are standard rules in the industry. I personally would not advocate having a mortage that is more than 25% of your gross income.

I would also personally never advocate having a car payment at all. Pay cash for your car. Contrary to popular practice, find the car based on how much cash you have rather than finding the car you want and then figuring out how to pay for it.

I drive a 2001 Nissan Sentra with 116,000 miles on it. I paid $4200 cash for it. No it’s not a BMW or Lexus but it’s 100% paid for, drives great and is extremely reliable.

Have proper insurance

Risk management is an important part of personal finance. Having risk mitigation strategies in place should be part of your overall personal finance plan. Risk mitigation strategies include:

• Life Insurance
• Health Insurance
• Short term and long term disability insurance

Don’t think you need these? You’re wrong, please read my article about how bad things can happen and how you should be prepared.

Wrapping Up

DIY financial planning is never a substitute for a professional, but it can be a good and cheap alternative. By reading books, reading blogs such as this one and other M-Network blogs you can gain a tremendous amount of advice and knowledge on personal finance.

If you do decide to utilize a financial planner, be careful. While a number of them are honest and trusthworthy people a number of them are not. I would suggest using Dave Ramsey’s certified financial counselors as a starting place.

What are your tips for DIY financial counseling? Do you use a financial planner/counselor? If so, how did you find them?