As we mature, God gives us more responsibility for our own provision.
God’s provision always allows us to keep His commandments.
Nasty things happen when we turn God’s blessings into selfishness.
The story of Israel teaches us a lot about the ways that God meets our needs.
Debt increases the risk of real estate investing to unacceptable levels.
This early church couple made some big mistakes with money, and they way they tried to cover it up cost them dearly.
Owning real estate can be one of the safest, most lucrative investments you’ll ever make, but only if you do it right.
Why social welfare programs don’t get us off the hook for giving to the poor.
Double-checking these financial areas will help you finish the year strong.
The tipping culture is inconsistent, discriminatory, tax-evasive and more.
Smoking can do just as much damage to your financial health as it does to your physical health.
I want to share with you one of the most shocking secrets about personal finance: The size of the nest egg that you build for retirement isn’t about how big your income is. It’s about what you do with the income you have.
In the United States, we have lots of misguided ideas about money. Many of us believe that the best way to a secure financial future is to find a way to earn a huge income. But that’s a red herring; plenty of people with big incomes have very little wealth, and many people who have built solid financial futures have done so on very average salaries. The quality of your financial future isn’t based on your income, but on your discipline.
In this series, we’re looking at how to use investing to build wealth for retirement and other future financial goals. Following the Retirement Pyramid, we’ve looked at the benefits of investing through your company’s retirement plan, and then investing some more in personal IRAs. Today, we’re going to see how disciplined investing can make us millionaires, even on a modest income.
To start, we need to understand the fundamental difference between earned income and investment income. Your earned income is the money that you get for working at your job. This income might be large or small, depending on the type of work you do and the success you have in your field. But it’s tied to your work — if you stop working, you stop earning. And there’s a limit to how much earned income you can generate: There are only so many hours in a day, so you can only work so much. Earned income is what we use to pay our monthly bills and take care of our family expenses, but it’s limited by our ability to work.
Investment income, on the other hand, isn’t limited by time — in fact, it is aided by time. Investment income is passive. Once you’ve invested money, you don’t have to work personally to earn anything off of that investment. Investments earn you money as the companies that you’ve invested in grow. And most investment plans (such as IRAs) make the most of this by turning around and re-investing this earned money, so that the value of the investments is always growing. As the value of the investments grows, so does the return on investment. This creates an awesome cycle where investment and income are constantly growing, and the longer it goes, the better it gets. And you don’t have to do much work to keep it going.
The key to building great wealth is understanding that investment income has much greater wealth-building potential than earned income. We may think that it takes a big income to build a big nest egg, but that’s not necessarily true. If you’re disciplined and strategic in the way that you invest, even a small income can be invested to create big wealth.
Let’s look at an example. Assume that you earn $40,000 per year, which is just a little bit less than the median household income in the U.S. — a modest salary, in other words. And for the sake of this example, let’s assume that your salary will stay at $40,000 for your whole career, around 40 working years.
Now, that salary isn’t going to fund a lavish lifestyle — in fact, you’ll have to live frugally. But if you can discipline yourself to invest 10% of your income each year, you can build a lot of wealth over your career. For the sake of this example, we’re going to assume that a 10% investment (or $4,000 each year) is invested into a mutual fund that averages a return of 10% per year (a reasonable figure).
Fast forward 40 years, and let’s see what has happened. In your entire career, you will have made $1,600,000 in earned income. But what about your investment income? If you’ve been faithful to invest 10% of your income into mutual funds that average 10% a year in return, you’re going to have a staggering amount of money — $2,125,593.
Let that sink in for a minute. Even though your income was small throughout your career, your disciplined approach to investing has made you a millionaire. In fact, you have much more from investment income than you ever made in earned income from working at a job.
It gets even better, though. Let’s say that in retirement, you decide to live off of 8% of your invested wealth. That gives you an annual income of $170,047 — more than four times what you ever made in your working years. And since your investments are earning 10% a year, your wealth isn’t shrinking — in fact, it can continue to grow, even as you draw income off of it.
I hope that you don’t look at these figures and see a bunch of random number that don’t apply to your life. This isn’t wishful thinking, it’s just math. You have the potential to build incredible wealth throughout your lifetime, regardless of what your income is. We used a modest income in this example, but your income is likely to grow over time and be much more than $40,000. Imagine how much greater the nest egg would be if you increase the amount of your investment as your earned income grows over time.
The lesson here is simple: No matter what your income is, you need to be disciplined to invest some of it for the future. Disciplined investing makes millionaires. There’s no reason for you not to be one of them.
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Photo by Hector Alejandro. Used under Creative Commons License.
Debt creates slavery where love should be instead.
Don’t let money take the place in your heart that only God deserves.
If outstanding debt threatens your relationships, forgiveness is the only answer.
Getting into business with the wrong partner can be as devastating as getting into marriage with the wrong person.
My naivete hit me like a ton of bricks: The first time I saw a “Title Loan” store, I didn’t understand exactly what it did, or what made it such a horrible thing.
I was 23 years old and visiting a popular Southern gambling destination with a couple of coworkers for a conference. As we drove toward our hotel, I noticed a several title loan institutions located right next to each other, just down the block from one of the area’s biggest casinos. “That’s funny,” I wondered out loud. “Why would you see title loan places like that next to this nice casino area?”
My boss turned at looked at me like I had a screw loose. “Seriously, Brian, you don’t get it?” he asked. I admitted that I did not. “Those stores are in this area for a reason. People come to the casinos and lose all of the money that they brought with them. The ones that can’t stop gambling bring their cars down here to get title loans so that they can keep playing.”
At that point I realized: If they gamble more and lose, they lose their cars too.
In this series, we’re talking about Despicable Debt, a class of horrible financial products and services that prey on the weaknesses and ignorance of the poor and vulnerable. Although we believe that all debt is slavery, many people get into credit card debt, medical debt, student loan debt and other kinds of issues with good intentions and for legitimate reasons. But then, there’s Despicable Debt, like title loans or payday lenders. These are places where unscrupulous lenders are taking advantage of the financially illiterate to enrich themselves. And they deserve the full heft of our scorn.
So how does a title loan place work, anyway? Well, in the strictest sense, getting a loan against your car title is something like getting a home equity loan against your home. You bring your car to the store, and they determine the value of the vehicle, and then loan you money based on how much the car is worth. (If you don’t own the car free and clear yet, the amount of money that you owe to the bank is subtracted from the amount that you can get on the title loan.) So, you get the cash, but you put up the title to your car as collateral against the loan. That means that if you fail to repay the money within a certain amount of time, the title lender has the right to seize the vehicle and sell it. In other words, if you lose your money, you also lose your car.
There are several unsavory things about how all this works. First of all, you can’t expect to get a fair valuation of your car at one of these places: Since they will want to make a profit if they ultimately have to sell your car to recoup the unpaid loan, they’re not going to give you the full value of the car in the title loan. They’re going to give you much less, in fact — if your car is worth $5,000, expect to get $3,500 or less from a title lender. That low valuation alone means that you get ripped off from the moment you do the deal, even if you repay the loan and leave with your car. If you really needed to get cash out of your car, you’d be better off to sell it on the open market, where you could at least get blue book value for it.
The second nasty element of title lending is the payment terms. You see, title lenders don’t really want to take your car and sell it to recoup their loans — that takes a lot of time and effort, and it keeps their cash tied up for too long. What they’d rather have you do is to keep your car and pay the loan off gradually, over a long time, with hefty interest payments. When you set up a title loan, the lender will give you “flexible” payment options. You don’t have to return with the full value of the loan tomorrow to get your car back. Rather, you can make small payments over time, and as long as you keep making those payments, you get to keep driving your car. But what you don’t realize is that there can be a boatload of interest built into those payments — sometimes the interest payments can be so high as to rival the 50%+ rate paid at payday lenders. If you take a while to pay off that $3,500 title loan, you could end up making a total of $5,000 or more in payments — even pushing the amount that the loan cost you beyond the actual value of your car.
The final nasty thing about title lenders, of course, is their location. It’s no accident that the first ones I encountered were located in a casino district; title lenders position themselves to “serve” people in desperate situations. What that really means is that they set up shop in places where people will do anything to get money quickly. And unfortunately, for many people with gambling problems, that can be in the middle of a casino vacation. Gambling is among one of the least advisable pastimes a person can take up its own right; combined with hasty borrowing it becomes financially toxic. In gaming destinations, title lenders take advantage of the sickness of gambling addiction and the people who are captive to it, and leave them without one of the basic necessities it takes to get by in modern life.
This isn’t really an article about gambling — that’s a whole discussion of its own — but an indictment of the title loan industry that has sprung up around it. If you’re ever tempted to get into gambling or to go visit a title lender, though, you should do the same thing in either situation: Just say no.
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Photo by Paul Sableman. Used under Creative Commons License.
Using more than one savings account helps you stay organized and strategic with your money.
Strategy and discipline are your best friends when buying cars.
Saving up your money and paying cash for used cars is the best way to pay for your daily transportation.
Leasing costs you a bunch of money to pretend that you can afford a new car… even though the payments seem low.
The right financial strategy can help your relationship grow into something powerful.
If you want to get your spending in line, you need to tame these common budget-busters and learn to save on luxuries.
The best way to vanquish an overpowering debt load is to find the weakest spot, and then focus your attacks there.
It’s easy to get into trouble with credit cards. To turn the problem around, we need to face the lack of discipline in our hearts.
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Chasing unrealistic ideas keeps us from succeeding financially where we’re planted.
It’s easy to become a slave to money, but you don’t have to stay locked up. These three keys are the first steps to freedom.
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