5 Principles of Financial Wisdom:
- God owns it all. Psalm 24:1
- Set Long Term Goals. Proverbs 16:9
- Spend less than you earn. Proverbs 13:11
- Avoid the use of debt. Proverbs 22:7
- Avoid a consumptive lifestyle. Ecclesiastes 5:10
Has the guilt set in yet? Are you already verklempt about the credit card bill in January? You don’t need to be….If. “If What?” you may ask. If you have a proper cash reserve. Yep, I am going back to the basics of cash flow and cash reserve. The King and Queen of financial planning for your family. I am going to assume you have a positive cash flow meaning there is more money and the end of the month, thus you have margin to save into a cash reserve. Let’s assume you know your monthly burn rate of expenses that are reoccurring monthly (yes include that quarterly or bi annual home and auto policy and or other expenses that are not monthly but reoccurring). Take that number and for this example, let’s assume $3,000 a month burn rate (after tithe, taxes and savings). Your cash reserve should be 6 months of that number split up between two buckets.
Bucket 1: Operating Bucket 3 months X $3,000 = $9,000 in this bucket. This is what you operate life out of and make as easy peasy as possible. Set up as many of your bills automatic as you can. No worries once you have filled up this three-month bucket. This bucket is also the bucket for your salary deposits.
Bucket 2: Opportunity or OOPS Bucket 3 months X $3,000 = $9,000 in this bucket. This allows you peace of mind if fun opportunities come up or something breaks; you don’t worry and just pay it. It could be that impromptu vacation or water heater repair.
It usually takes about three years of savings to get to this reserve amount with families that are salary based. If you are commission based and or self-employed; this will be ONE FULL YEAR of cash reserves. Yes, one full year. This allows you to operate your business without the concern for “making that sale,” and avoid temptation that money pressures can bring.
Have you ever been in the position where there was a large expense and you could not afford the needed item. You purchase on the selling firms “super special credit card,” later to find out if you don’t make ALL the payments EXACATLY on time the 20 plus % interest in retroactive? Who is in the driver’s seat there? Not You…it’s them. Let’s put the control back in your lap thus the power to negotiate a better CASH DEAL and or take the credit deal and pay if off that month (not a fan of this method by the way).
These Financial Blogs have been a one way street so for 2018, let’s have some fun and let me know what YOU want to chat about. Please email topics or questions at email@example.com.
Have a Great New Year and Cash is king!!!