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My Journey to becoming a Nobel Woman – Day 40

February 27, 2010

Begin Automatic Savings and Investment

Scripture to Memorize:

She opens her arms to the poor

and extends her hands to the needy.

When it snows, she has no fear for her household;

for all of them are clothed in scarlet.

Proverbs 31:20-21

Passage to Read: Proverbs 13:10-11 Today’s passage deals with pride, wisdom, dishonest money as well as growing money.  Have you found the words to be true in your life?

Guided Prayer:

Confess that pride is at the heart of every quarrel, including those fights in your household over money.  Confess (along with me) about ignoring the counsel of wise money managers in the past.  Are you ready to listen?  If so, ask God to send wise money managers into your life with words of wisdom.  Admit that you can’t get ahead in the money game through gambling, the lottery, or get-rich-quick-schemes.  What works then?  Wisdom, gathering money little by little and letting it grow over time.  Thank God in advance for the lessons you will learn and for the strength to apply them.

Personal Observations:

Did you know that the Bible contains 125 verses that address our pocketbooks, and that many of Jesus’s Parables concern money management?  Apparently God felt that it was necessary to address this issue that so many of us struggle with (either because we feel we don’t have enough or we are worried about losing what we do have).

I’ve often heard that we should pay ourselves first.  To do this we should first put money in savings and only spend what is left-over.  Instead most of us try to save what is left-over (which all to often is nothing) after we are done spending. With today’s technology paying yourself first is really easy.  Most employers these days use direct deposit, so fill out your forms to allocate so much for sayings right off the top.  The experts tend to agree you should save 10 percent of your income.  One good place to put this 10% is in your employer’s 401K program (many of which receive matching funds).  You could even divide that 10% by putting part of it into a savings account and putting only what your employer will match into the 401K .  For example, many employers will match up to 5% of your contributions, so you put 5% and your employer puts 5% (you’ve got your 10% going into the 401K) and then put the other 5% into a more easily accessible savings account (for emergencies).

By making your savings contributions automatic you can trick yourself into living on the smaller amount (if you don’t see it you don’t miss it).  If you continue to say, “Oh, I’ll just transfer it into savings later”, chances are it will never make it into your savings account because you will spend it.

Let’s do some math (I know not everyone’s favorite subject).  Let’s say you decide to put $100 into savings a month at 6% interest.  After forty years, you will have put $48,000 into the account but that investment will net you $200,145!  That’s the power of compound interest.  A lot of people are shying away from the stock market, but as Robert Allen puts it, “You can be a total idiot and still win.  You just buy every month, month and month.  You buy during good times.  You buy during bad times.  You don’t care what the headlines are saying.  You ignore the experts on TV.”  Basically, you pick a fixed sum of money and purchase stock every month.  When stocks are low, your dollar will go further, when the market reverses the stock you bought cheap earns your a greater return.  As crazy as it sounds a down-turn in the market is actually good news for the long-term investor.

As risky as the stock market seems in today’s climate it still over the past fifty years has averaged 11 percent annual return (that’s a lot better than your typical savings account or CD).  One thing to remember while there is no guarantee the stock market has never lost money over any ten-year period.  So, what do you invest in?   Warren Buffet, one of the world’s most successful investors, says, “The best way to own common stock is through an index fund.”

What should you watch out for when you first start out (and beyond)?  Be alert to the various fees charged by the fund.  Check out http://www.morningstar.com for a ranking of index funds along with the percentage they charge.  How much is too much?  It is recommended that you never pay more than 0.5 percent.  With an index fund you are guaranteed to earn the market return.  In other words, you will earn the same percentage increase or decrease as the market average.

To sum it up:  trust the Bible’s advice and save little by little so your money will grow.  Also, make your contributions automatic.

Practical Application:

Set up your savings and investments on an automatic plan.

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