What do you do with your money?

Back in the last century (1990's), I attended a 6-week workshop titled "Master Your Money." Maybe it was a symptom of where I was in my life at the time, but it struck me then, and several times since, as the best approach to personal financial management I've ever seen. That's not to knock some of the others like Larry Burkett or Dave Ramsey (who recently acknowledged both Burkett and Blue in his Great Recovery presentation). And I'm currently following Joe Sangl (see my post here), who credits Dave Ramsey for a lot of his ideas. But Blue's approach focused on tracking spending, not just budgeting. I was so impressed I took the course twice, then taught it around a half dozen times. The course is dated now, but still has some great ideas.

Ron Blue said there are basically four things you can do with money: 1) Give it away, 2) pay taxes {groan}, 3) repay debt and 4) spend it. Anything left over after these four constitutes your cash margin which can be used to accomplish your long range objectives. Only by increasing the cash margin can you really make a difference in your long term plans. Once Blue walks you through tracking your past expenses, he asks a Dr. Phil question - "How's that working out for you?" (Ok, he really didn't ask that back in 1990, but he could have). Blue asks you to look at each area of your expenditures and determine if you want that to go up or go down. Would you like to give more or less over the next few months? Do you want to spend more or less on eating out? Do you want to pay more or less in credit card interest?

Another focal point I learned from Ron Blue's course was that there are no independent financial decisions. Every dollar you spend at McDonald's is a dollar you can't spend on a new house. A dollar spent on wine can't be spent on books. And a dollar spent on cigarettes can't be spent on clothes. He calls this integrated planning and says it's the "allocation of limited resources to unlimited alternatives." (Joe Sangl says that Income minus Outgo must equal Exactly Zero or I-O=EZ - he's so proud of that idea he trademarked it).

A couple of months back, I told you (if you read my blog here) that you would probably earn $1million in your lifetime. The question is, what will you do with it? Dave Ramsey says you can go through life "like Gomer Pyle on valium" or you can track and plan your life. Which will you do?

Margins

Ever wonder what margins on the paper are made for? Probably not, but I'm just weird, I think about things like that.

Wikipedia is no help, it has three different definitions, one for finance, one for economics and one for typography. None explain why we have margins.

When I was in school (back before Al Gore invented the internet), I was taught that the margin on the paper was in case you had to make corrections. Word processing involved a pencil and eraser and you could insert new sentences in tiny "font" in the margins.

We had this discussion at dinner the other night. My wife thought I was talking about the margins in her life. Actually, I was directing it at my son, but it could apply to other people as well. Please take the time to read this and see if it applies to you.

My son talked about a "margin of error" in math. That makes sense, you know the answer is X within a margin of error. In both the math case and the written paper, the margin allows you some wiggle room in case you've made a mistake.

My point to my son was that we need margins in our life. We need extra time. When I drive to Columbia, I know I can make it in an hour and a half, I allow two hours. I may have to stop for gas, or to get a bisquit. Or I may run into traffic. The margin allows me to still make it to my destination at the appointed time.

For school work (or job work), I allow margins. If something is due Tuesday, I'll work on it to be finished Monday. This way if the phone rings and I get busy, I have a margin to absorb the extra work.

In financial terms, Dave Ramsey calls this an "emergency fund". If the refridgerator breaks (ours did a month ago), you dip into the emergency fund to replace it, then build the fund back up. The emergency fund becomes your margin. A bigger margin is needed for job security, most analysts tell you to keep 3-6 months expenses in savings for such as this. Again, it's a margin.

When we start eating into our margins on a regular basis, problems come up. If we use all of our emergency fund and don't replenish it, next time an emergency happens, we're in trouble. If we have no margin on our homework, we can't handle things outside the norm (late dinner, extra chores, etc). If we have no extra time in our trip to Columbia, and we run into traffic, we will be late.

Margins are necessary in all aspects of our life. Financial, time, or just to give us some reduced stress.

Margins