v
101: The Power of your income
supersaving
Paying Yourself First
We’re not a nation of savers. The typical American
could not even cover a $5,000 emergency without
having to borrow money. And big purchases?
Nothing a swipe of the plastic can’t take care
of, right?
In Super Saving, Dave blasts through the hype and
reveals the reasons why you should save money,
how to be prepared for emergencies, and how to
build genuine wealth—without luck or the lottery!
More than that, Dave will truly get you excited
about saving. Impossible? Not when you start
Super Saving!
supersaving
Video 1: Save! Please, SAVE!
The Seven Baby Steps
wisdom
“If you do the things you
need to do when you
need to do them, then
someday you can do
the things you want to
do when you want to
do them.”
—Zig Ziglar
There is a system for winning with money over time.
No matter where you are today, either financially
secure or financially distressed, these Baby Steps will
walk you step by step through the process.
Step 1:
$1,000 in an emergency fund
($500 if your income is under $20,000 per year)
Step 2:
Pay off all debt using the debt snowball
(does not include personal mortgage)
Step 3:
Three to six months of expenses in savings
Step 4:Invest
15% of your household income into
Roth IRAs and pre-tax retirement plans
KEY POINT
Step 5:
Save for your children’s college education
using tax-favored plans
Step 6:
Pay off your home early
Step 7:
Build wealth and give!
You can get anywhere if you
simply go one step at a time.
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baby step
1
$
in the bank.
If your income is under $20,000, make this $
Saving must become a
.
You must pay yourself
.
Give, save, then pay
.
Saving money is about
and
.
WISDOM
“In the house of the wise
are stores of choice
food and oil, but a
foolish man devours all
he has.”
—Proverbs
.
Building wealth is not evil or wrong.
Money is
.
Larry Burkett, a famous Christian author, said,
“The only difference in saving and hoarding is
.”
Video 2: Saving for Emergencies and Purchases
You should save for three basic reasons:
1.
2.
3.
Super Saving CORE / 15
WISDOM
“If you would be wealthy,
think of saving as well
as getting.”
—Benjamin Franklin
Emergency Fund
events do occur—
expect them!
Remember: Baby Step 1, a beginner emergency
fund, is $
in the bank (or $500 if your
household income is below $20,000 per year).
baby step
3
to
months of
expenses in savings.
A great place to keep your emergency fund is in a
account from
a mutual fund company.
Your emergency fund is not an
it is
Do not
KEY POINT
In our lives, we all go through
“times of famine.” Whether
it’s a layoff, lengthy illness,
large financial loss, etc., we
need to be prepared and
save up while we can. It will
allow us to better cope
during tough times and, in
some cases, to survive.
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The emergency fund is your
priority. Do it quickly!
;
.
this fund for purchases!
savings
purchases
Instead of
by using a
wisdom
to purchase, pay cash
fund approach.
For example ...
Say you borrow to purchase a $
dining room set. Most furniture stores will sell their
financing contracts to finance companies.
This means you will have borrowed at
with payments of $
per month for
months. So, you will pay a total of $
plus insurance, for that set.
“Today there are three
kinds of people: the
haves, the have-nots,
and the have-not-paidfor-what-they-haves.”
—Earl Wilson
%
,
But if you save the same $
per month for only
months, you will be able to pay cash.
When you pay cash, you can almost always negotiate a
discount, so you will be able to buy it even earlier.
Another example ...
Save for a $4,600 car by putting $
per
month in the cookie jar for only 10 months!
Since we have pledged to borrow no more, this is the
only way to make a purchase.
KEY POINT
If your teenager really got
this lesson early and never
had a car payment
throughout his whole life, do
you realize how wealthy he
could become just from this
one decision?
Super Saving CORE / 17
Daily decisions can make a HUGE impact!
Expense
Cost
per day
Cost
per month If invested at 12%
from age 16-76
Cigarettes $3$90 $11,622,000
Gourmet Coffee
$5
$150
$19,371,943
Lunch
(5 days/week)
$8
$160
$20,663,319
Is it worth the cost in the long run?
Video 3: Saving for Wealth Building
wisdom
“In the old days, a man
who saved money was
a miser; nowadays, he’s
a wonder.”
—Anonymous
“Self-confidence is the
first requisite to great
undertakings.”
—Samuel Johnson
Wealth Building
retirement and college funding
is a key ingredient.
Building wealth is a
Just $
to age 65, at
, not a
per month, every month, from age 25
% will build to over $
.
(PACs)
withdrawals are a good way to build in discipline.
Compound interest is a mathematical
KEY POINT
You will either learn to manage
money or the lack of it will
always manage you.
18 / CORE Super Saving
.
You must start
!
.
STORY
BEN
ARTHUR
The
of
and
Ben starts saving $2,000 a year ($167
a month) at age 19, stops saving at age
26, and never saves another dime. His
brother, Arthur, starts later—at age 27—
but saves until age 65, almost his
entire life.
With a 12% rate of return, guess who
comes out ahead at retirement?
BEN vs. ARTHUR
Benarthur
totalage
total
invests
invests
2,0002,240
190
0
2,0004,749
200
0
2,0007,558
210
0
2,00010,706
220
0
2,00014,230
230
0
2,00018,178
240
0
arthur
2,00022,599
250
0
starts late
2,00027,551
260
0
030,857
272,000 2,240
Ben stops
saving!
034,560
282,000 4,749
038,708
292,000 7,558
043,352
302,000 10,706
0 48,554
312,00014,230
054,381
322,000 18,178
060,907
332,000 22,599
068,216
342,000 27,551
076,802
352,000 33,097
085,570
362,000 39,309
095,383
372,00046,266
0107,339
382,00054,058
0120,220
392,000 62,785
0134,646
402,000 72,559
0150,804
412,00083,506
0168,900
422,000 95,767
0189,168
43 2,000109,499
0211,869
44 2,000124,879
What do we learn
from Ben and
Arthur?
ƒƒ Rate of return, or
rate, is important.
ƒƒ A simple, one-time investment
of $1,000 could make a huge
difference at retirement ... if you
know how and where to invest it.
0237,293
45 2,000142,104
0265,768
462,000161,396
0297,660
47 2,000183,004
0 333,379
48 2,000207,204
0373,385
49 2,000234,308
0418,191
50 2,000264,665
0468,374
51 2,000298,665
0524,579
52 2,000336,745
0587,528
53 2,000379,394
0658,032
542,000427,161
0736,995
55 2,000480,660
0825,435
56 2,000540,579
0924,487
57 2,000607,688
01,035,425
58 2,000682,851
01,159,676
59 2,000767,033
01,298,837
602,000861,317
01,454,698
61 2,000966,915
01,629,261
62 2,0001,085,185
01,824,773
63 2,0001,217,647
02,043,746
64
0
2,288,996
$2,288,996
With only a
$16,000 investment!
2,0001,366,005
652,000
1,532,166
vs. $1,532,166
Arthur NEVER
caught up!
Super Saving CORE / 19
The Basic Quickie Budget
This form will help you get your feet wet in the area of budgeting. It is only
one page and should not be intimidating as you get started. The purpose of
this form is to show you exactly how much money you need every month in
order to survive. We won’t get into the details of your credit card bills,
student loans and other consumer debts here. This is just to give you a
starting point as you begin to take control of your money.
There are four columns on this form:
1 Monthly Total
• This column shows you how much you are spending on necessities
each month.
• If you do not know the amount, write down your best estimate.
• If an estimate is grossly inaccurate, then you may have never even
noticed how much you were spending in that area before now. Don’t
beat yourself up about this!
2 Payoff Total
• Write down how much money is required to completely pay off
that item.
• This line only appears in the relevant categories (mortgage, car
debt, etc.).
3 How Far Behind?
• If your account is past due in any category, write down how many days
you are behind.
• If you are up-to-date, simply write a zero or “N/A” (not applicable) in
this column.
4 Type of Account
• Write in how this area is paid—by check, automatic bank draft, cash, etc.
• Early in the program, you will see the benefits of using cash for certain
items. Challenge yourself by identifying categories for which you can
use cash only.
• The asterisks ( * ) on the form indicate areas in which a cash-based
approach could be helpful.
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The Basic Quickie
Budget
1
Item
GIVING
SAVING
HOUSING
First Mortgage
Second Mortgage
Repairs/Mn. Fee
UTILITIES
Electricity
Water
Gas
Phone
Trash
Cable
*Food
TRANSPORTATION
Car Payment
Car Payment
*Gas & Oil
*Repairs & Tires
Car Insurance
*CLOTHING
PERSONAL
Disability Ins.
Health Insurance
Life Insurance
Child Care
*Entertainment
OTHER MISC.
2
3
4
Monthly
Payoff
How Far
Type of
Total Total BehindAccount
____________________
____________________
____________________
____________________
______________________________
____________________
______________________________
____________________
__________
__________ ____________________
__________
__________ ____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
__________
__________ ____________________
______________________________
____________________
______________________________
____________________
__________
__________ ____________________
__________
__________ ____________________
____________________
____________________
__________
__________ ____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
__________
__________ ____________________
__________
__________ ____________________
TOTAL MONTHLY NECESSITIES__________
Go online to take your quiz for Super Saving!
Super Saving CORE / 21
baby steps
Here’s a review of the Baby Steps covered
in this lesson:
1
3
$1,000 in the bank
For more insight, see Chapter 6 of
The Total Money Makeover.
3–6 months of expenses in savings
For more insight, see Chapter 8 of The Total Money Makeover.
ANSWER KEY
1,000
500
Priority
First
Bills
Emotion
Contentment
Amoral
Attitude
Emergency
Fund
Purchases
Wealth Building
Unexpected
1,000
3
6
Money
Market
Investment
Insurance
Touch
First
Borrowing
Sinking
4,000
24
211
24
5,064
211
18
464 Discipline
Marathon
Sprint
100
12
1,176,000
Pre-Authorized
Checking
Explosion
Now
Interest
Key Points
1. Savings must become a priority.
2. You should save for an emergency fund, major
purchases and wealth building.
3. Decide and agree with your spouse on what
qualifies as an emergency for your family.
Questions for reflection
1. What is Baby Step 1? Why is this important?
2. Why do you think so many people use debt
(credit cards, loans, etc.) for emergencies?
3. Dave used the analogy of the brick to show that money
is amoral. What did this illustration mean to you?
22 / CORE Super Saving
4. How does the idea of an emergency fund change the
way you view “emergencies”?
5. What would constitute a financial emergency in your
situation? How would you handle that today?
6. Think about how much money you would need to
cover 3–6 months of expenses. How would having that
emergency fund in the bank change your day-to-day
life? What do you think prevents most people from
saving an emergency fund?
personal application
After viewing Super Saving, be sure to complete these
action items before moving on to the next lesson.
SUCCESS
STORY
When I was 20, I had
saved up $1,200 for my
first car. A family
member convinced me
that you “never buy
used,” and that you
should only buy new
cars and trade them in
after three years for an
even newer car. Stupid
me—I believed that!
I spent the next 12 years
paying for three new
cars and still had
nothing to show for it!
Learning a costly lesson,
my husband and I payed
off the last one four
years ago, and we’re still
driving it. It is in great
shape and has a lot of
miles on it. Last year, my
husband’s clunker died,
and we paid cash for a
nice used car.
We never look with envy
at those around us with
fancy new cars. I just
think about that
monthly check they
have to write, and I’m
thankful for the paid-for
cars we have!
—Class Graduate
ƒƒ Complete the Quickie Budget form in the back of
this workbook or in the online resources.
ƒƒ Start watching the credit card offers that come
in the mail. Open them up, make a note of the
amount of credit they’re offering, and then shred
them! Keep a running tally of how much debt you
are offered—and avoided—as you work through
the class.
ƒƒ Optional: Read Chapters 1, 2, 6 and 8 of
The Total Money Makeover.
Super Saving CORE / 23