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Personal Finance on an Index Card

Alistair Huong

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Alistair Huong

Executive Director of AudioVerse

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Recorded

  • August 2, 2019
    1:00 PM
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Father in heaven we thank you for bringing us safely to gether for this. And also this as a young professional gathering you know we have limited time together make it efficient and productive speak to us and give us practical tips on how to be wise stewards and managers of the money you've placed in our hands we pray in Jesus name in that so the structure of this afternoon we're going to be looking at a few principles I been instructed to spend roughly half the time we have an hour roughly half the time we'll be sharing some concepts some ideas some stories and then after that there's going to be an activity that you can work together on in your groups and we have table moderators I know some of them are here they'll be dispersed amongst you to help answer questions at your table so we can try to get as many questions answered that way as possible so not all the questions out to come up to the front but then at the end for the last 10 minutes or so we will take some of those maybe the most common questions or the most urgent questions of people have and we can discuss them right at the end so we don't have a whole lot of time so let's get right into it as I mentioned on stage earlier our topic all you need to know about money on an index card so. A little bit about me my that's my wife and daughter you'll see them there running around out here and. Ah my in my my education goes up a master's degree from Southern avenues University in business and perhaps more relevant maybe a little less relevant depending on your perspective I was also a math teacher in high school which means I know how to add subtract. Multiply compound interest you actually do need to know a little bit of math right to do your personal budget and things and what might be interesting to you is that I am currently in training for my sort of 5 fine. Planner sort of occasion C.F.P. is the designation name I'm in the middle of that so I'm not allowed to use the letters after my name but for what it's worth that is what I'm studying for and my clicker is actually not fully functioning so let me just switch this around quick. Scuse me and let me just make sure I can get this to work. Let's try that and also as far as my career goes I've worked a minister positions all my life I was a high school teacher I worked in a school and now I'm the director of audio verse so I'm not professionally in the financial industry but in some ways that might actually be helpful because I'm like many of you I actually have a normal job and have to raise a family of a family of 3 since 2005 so my daughter is going before shortly and I also work through graduate school without debt so that's one of those things that for those of you considering going to school I share my story in another place I will have time to go through it today but it is still possible if you try so there are a couple of the tidbits that you might be interested in about me since my wife and I have been married our household income has. Only risen above the US median income level once one year in our whole almost 10 years of marriage has been well below the US median income now this is sort of a baseline for what I'm about to share with your eyes a go to keep this in mind so we bought this house and we paid it off in 2 years. And since we've been married we have operated roughly with these numbers we give away 25 percent of our take home pay actually of our gross income 25 percent we spend 25 percent that's inclusive of the taxes and all of that stuff too and we say 50 percent however remember we had a baby in 2015 and you know what they say about babies they're like a nuclear bomb to your personal budget so since that time we have started giving 27 percent we spend 18 percent or we actually say 55 percent so. Why is that. That's the point so so we've managed even efficient more efficient now even more than before we had a child so it is actually possible to live very well to live a middle class respectable life in the United States of America without breaking the bank I just want to just mention this one thing when you listen to the news particularly when you hear you know the presidential debates everyone is all hammering how terrible we have it here in America that's a myth we have it so well here it is in Paris and the reality is we can for most of us we can make do with much less than what we do so since my baby was born we've lived on one ministry salary you know that's code right that's a code word when people say oh I'm on a minister's salary what does that mean we don't get paid a whole lot now I certainly am not complaining about my employer I feel like I've been paid something that's very fair but just to give you the context of what's going on here my wife stays at home and we have no secret stash people like you must have a rich uncle your trust fund baby oh you've got a bit coin or something right no we actually have nothing of the sort so a lot of this our parents I will say the one thing that really gave us a head start which I understand is a major advantage that we have the other people don't have is our parents both my wife and I paid for our undergraduate degrees and we both worked so we actually learned good work ethic and all that stuff so. We document our financial escapades on our blog called Saving the Chromes dot com You can check it out we actually have not written much on it since our baby has been born but a lot of the stuff even here have bumped into a bunch of people that say it's still applicable so if you want to know more details we share the good bad the ugly you'll know exactly how much we paid for our house what our mortgage payments was how much I get paid how much we give away how much we spend on groceries that's one of the big topics because everyone wonders how my wife does it it's all on the blog you can check it out in a very vivid color and if you want to pollute your mind some more. I've actually done a number of seminars at the Y.C. 2015 in 20171 of these years it was actually at this very convention center where I spend nearly 12 hours going through in much more detail than I can do here principles how to tips and various specific things about investing getting out of debt budgeting how to save insurance ties and offerings you know when are we supposed to sell everything when Jesus comes you know all those types of questions we talk about that and we we base it on the Bible and the Spirit of Prophecy so I'm going to be referring to these seminars a lot because we have limited time so I'm going to give you a real high yield. Very fly over 30000 feet view of my philosophy of personal finance and I'm going to be referring you to these seminars a lot if you want more details so for what it's worth a little bit of self promotion here shameless plug for Audi verse that's who I work for as well so the title of our talk this afternoon comes from a gentleman by the name of Dr Harold Pollack he's a Ph D. from the University of Chicago and a number of years ago they were interviewing him and he just made this offhanded quip and he just said. Personal finance is not that complicated the best financial advice for most people would fit on an index card. Do you think that's true how many of you think that that's a pretty fair statement. I think so but of course he had his detractors and there were people that came after him and said Well show us the car. And so he did and here it is this is the exact car in his own handwriting Ph D. professor. You can tell that you know he he he he can actually read his writing so he's not a. Doctor but. So what does he say max out your $41.00 K. or equivalent employee contribution by inexperienced inexpensive well diversified mutual funds such as the vanguard target the funds never buy or sell an individual security the person on the other side of the table knows more about you than about this stuff save 20 percent of your money pay your credit card balance in full every month maximize your tax advantage savings vehicles like a rock or S.E.P. and 529 accounts pay attention to fees avoid actively managed funds make financial advisor commit make your financial advisor commit to a fiduciary standard promote social insurance programs that help people when things go wrong and he wrote this index card went viral online and then he and co-author ended a writing a book about it you can buy it today on Amazon personal finance on an index card. So I read this and I in principle agree largely with what he's saying his idea but as I looked at his card I realized you know what I do have some criticism with what he's saying and that is that this he he seems to suggest when he says the best financial advice puts on an X. car is it's applicable to everyone in all circumstances of all ages rackets Now when I look at this it is in my humble estimate not necessarily applicable for everyone in all circumstances so I would and some of you I would venture to say may not even understand all the terminology but when he talks about the tension of fees and actively managed funds and for do series standard some of these terms are a little bit you know jargon in the industry so I would update his statement where I would say for a particular phase in our life a stage in our life so perhaps when you're a student right or if you're an early career as a single or when you're in your middle career with young children versus your a retiree OK just using those as general categories there could be the key principles you need to apply in your practical management of your money in that life stage should fit on an index card that's my reinterpretation you understand what I'm saying and so those principles do need to be updated because if you're a retiree half the stuff won't matter to you because you're not investing anymore versus someone who is seriously in debt or someone who's a student who is you know in the process of accruing student loans or whatnot this may not be applicable as well. So I went back and I thought OK. If we were to take our chrome saver principles and boil it down to a note card for the little stage of life that we've been writing about on our blog what would that look like so I want to share that with you and using that it'll be you know 10 points that roughly give you the overarching philosophy of how I believe through the bibles of your prophecy we can manage our money and this may not be a perfect fit for your specific situation the understand one of saying this is not a just see if the Lord by any means this is just my personal experience and at the conclusion of our time my little talk here. We're going to break up into our tables and at that point discuss OK what are the key things I need to think about in my particular situation and that's where the table moderators can help us walk through that OK so let's go through the chrome save or no cart and I'll flesh out some of the ideas that we live by and I'll reference you to some of the talks where I go into more detail so the 1st principle for our note card is not found on Pollack's card. Is I think the most important we need to pay God 1st because he owns everything the Bible tells us of the mine own we return to the God owns everything and this is the example we're talking of business here they assign the example I think of as God is the owner of the firm I'm merely the C.E.O. I am his chief executive I have autonomy to make decisions but I don't own the business and the owner can call me and say I expect a profit whatever profits you make pay me the dividend so the tide is essentially the dividend that we pay back to God as the owner but you know the dividend simply means that this is the profit that I'm accruing on a regular basis but it's in the indicative that God owns the whole business you see the connection there so when we talk about 25 percent though a lot of people look at that like what are you crazy. In fact I have a whole talk on this it's called lay up your treasures in heaven on audio verses from G Y C Why go through the Spirit of Prophecy principles where she actually gives us the exact percentage that the Israelites gave in the she makes an appeal should we not do more so a lot of times we have principles we say you know Lord can you please just tell me specifically what your will is for my life can just tell me what to do like for once let them just give me a principle I read this and it's like Lord can you just not be so specific for once and just give me a principle but. One 4th she says exactly so I go by that it is not a 10 commandment you understand it is a soft appeal it's encouraging us to rise of higher and she says this high bar Hey can we can we do better than what these allies did so the next one number to myself 2nd so we're cost from savers for a reason we believe that saving and living on less than we earn is the secret to building wealth and so pay ourselves 2nd now pollicie says a most financial advisors would be closer to him he says save 20 percent of the income if you listen to guys like Dave Ramsey Suzy Orman on the radio there talking save like 10 to 15 percent but I'm like. Just go for broke save as much as you can so in our home we shoot for 50 percent or more and for us that's how we paid off our house in 2 years it's not a big secret we just had gigantic payments we lived on my income my wife was working at the time and we just put into her entire income into the house and everything else extra We knew that she was going to live at home once we had a baby and so we're like if we're going to live like that then let's just live like that now pay off the house we cut out the most expensive budget item on our monthly budget our home mortgage and now we own a free and clear and we live on much less now every month so save number 2 number 3 if you don't work you don't eat you know that's in the Bible 1st 310 if you don't work you shouldn't eat as what it says and if you what's over your head find to do do it as unto the Lord as Colossians 323 so that's a work ethic issue how do we earn money we have to work how do we work as unto the Lord and what happens if we don't work you don't eat. We have to remember that as a biblical principle number 4 OK talk about budgeting now I have a whole talk on several talks action audit 1st why go through specifically the steps of how to build a budget a budget that is based on our savings as our goal is not spending minimisation is savings maximisation because a lot of times we think a budget as what you don't do a budget is often excuse me a budget is often thought of as a diet it's punishment you have to sacrifice after you know. In order to achieve a goal but budgeting is actually a tool to help us achieve our dreams what we what our goals are if I want to buy a house I want to pay my kids through school I want to go on vacation I want to have this new car whatever it might be the budget is to help us get there and I deal budget for a monthly spending is really 0 the more we can spend the better off we are so let me explain that just a little bit when you look at guys like Dave Ramsey and his books and even you know our church has a several resources and how to budget they give you suggest a percentage is a housing 25 to 33 percent groceries 15 or 20 percent utilities 5 to 10 percent it's almost like here at the ideal amount that you should be spending on a house I thought I saw a vest just all baloney. If you can live if you can pay off your house that 0 that's better than paying 30 percent and understand what I'm saying so when we think about our budget it's can we if be more if with how we live our lives it's not to go. You know go without and just live in a cardboard box right somewhere but how can we live with a comfortable standard of living without being just ridiculously American about it so I'll give you an example. Give an example so we we bought a house we paid it off we had some extra cash and so we took that money and we invest in solar panels on our house so usually everybody assumes Oh you've got to pay electric bill that's just the way life is you just have to pay the electric bill well guess what the electric company pays me every month because I've invested the extra means that I had into a solar panel so my budget is not just 0 it's less than 0 I actually make money from my electric bill so there are ways to think about our budget in a way that is not just the conventional I just have to spend whatever one else spends OK So that's the principle there number 4 or sorry number 5 have adequate insurance including 3 to 6 months of emergency fund I think that is the bottom line everybody needs 3 to 6 months of emergency savings and when we say emergency fund it's 3 to 6 months of living expenses so not necessarily how much you make but how much you need to live on because ideally if you are following these up here the amount you need is a lot less than what you make right and the principle behind this is if you get laid off if something bad were to happen you have this to fall back on a cushion that can add absorb adversity that comes your way and adequate insurance I have a whole talk on that health insurance car insurance home insurance life insurance we deal with all that kind of stuff no time to talk about that now but we do need to have adequate insurance we don't have to have you know unlimited insurance we do need to think about risk management here's an important one never pay interest for depreciating asset save up and buy in cash very careful how I see this does this say never borrow money because I want us. To be very careful never pay interest for a depreciating asset so the issue here is when the asset depreciates like I'm going to this is where I get the rotten tomatoes thrown at me like a car right you drive off the lot. The value goes down and everybody has a classic. Toyota Camry is never going to be a classic sorry there's a depreciating asset but if you're paying interest on it not only are you losing money on the value of the car you're paying money with the listing price. It's. Sold through that act like a good back and study math like that's not good not good so don't pay interest for depreciating assets so is there any time that's appropriate to borrow money well the simple rule is never borrow for depreciating asset but the other flipside is the only thing that we should be the only acceptable form of debt rather are debts for things that can either increase in value or things that can pay itself off so the 2 big ones are an education and a home and I would also throw business loans in there too but businesses you just have to be careful because you can you know destroy your business if you're not careful with with debt so that the principle here is not debt is evil and shun it and never borrow money the principle is never borrow for depreciating asset so it's better to save up to buy in cash in those circumstances so number 7 I think this goes without saying Pay off your credit card every month if you're not doing that. It's time to do plastic surgery if you're not able to have the self-control if you're not able to pay off your debts for your credit card every month it's better not to have it. However I will balance this out and say. I don't have a problem with credit cards I have a problem with people with no self-control using credit cards. And in fact there are only 2 ways to use credit cards you either don't use them at all or you put absolutely everything you possibly can on your credit card there's no middle ground if you can be logical about that those are only 2 options because the credit card you get points you have added insurance miles all that kind of stuff and people used to say oh good you're going to put you're going to pay more you know in this day and age all the retailers already big that into the price of their goods if you pay cash you can pay the same I mean not everywhere not everywhere but generally speaking so if you going to use credit cards use them wisely. I know Johnny over here you can talk to him with he's got a lot to share with me before credit cards so. Number 8 investments now OK So investing people always have a lot of questions I boil it down like these are the basic principles when it comes to investing as far as my household invest 1st in tax advantage accounts so that's what previous card also said so your for one cave you have that and IRA Roth IRA and this alphabet soup over here the ROP. 529 S E S A's all these things are tax advantaged accounts for various things most of it is for retirement some of this for health savings that's what they say is some of this for small businesses like S.C.P. and also there are other things like the simple IRA and all that and the 529 and the E.S.A. or for college savings for your children. Or your grandkids or nephews or whatnot so start their tax advantage accounts and then of course there's a whole debate Roth versus IRA that can be a situation based on where you're at but if you're lower income when you're just starting out generally speaking the Roth is the way to go just just as a rule of thumb. So everybody always ask about investment Oh what should I invest in I'm going to tell you what I do now OK So buy and hold broad based low cost index funds that's what I do now if you don't know what that is I have a 3 part article on my blog where I talk about what index funds are and I go through the the breakdown the values that used to evaluate what about real estate what about trading stocks What about gold What about Bitcoin all this kind of stuff I go through and the bottom line is as far as I'm concerned this is the best type of in investments for most people for most people and also don't speculate speculation Warren Buffett once said it's like pornography it's hard to define but I know it when I see it and speculation is one of those things are real as human and we're drawn to it like a moth to the flame and it's very easy you know big going is up all BYE BYE BYE BYE BYE and then it crashes and then we're like. So don't speculate I have a whole seminar couple years ago where I deal it was at the peak of the Bitcoin bubble and I it was like when I was like $20000.00 per Bitcoin and I made some. Predictions and they all came true so I'm not a prophet nor son of a prophet but I have been known to predict a few things correctly so number 10 here is the last one on my card forget keeping up with the Joneses I'm wealthy as long as I have enough and this is very very important because when it comes to personal finance it is not so much how much we have it's how much we need and if we know understand very clearly what our needs are we can be content and contentment with Godliness with contentment is great gain we're told in Scripture and. The thing is wealth is determined not so much by what we earn but by how little we need and so when we think about. Wealth and personal finance we have to have limits and we have to understand what it is that we truly need so this is my note card and these are some of the principles that we abide by in our home but the criticism that I had of Harold Pollack earlier on apparently other people have the same criticism and so they went back to him and he said you know what you're right so he came all with several other note card for different phases of life and I want to share those with you real quickly and then we're going to break up into groups so this one is called basic rules now I'm not going to go through these in detail but these are the things that he suggested and they might give you some ideas when it comes time for you to work on your own card and this one is really he calls them basic rules or what does he talk about he's talking for like low income individuals that's sort of what his target is so it's a set and pursue financial goals that excite you. Follow a budget and track your spending pay CASH OR CHECK rather than by credit card or payment plan whenever possible save consistently and build a financial reserve make sure you are receiving all pertinent public benefits so you see this is pacifically for low income individuals. Make good use of your tax refund and or your see that your Earned Income Tax Credit. Don't buy any financial service product endorsed by any celebrity. Actually a pretty good one. And buy cheap index funds rather than individual stocks so that's basically what I suggest as well invest in your 41 K. if you have access to one use a free financial coach protect yourself from fraud and abuse look into a credit union even if you have been unbanked so honest you can see he's talking about people that perhaps are not really in the financial system in some ways to protect them so the last card I want to show you is he wrote one for young adults OK So that is what we're talking about here today so. He says pay your credit card bill in full every month. Notice he makes that as his number one thing you know could a car companies target college students like you know sharks circling you know injured seal in the ocean they're young people they've got a big target on their back so we really have to be mindful of how we use our credit card keep a budget and spending diary pay cash upfront whenever you can don't smoke mind your alcohol and dining spending too Adventists we don't have too many problems with the smoking or the alcohol but the dining. Yes. OK I'm not going to say too much about that so start saving early make it automatic ideally through a 401 K. This man really loves the 41 K. and you may not have access to one the closest thing would be an IRA. Or 4 Roth IRA If you have a job and no kids aim to save 20 percent of pretax income as you can probably imagine I disagree with him if you're single you have a job no kids like say $75.00 or 90 percent right don't just go over 20 just go for broke and then you might stay single a lot less time right. I'm just saying I'm just saying Great great advice no extra charge. So invest in a low fi total stock index fund Ideally in a $41.00 K. open a Roth IRA If you don't have access to one K. don't buy individual stocks or try to time the markets that's called speculation when trying to time the market you're gambling think federal 1st when borrowing for school and don't combine public and private loans if you consolidate that's actually pretty good good to those of you with student loans. A focused and rigorous major matters more than where you go to college. That is also important and of course we have our perspective with Adventists education and all that but I will venture to say as far as your personal finance goes if you have no clue what you want to study in school maybe most of you're out of school by now who knows but if you're still pursuing it don't wander through an avenue of education aimlessly draining you know if it's your parents' money or racking up the student loans because it's better off to take some time off do mission work learn to know who us you are yourself before you spend the big bucks on an education and by all means if the Lord lead you to go didn't have a school please do do so. Don't And this last one don't push your friends to overspend and be where the same peer pressure applies to you. In the most. No relational social type personal finance tip so that brings me to the end of my presentation here and so at this point we are going to hand out index cards thank you I believe Michelle has that coming and our table leaders can disperse and we may have some people not of tables which is fine and so what we're going to do you're going to get your own index card and you're free to borrow from anything that we discussed on the screen and the next slide I'm going to put all 4 of the cards and all the bullet points on the screen so you can see them and the point here is not necessarily the goal is not to walk out with this perfectly polished thing we don't have enough time for that but to go out with at least a framework in your mind about how to think about it how do I organize my financial life what are the key areas that broadly I need to address so should cover at least the 3 essential domains of personal finance So that's the spending piece of your budget debt things like that savings and investing and giving those are the 3 aspects and the other domains might be things like earning risk or insurance debt we talked about that social relational things added to education if you have particular situation in your life it would be helpful to be mindful. What those are and to address them in writing so you have a purpose you have a goal you have some objectives written down so this card should be practical actionable and applicable to your situation your needs your weaknesses and for your phase in your life you can adapt in the cars I'm going to show you on the next screen and you can use your table mentors experience for discussion if you have questions you can go in and ask them and at the conclusion I'll have to have Michelle tell me when that time is going to be if there are questions from the tables us sort of are you know common bottom line like common threads of questions we can take them at the front and then we will conclude at that point so up before we break up into our respective table I'll go ahead and have a short prayer here to conclude this portion and for the recording and then we will break up into our groups for them haven't we thank you for this time albeit it's been brief as we have surveyed some of these broad principles and tips of how to manage our money for your glory we pray that you will help us now in our discussion may we come. Out of this meeting with some clear ideas of areas we can strengthen and things we can improve on and also give us the in durance to press forward with the financial tools that we ought to have got a discussion now as we continue. This was produced by audio. Services and industry. If you would like to learn. Or if you like.

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