A written Spending Plan. A tangible snapshot of the month. Below is an excellent example of a close-to-comprehensive form for a Spending Plan.
What do you think?
The 1970s were in full swing during the summer I turned 13. I was able to get a job that actually earned a paycheck. I was hired to de-tassel corn from July to mid-August. I would get up in the morning before daylight and complete my chores and ride my bicycle to town to the municipal parking lot. I would lock my bike up and get on an old school bus with a bunch of other kids and off to the fields we went. We always started in the field at 6:00am and usually worked until 6:00pm or until it was to dark to see.
We would start at the end of a row and pull the tassel off of each corn stalk…stalk by stalk with zero tolerance for missing a tassel. You would need to keep pace as well and as soon as you emerged from a row you would turn and start a new one.
The morning dew on the leaves would render the leaves razor sharp. You quickly learn. A plastic garbage bag would keep the dew out and stop the leaves from cutting you up. Just cut a hole in the bottom for your head and two on each side for your arms.
I packed a lunch that would be almost unrecognizable by lunch-time from sitting in the intense heat of the day. Or sometimes my lunch would be stolen by lunch pirates.
At the end of the day many kids would either quit or be let go. That first week I worked 78 hours. My net pay for the entire week was around $40. After working 7 weeks or so I accumulated about $220 for the summer.
My family was very poor and the money would be used for school clothes or supplies. Well, that was the plan. It’s not what happened. My first paycheck was 100% spent on a handheld video football game. Yep, just a few dots beeping across a tiny screen.
I had a lot to learn about money.
By the way, I still have the game. E-bay lists them at $45 in primo condition.
A little history of the mortgage market first. In October 1981, according to Freddie Mac, mortgage rates peaked at a whopping 18.45%. People graduating from high school in 1981 were told they may never own a home. The interest rate would push them out of the market. Rates moved slowly downward. In 1985 rates had dropped in a very slow, steady slide to just below 12%. By 1991 rates had leveled off to a range of 8% to 9%. Rates for the next decade (1991 to 2000) would be somewhat steady around the 8% mark. 2001 to present day, rates have slowly declined to a low of 3.35%.
Will past history help us predict the future? If there are any obvious indicators we might glean from the past, is that it appears we should never be in a panic to think rates will have a dramatic change overnight. The next few years may be a great opportunity to own a home at an affordable rate. The other side of the equation has shown an overall increase in the market value of real estate since 1980.
So, what will happen in the future? Will rates take a steady, slow climb as the market value seems to stagnate or decrease in value? No one really knows for sure. I still think over the long haul that owning your home will still be a great investment. You still need to live somewhere so why not get a payment that will stay steady for possibly the next 30 years so you can budget to save.
Mortgage rates are still somewhat driven by supply and demand but we may soon see our interest rates go up on our savings account. With that said, as we start this New Year, it may be a great time to start saving.
Exponential Growth. This is a term I learned in high school math class. It was explained this way:
Exponential growth = deposits + simple Interest compounded over time
An example of exponential growth would be saving $1,000 and investing that sum in an account that averages 10% return compounded annually. If no further deposits are made, then the first year will earn $100 dollars of interest. The second year the interest will be calculated on $1,100 balance, thus yielding $110 dollars in interest, and so on and so on year after year… After 30 years the account will have a balance of $17,449.40. WOW! If I was to repeat this savings goal year after year and invest the thousand dollars every year, well, you get the idea. This is a better plan for your money than paying the rent increase on your place over time because you did not buy a home when rates were low and rates were fixed for 30 years.
Exponential growth needs time. But most of us have time. Well, some time…
So, if you woke up this morning and the weatherman said there was an 80% chance of rain you would probably take your umbrella. Chances are pretty good it will rain.
We are living longer and according to the last census over 80% of us will live to be at least 60 years old. Chances are you will be here for some time to come, and you still have time to prepare for the future. In other words most of us will need this rainy day fund at some point and time. No matter when you start you will be better off than doing nothing at all. So why not start today? So much depends on our time horizon and our risk level. I would ask you, what is your plan? How will you prepare for your future?
I am no Dave Ramsey but I have learned a little from some of my own mistakes. As an 80s graduate of the Father Guido Sarducci Five Minute University, I was highly sought after for low-level retail jobs at first. But when they dried up, I was forced to go back to school and get an additional degree in communications. Now I would still have a low-level retail job with with student loan debit to go along with it. Facing an uphill battle, I did the smart thing and started a family.