Leading Financial Change in Your House

John Kotter wrote a book called Leading Change that is a business school standard and I happen to have it on my book shelf here in the office. I was thinking about what I wanted to share with you this week and I glanced over and saw the title. All I could think is, “boy that’s timely.”

We are in our third week of facilitating Financial Peace University here on campus. As I said in my post Why Is It So Hard To Talk About This Stuff, we are attempting to equip the folks in the class with information that will help them lead change in their house and here at the Riverfront. So in that vein I am going to start a series of posts about leading financial change in your house.

Leading Change: The Power of Accountability

How many times have you started a diet or a new-year’s resolution only to leave it in the dust a few weeks later? I know it’s almost an annual occurrence for me. It seems like every January I make a list of personal “resolutions” that I have completely forgotten by the middle of March! Isn’t that how it is with nearly everything? – We just get caught in the daily grind and forget about what we wanted to accomplish.

In business we create structure to keep us accountable. At both of our businesses, Gallup FCU and Guide Rock, we have a board of directors. One of their major responsibilities of the board is to keep us accountable for the goals we set. We have to report to them every month about the progress of our projects. It might seem simple but when you know that you have to explain your progress, or lack there of, to a group of people you respect – it seems to light the motivation fire. The board also offers a wealth of experience and input to the business. When we run into road blocks or need some advice, their collective experience often gives us insight on how to approach the problem.

In my opinion the most valuable part of our board is having a group to celebrate success with. The board can get excited about accomplishments because they know how hard we have worked to reach our goals. They have been a part of the process since the very beginning!

Guys, you will never be able to implement the financial change you desire until you have an accountability system in place.

Have you ever heard of having a “Personal Board of Directors?” It is nearly identical to the board of directors for a business, except it is for you personally. Your board can be made up of anyone you want - it might include  your spouse, parents, boss, friends, pastor, or any other individual (both Ronny and I have filled these types of rolls in the past). The idea is not to necessarily tell all these people that they are on your “board”, you could if you wanted to. It is simply to have a group of people you trust and could go to for accountability, advice, and celebration.

In my opinion you should be very deliberate to include someone on your board with whom you can be accountable with for your finances. This part is important, no matter who you choose, make sure you pick someone who really cares about you… that’s not necessarily your spouse.

You need to pick someone who will be firm with you when necessary and will care enough about you to push you toward success even when it is hard for them.  Everyone has a different personality. You know if you need someone who will be a tough, no-nonsense coach or if you need someone who will be a softer, doctor Phil kind of counselor. 

The bottom line is that you need to find the person who will help you achieve success. Think hard about who that is and then take that person out for a cup of coffee to see if they are willing to take the journey with you. If they are the right person for the board seat – they will be excited to get involved.

Rich or Drive Rich? – Thomas J. Stanley Ph.D

This week is a re-post from Thomas Stanley, author of The Millionaire Next Door and Stop Acting Rich:

Rich or Drive Rich Posted on July 29th, 2010

People often contact me asking for special dispensation because they drive expensive prestige makes of motor vehicles. They maintain that this is an effective way to show others [especially prospective customers/clients] as well as themselves that they are successful. And every one of them tells me that they either got a great lease deal or purchased their motor vehicle at cost, at dealer's cost. . . .   But should you be bragging about the deal you cut if you're driving around in $80,000 worth of sheet metal?

Sorry but I don't give special dispensation!  I do tell these people, however, that 86% of those who drive prestige makes of motor vehicles are not millionaires [having an investment portfolio of $1M or more-see Stop Acting Rich]. Also, I mention the median price paid for the most recent motor vehicle purchased by a millionaire was $31,367 [for decamillionaires-$41, 997].  It is understandable why so many people relate wealth with the price tag of a motor vehicle.  In a study of more than 2,000 respondents, The Wall Street Journal  found that 35% believed that in order to qualify as being rich a person must drive a car that costs $75,000 or more.  If I applied this $75,000 threshold to the millionaires whom I surveyed, more than 90% would fail to qualify.

I also mention the case studies about two decamillionaires who drive anything but prestigious automobiles.  One of these men invented the "dumpster"; he drives a Honda Civic.  In sharp contrast, a trial lawyer who works in Boston commutes everyday in his Ford 250 super duty pick-up truck.  Clients judge his success on his track record in the courtroom, not on the basis of his choice of motor vehicle!

The key here is simple:  focus your energy on becoming an economic success not on acquiring the pseudo symbols of success.

Interest Rates: 3rd Grade Expert

Which would you rather have $2000 at 1% or $500 at 5%? Well, I don’t know about you, but I would rather have the two grand. The kicker is that some of you are yelling at the monitor right now:

“BUT ANDREW, YOU’RE MISSING OUT ON 5%!” (even if you didn’t yell it, you probably thought it)

Herein lies the problem.  You see, from the time we are but wee children, interest rate concepts are repeated to us over and over.  Higher interest rates on your savings is better, lower interest rates on loans is the sweet spot… and by the time we reach high school  - time to give out the gold stars you’re an expert. But somehow in all of our expert wisdom we missed the larger, more important concept.

You can’t earn interest on the money you don’t have and time is more important than rate.

I may have just dropped a scud missile on everything you once new and loved, I’m sorry.

It feels so good to be able to complain about how low interest rates are. After all, the expert wisdom that Ms. Williams shared with me in 3rd grade tells me that higher is better! Most of the time the folks that are complaining about rates are those with the $500. Do you know what the annual difference between 5% and 1%  on $500 is?  - 20 bucks (duh, Andrew I’m an expert). So who cares!?

Guys, we have got to start focusing on what matters. Cash balances matter, saving while you are young matters and paying down debt sooner rather than later matters. We have a tendency to forget these things and we make excuses as to why we are not doing this. Almost everyday I talk with someone who is taking cash equity out of their house because interest rates are so low. Or someone who is putting saving on hold because after all, what’s the point? Interest rates are so low!

The point is that increasing your debt and taking on 5 more years to your mortgage will cost you more in real dollars over the long term. Postponing your saving will drive you toward credit card debt and keep you awake at night. I look at this journey up the tall mountain of financial independence as a race, not a hike. What’s going to get me there the fastest? I’ll give you a hint, it’s not more debt.