This is why I have not posted for a few weeks. But I’m back. And some of Matt’s final words have motivated me to redouble my efforts.

Changing the Family Tree

Seeing so many family members got me to thinking about something financial coaches talk about all the time, and that is changing your family tree.

Changing the family tree is another way of saying you left things in better shape than when you arrived. In the context of financial planning, this can mean leaving a financial legacy for your progeny as well as teaching them to master their money and build wealth.

In my experience, there are three key areas of concern:

1. budgeting,
2. understanding debt, and
3. investing.

Budgeting

Many experts say that budgeting is telling your money where to go instead of wondering where it went. A budget is kinda like a diet for your money.

But since no one likes diets, think of both as lifestyle changes. Just as weight loss will not be permanent without dietary modifications, winning with money will not stick without knowing what you income is doing. I never made progress with my exercise (spending) program until I started using MyFitnessPal (budgeting).

Understanding Debt

Understanding debt sometimes depends on the expert you listen to and your risk tolerance. And they is the tendency to favor the understanding that matches our debt circumstances.

For instance, Dave Ramsey believes that all debt is bad, and he sites his horrific personal experience, and supports it with biblical evidence like Proverbs 22:7.

The rich rule over the poor, and the borrower is slave to the lender. - Proverbs 22:7 Share on X

Others like Robert Kiyosaki believe there are good debts and bad debts.

Like Dave Ramsey, Robert Kiyosaki says using debt to buy doodads is a bad idea. He says that doodads like homes, cars, and boats are liabilities, because they take money out of our pockets.

Borrowing to buy, say, rental units is okay. He says that rentals are assets, because they put money into our pockets. So according to Kiyosaki, the direction of cash flow determines whether something is an asset or a liability.

And here’s where the risk tolerance comes in. Ramsey has low risk tolerance; Kiyosaki is okay using leverage (i.e., debt) to amplify the outcome of his deals.

Investing

Investing is a broad term that includes saving for:

1. short-term purchases,
2. rainy days, and
3. retirement.

Short-term Purchases

Short-term purchases are things you will spend money on in the next 5 years. Christmas clubs and vacation clubs are examples of things that occur each year for most people. Saving for a swimming pool or auromobile may take longer.

Rain Days

The rainy day fund is also known as an emergency fund. It’s basically a pile of money used to pay for unexpected expenses such as a blown hot water heater.

Retirement

Retirement is unique in that most people start too late and have to play catch-up, yours truly included.

Last post, I talked about the simplest (yet most effective) asset allocation I have learned. That is the three-fund portfolio. The earlier investing begins, the less you need to invest.

Below, CPA Mark Kohler explains on his channel something that makes me wish I started at age 20, not age 40! In a nutshell, starting at age 20 requires just $45 a month to retire a millionaire. Wait until you’re 30, and it jumps to $145. Age 40, $450 a month. And age 50??? $1650 a month. The sooner one begins investing, the more time that compound interest has to work.

Now you know the three ways to change your family tree.

Budgeting. Know where your money is going. Rich people budget.

Understand debt. Know your risk tolerance.

Save. Save for purchases. Save for a rainy day. Save for your retirement.

In a future post, I’ll explore how to transfer wealth up the family tree.