Inspiration

This is a guest post from a friend of mine named Aaron Tomkins. He sent me an article called “15 Biases That Make You Do Dumb Things With Your Money“. Which essentially says that you should be humble when you are investing and never be over confident, because we are all biased in some form or another.

I asked him to provide his insights on How to be a Good Steward of God’s Money. Here’s what he shares:

Since God doesn’t expect us to be able to predict where interests rates are going, what inflation is going to look like next year, or whether Apple’s next five years are going to be as profitable as their past five years, I think everyone was already born with the tools needed to be a good steward of God’s money. Here are some examples of practicals though:

1. Don’t buy a $40,000 car if you’re making $50,000 a year. Buy a car you can afford, preferably with cash. If you have a car that you can’t afford, sell it, even if it means you’d be taking a loss.

2. Don’t buy a home you can’t afford; the general consensus is that 25-33% of your take-home pay a month should go toward housing. If your mortgage payment is 50% of your take-home pay, you probably bought a home you can’t afford.

3. If you do invest in the stock market, have reasonable expectations and goals. If you don’t know what you’re doing, stay conservative and buy things like index funds. The stock market will return an average of 5% a year, if you stay in your investments and don’t trade all the time, you’ll accumulate a lot of wealth from those returns. If you’re constantly moving in and out of investments, then transaction costs will severely eat away at your returns. And if your stock broker or financial adviser promises you returns of 10-15% a year in the market, run away.

4. Don’t make emotional purchases. Obviously you can buy nice things (big TV, nice computer, etc.), go out to eat and enjoy life with your money. But don’t buy things that you can’t afford – i.e. that are going on a credit card and you won’t be able to pay off for a long time.

5. Give money to God and be generous with your money. The motivation for accumulating wealth should ultimately be that you can give more away. If you’re responsible with what money you have, God will probably give you more in time. If you’ve been proven as being irresponsible with a little though, then he probably won’t give you much more.

6. If you do have an interest in finance, there are a bunch of ways to educate yourself for free. If you have an ipod, download some good podcasts, like the Dave Ramsey Show. Motley Fool also has some good free podcasts if you’re educated in the stock market. Just be aware that even the professionals don’t know everything, so it’s good to expose yourself to differing opinions and then develop a perspective that makes the most sense to you.

7. Finally, the funny thing about opportunity is that it tends to appear (or maybe you only recognize it) after you’ve taken care of the basics. If you’re wrestling with staying above water and living from paycheck to paycheck, do you really think you can do anything with a golden investment opportunity when it comes? You’ll be too pre-occupied with the stresses of your life to even begin worrying about the longer-term. An interesting thing about Apple is that when Steve Jobs returned as CEO, he didn’t start by innovating and producing pioneering products. He started with the basics: getting Apple’s balance sheet fixed, getting their supply chain in order, making the Macintosh work, etc. Even when they finally released the iPod, they weren’t the first ones in the mp3 market by far. But if you have a strong financial foundation backing you, then more options, opportunity, and flexibility will appear.

Anyway, hope that helps!

I’ve been burned several times because I was being greedy also known as “trying to get rich fast.”