Here are two guys passionate about teaching you how to save your hard earned mula. Check out what Dave Ramsey has to say in this video, then scroll down for a chance to ask questions of our money guru friend, Derek.
{Derek Sisterhen}
Derek Sisterhen is the Lead Financial Coach at Lukas Coaching and host of the Past Due Radio Show, where he teaches clients and listeners financial fundamentals and helps them develop a plan to take control of their lives. By coupling financial know-how and Biblical principles, Derek empowers others to accomplish their goals with confidence and experience true peace, from creating a budget to saving for retirement.
After growing up in the Washington, DC metro area, Derek graduated from the University of North Carolina at Chapel Hill. He has experience in the banking industry with risk management, commercial banking analysis, and personal finance. Derek and his wife Elisa live in Cary, NC.
Derek will be around all week to answer questions that you post in the comments.
Here are a few to get you thinking:
1) What should I do first, pay off debt or start saving money?
2) What are the best way to manage my expenses?
3) How do I know if I’m ready to buy a house?
4) How should I handle my employer’s retirement plan?
Check back here to read Derek’s thoughtful answers to your biggest money questions.
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{ 12 comments… read them below or add one }
I thought I would go ahead and get things started by asking a question that I am sure most of you want to know!
Derek, why should I start investing in my company’s 401K now when I am many many years away from retirement. I would rather use the extra money elsewhere like paying down my student loans, etc.
Now its your turn! Derek will be around all week!
Sarah
She Seeks Team
Derek,
My husband and I have 4 children, a mortgage and a carnote. Usually our bills excede our income. How can we budget our money to be able to save for unexpected expenses or vacation?
Derek, what to do if you were clueless/thoughtless in college and end up getting around $80,000 in student loan debt. I now have a job where I make about $32,000/yr. My monthly loan payments are around $700 total. I looked into consolidating, but right now those interest rates are higher than all but one of the interest rates that I have now. I feel stuck, like I can’t take any risks because I need that steady income to make student loan payments every month. Any suggestions on how to pay these off faster, but still be able to live?
Hey Sarah – excellent question (and thanks for inviting me to be here, by the way)!
You wrote: Derek, why should I start investing in my company’s 401K now when I am many many years away from retirement. I would rather use the extra money elsewhere like paying down my student loans, etc.
We want to be very systematic with your money. I like focused and intentional action with my money, so sometimes I’ll pick one goal at a time (like paying off debt or saving for a large purchase) and focus all my extra monthly income on it.
Investing for retirement is great – particularly when you’re just getting started in your career. Here’s something to consider: You start saving $2,000 per year for thirty years. Three years later, I start saving $2,000 (about $170 a month). In thirty years, you’ll have over $100,000 more than me! And I only waited three years after you to get started! So, obviously the sooner you start investing for retirement the better, thanks to compound interest.
HOWEVER, I am definitely NOT a fan of consumer debt. Student loans, car loans, credit cards, and all their cousins are a major problem for your long-term ability to build wealth. In most cases, I would take a very focused approach toward dumping that outstanding debt first, and then going back to contribute to retirement. You’ll be able to save even more (because you won’t have the debt payments in your life), and you’ll actually make up any lost ground very quickly.
Hey Miriam – thanks for the question! Way to go with managing a four-child household!
You said: My husband and I have 4 children, a mortgage and a car note.Usually our bills exceed our income. How can we budget our money to be able to save for unexpected expenses or vacation?
70% of Americans live paycheck-to-paycheck and it sounds like you guys are in that majority. I would highly recommend you begin writing a proactive, monthly budget BEFORE each month begins (if you need a template, check out http://www.lukascoaching.com/resources and grab one of our free budget forms).
We tend to be in a reactive positions on a monthly basis – we watch the money come in, and then watch it turn around and leave. Creating a budget before the month begins allows you to look into the coming month and ask, “What specific events, activities, or purchases are coming up that we need to plan for?” No two months are ever the same, so we can’t expect a carbon-copy budget to get the job done.
Second, I would look very closely at your grocery and eating out expenses. They tend to be the biggest black holes of any budget. For groceries, stick to $150-$175 per person per month in the household. Here’s the trick – don’t go into a grocery store without a list and cash. We can spend up to 18% more when we buy with plastic compared to cash. Cash hurts – let it hurt you in the check out line so you don’t bust your budget!
Third, you’re going to have to get aggressive. Look for things around the house to sell on Craigslist or eBay. Look for every opportunity to tighten up the budget for a couple months to get $1,000 in the bank for an Emergency Fund. You actually can’t get out of debt until you save money (ironically), because you have to pay for unexpected expenses with cash instead of credit if you want to break the debt cycle.
Excellent question!
Hey Ashley – thanks for the question. Let me be the first to say that you, too, fall right there in the majority of college graduates who borrowed a lot of money to get a degree, only to be met with entry level jobs (and entry level pay).
When it comes to personal monthly cash flow (how your income moves through your expenses), there is a very simple equation to determine your monthly financial health:
Income – Outgo = ??
In your case, there isn’t much “outgo” (or expense) cutting that you can do. So, your attention must be turned to the income side of the equation. What can you do to increase your income, pay down this debt, and get on with life?
That’s a hard question to answer. Most folks these days recognize that a 40-hour work week is a bit of a myth. Many of actually work 45 to 50 hours a week, so it can be tough to find and extra job to fit the schedule. Or is it?
I’ve worked with a number of people who’ve left my office in search of part time work because they know it will liberate them from their debt strapped life faster. You can get a job working for someone else or start your own little side business for extra money.
At the end of the day, you have to ask yourself a question: Do I want to stay exactly where I am financially or am I willing to sacrifice some time and energy to make some money and get out of debt for good?
It’s not always convenient, but neither is paying off student loans when your kids are about to go to college (it happens – I’ve seen it).
I am taking distance learning classes right now and the degree i am getting will take me two in a half years. After that i feel that God is directing me to go into fulll time missions and become a missionary.
How should i save money up for that though???
Hey Nicole – what an awesome calling! I always love when I hear about people being led into missions.
From your question, it appears you want to know how to save up money in preparation for entering the mission field. There is a distinction we need to make upfront – the difference between saving and investing.
Saving is when we intend to use the money within 5 years. Investing is when we intend to use the money more than 5 years from now.
Since you will enter the mission field in the next 3 years, it makes the most sense to begin saving money into a money market account or high-interest savings account (like ING Direct, or Ally.com). Just keep socking the money away on a monthly basis. Use your budget to determine how much you have to set aside, and make the transfer to your savings account right up front. For many of us, if we wait until the end of the month to transfer our savings, we’ll have spent some of it and have less leftover to put away.
You don’t need to worry about investing any money between now and then because you shouldn’t expose the funds to the risk of the stock market. If you had a longer time horizon, you could consider investing. At this point, your best bet is a good savings account and disciplined monthly savings.
Good luck to you and God bless!
thank you for the advice.
Hi Derek!
I’m twenty years old with no credit and I’m really wondering what the best way to build credit is? I really have no desire to get a credit card, and to be honest I really don’t want to even have credit, but I realize I must have some credit history. My biggest goal within the next three years is to own my home. I was also wondering if I make a hefty down payment on a home, is credit necessary to have?
Thanks!
I should have said, “BUY my own home”.
Hey Samantha!
You are in an AWESOME position right now! Way to go! Let’s talk about this whole credit-building business…
The truth is, you CAN live life without a credit score. I know what you’re think, “That’s impossible – everywhere I turn it’s FICO this, or credit check that.” In truth, the only way to get a credit score is to actually sign up for a credit instrument – like a credit card, car loan, personal loan, etc. So, you have to go into debt to build up a credit score so that later you can go further into debt. Sounds backwards to me, but that’s the myth a lot of us buy into. (You can get some straight facts at http://www.lukascoaching.com/facts.)
You CAN develop a credit HISTORY without a credit card. For example, if you pay your cell phone bill, your utility bills, and rent on time, you develop a credit history. Mortgage lenders can use this history to determine your creditworthiness when you go to purchase a house. If I’m in your shoes, I’m going to keep my bills current and start saving like crazy!
I recommend folks looking to buy a home do a few things to prepare:
1) Have a good Emergency Fund in place (about 3X your monthly expenses).
2) Have a down payment in place (at least 20% of the purchase price of the house); the reasoning here is that you go into the house with a solid equity position – no stress over fluctuating housing markets – and you avoid Private Mortgage Insurance (PMI) which is charged to anyone who doesn’t put at least 20% down (it can run about $60 per $100,000 you borrow).
3) Get no more than a 20-year mortgage; if you buy a $150,000 house with a 30-year mortgage, you’d wind up paying $70,000 more in interest than if you stuck with a 20-year term.
4) Make sure your monthly mortgage payment is less than 30% of your TAKE HOME pay; mortgage lenders will tell you that you can handle a payment that is 33% of your gross pay (but remember, their job is to sell you money!); if you buy into that, you won’t have enough freed-up cash on a monthly basis to accomplish other goals.
Bottom line, I’m not going to make my financial decisions based solely on credit scores. If you keep make your payments on what obligations you already have, you’ll develop a great history. If you approach a mortgage lender with a solid down payment and NO OTHER DEBT, you’ll get an awesome interest rate and have no trouble.
Congrats!