Don’t Make These Financial Mistakes

Shawn (00:00): Are you making financial mistakes that could jeopardize your future? In today’s episode, we’ll uncover common pitfalls like overspending, relying on debt, and ignoring the importance of a solid financial plan. Join us as we explore how to align your finances with biblical wisdom and secure your financial wellbeing. Let’s get some perspective. Welcome to Christian Financial Perspectives. I’m Shawn Peters and I’m joined by Bob Barber. And today, we’re going to be covering financial mistakes that we have seen many, many times and we hope that by hearing these today or watching/hearing these that you will be able to avoid some of these if not all of them. Bob (00:48): Well Shawn, I’ve made some of these myself. I’ve got this gray hair for a reason. I think that all of us have made some of these mistakes. There’s going to be actually 15 of them that we go over. And I thought of the scripture, Hosea 4:6 that I’ve heard mentioned many times, “My people are destroyed from lack of knowledge.” We are Christian Financial Perspectives and we want to help our fellow brothers and sisters in Christ not be destroyed because of lack of knowledge, and that’s what we’re going to be doing today. We’re going to be giving you a lot of knowledge and I think you’ll find a lot of wisdom in what we’re going to share today. Shawn (01:25): And on the note of the Christian and financial aspect of it, we also have Proverbs 21:20, “The wise have wealth and luxury, but fools spend whatever they get.” Bob (01:36): Kind of lays it out. Like you always say, Proverbs is pretty direct, isn’t it? Shawn (01:39): That’s right. And I know you’ve done this a few more years than I have, Bob, at this point. But the interesting thing is I think a lot of people look at those who are wealthy and make some assumptions that they see people that have money and think, “Oh yeah, well they just inherited a bunch of money.” And the reality is most people who have wealth, it was gained little by little over time. It goes from being diligent, they didn’t get inheritance. Yeah, sure there is some of that. But the Bible makes it clear, I think in this scripture that it’s not that those who have wealth and luxury are just blessed, but the wise have wealth and luxury and there’s a reason for that. Bob (02:19): That’s right. Wisdom goes in there. Well, we got a lot of these to share. Let’s get to it. These first three or four kind of go together. But that first one is frequently buying depreciating items. And I see this a lot, a whole lot. Shawn (02:32): So for example, cars, trucks, RVs, boats, probably not as often for people listening, but airplanes. Bob (02:39): And they all depreciate going the opposite direction of what an investment should do. So don’t ever think of any of these as an investment, a car or an RV – that’s not an investment. RVs, oh my goodness, I think they lose like 30% value in the first year or two. Shawn (02:58): And the fuel economy is not so great either. Bob (03:01): That is a big financial mistake. And I know a lot of people have made that mistake. We’ve had our own clients go out and they want to travel the world or travel the United States. They go buy the RV, they find out after about a year, this is killing my gas mileage, it’s costing me more. I could have gone and stayed in Ritz Carlton’s every day or JW Marriotts versus what it’s costing to stay in the RV. And it is a very costly thing. It’s a very big financial mistake. Shawn (03:27): So easy rule of thumb, car or truck, it’s a necessary thing for pretty much all of this country that you’ve got to have a vehicle to get around. The other things, you’ve got to look at them as it’s not an investment, but if it’s something you end up buying, just know you’re not going to get your money back. Bob (03:44): You’re going the opposite direction. Just think of an investment may lose 30% or 20% every year. Shawn (03:49): That’s right. So number two, we got to hit all these – is right along the heels of this. So using debt to purchase depreciating items, don’t do it. Bob (03:59): You’re going double. You’re paying the interest and you’re depreciating. Shawn (04:03): Right. Number three, spending more than you earn and not sticking to a budget. Bob (04:09): That’s nearly kind of a duh moment. Shawn (04:13): Well, except for our government. I wish we could get our government to actually do that. Bob (04:19): Folks, our government doesn’t have a earning problem. I mean from taxes, they have trillions and trillions coming in a year. It’s a spending problem. It’s always that. Shawn (04:27): So number four, which again, hey kind of the government analogy, they’re basically doing this. Number four, carrying a balance on a credit card typically because of not sticking to the budget. See number three. Bob (04:38): And you can see how all these first three or four go together. This fifth one actually goes with it, too. Shawn (04:44): Number five is not having an adequate emergency fund. 4 to 12 months of whatever your monthly expenses are is recommended to have in that emergency fund to make sure that if something happens, whether maybe you get hurt or injured or there’s an accident or for some reason you can’t work, you lose your job for a while. Having that 4 to 12 months means you’re not having to dip into using a credit card or debt or anything else to keep things going. Bob (05:10): And let me mention this is expenses. This is not necessarily income. Okay. I mean if your income is a $100,000 a year or say $10,000 a month, it’s not necessarily that you need $90,000 in reserves because you got to pay tax and you might be contributing to a 401k, but just your raw expenses is what you need. 3 to 6, I like to see up to 9 to 12 months. Shawn (05:32): So number six, waiting for the perfect time to save and invest. Bob (05:37): Now we’re getting to the saving and investing part. Shawn (05:38): And we’ll give you a free hint today. There’s never a perfect time. Other than now. Bob (05:46): I mean.. Shawn (05:47): Or yesterday. Bob (05:47): I’ve seen this over and over and I’m waiting for that perfect time. And that cost you so much because of compound interest. What compound interest is, it means that if you’re making a stated rate of return, it’s going to double. You can use what’s called the rule 72’s. So if you’re making 6% every 12 years, it’s going to double. If you’re making 12% every 6 years, it’s going to double. And that’s costing you way down the line by not starting now. Shawn (06:14): Right. So the perfect time to invest is now. Bob (06:18): It is. Right now. Even if it’s just $10 a month, and just quit buying those expensive coffees. We were in the airport the other day coming back. Shawn (06:25): Oh well that’s even worse, Bob, you’re in the airport. Bob (06:28): People are paying $7 for a cup of coffee or $8? That’s crazy. Shawn (06:31): That’s why you bring your own snacks and you bring a reusable water bottle you can fill up for free at the filtered water area. Problem solved. Bob (06:38): Everybody could tell Rachael and I are the older crowd because we’re pulling out our cheese and crackers and stuff. We’ve got everything there. Shawn (06:44): Actually, free tip. Don’t buy food and drink at the airport. Many times, it’s actually less expensive to get it on the plane, which is crazy. Bob (06:53): I didn’t know that. Shawn (06:54): When you look at the prices, the average price on the plane, if you really need a snack, get one on the plane. It’s actually cheaper many times. Bob (07:00): Alright, we’re going to get to number seven now. And that is buying on impulse without comparing the cost and making these decisions based on emotions. Don’t use your emotions to buy, give it 24 to 48 hours or even a month to not buy. Shawn (07:17): That’s right. Hey, we’re made in God’s image, so we do have emotions. They do serve a purpose, but we have to be very careful to prevent our emotions from making the financial decision. Bob (07:29): So now we’re going to get into the investing part because once we get past that first part and we’ve got the cash reserves saved, now we’re going to talk about a big financial mistake I see on the investment side over and over. And this is our 8th one of the 15 that’s chasing investment returns and switching strategies too often and not sticking to a long-term objective. That hurts. I mean, and as an example, this year, small cap stocks are way down. I mean they’re not down, but they’re just kind of flat. Shawn (08:03): They’re kind of flat, especially compared to the S&P 500 cap weighted, not equal weighted. Bob (08:10): Right. When you look at that, no one wants to go into small cap right now, but it’s the time to go in it. Because if you look at history, it’s usually the following years where it rebounds dramatically. Shawn (08:21): Well not only that Bob, but just basic asset diversification. You don’t move into, say, the S&P 500 now that it’s gone up so much, you move into something that hasn’t already gone up because you have so much greater chance that the thing that went up so much, well, it might have a pullback. Bob (08:40): But people chase those returns. Shawn (08:41): I know. Bob (08:42): I think of it also like switching lanes. I’ll be in a traffic jam and I see these people switching lanes constantly and they’re not getting anywhere any faster or especially those that exit the interstate and they get stuck at all these lights trying to get back on and I just kind of wave going by. I’m the turtle, I’m not the sprinter. But we get there at the same time or faster. Shawn (09:06): So stick to your long-term objective and plan. Don’t switch too often. Don’t chase the stuff that’s already overpriced, arguably. So number nine, believing financial conspiracy theories without verifying facts and listening to commission-based salespeople who are pitching you the perfect solution. Many times they’re pitching you the perfect solution to the problem they just created and told you about. Bob (09:33): Such a big financial mistake. Shawn (09:35): A little bit of a conflict of interest there, I think. Bob (09:36): I’ve seen this so many times, believing those financial conspiracy theories and they’re not verifying any of the facts behind it. Shawn (09:44): And I would say what, 99.99% of the time, the people who are pitching the financial conspiracy theories, not just the people who are listening to it or believing it, but the ones who are pitching it either are sponsored by someone who’s promoting a solution or they’re the people that are actually offering the solution to the problem they just created for you to be worried about. Not a good match. Bob (10:12): And they’re commission based. I don’t think I’ve ever seen a fiduciary based advisor pushing those financial conspiracy theories. Shawn (10:19): No, because they don’t make $10,000 on a $100,000 amount somebody was able to convince them to spend anyway. So number 10, taking financial advice from unqualified individuals such as friends, family, or neighbors. Bob (10:37): You mean if I hear a stock tip on the golf course, I’m not supposed to go buy it now? Shawn (10:41): Well, you should at least go do some investigation and research into it. But I say unqualified, we don’t mean all of your friends and family and neighbors are unqualified. But you can look at scripture. There’s a lot of scriptures about the whys, and you look at the elder and deacon qualifications. Okay, well if the person you’re taking financial advice from, you can tell that they have their financial house in order that they have shown to be very wise in their dealings… Okay, well maybe there’s someone you could take financial advice from. So just something to keep in mind. Number 11, making large financial decisions based on an unknown future without seeking God’s guidance and discernment through prayer. Bob (11:24): Amen. I tell you, allow that Holy Spirit – get quiet and allow the Holy Spirit to speak to you about financial decisions. As we say around here, it’s God’s money. It belongs to him. Psalms 24:1 says, “The earth is the Lord’s and everything in it.” Shawn (11:39): Everything in it. Bob (11:40): Everything. That means that means everything. That means your car. That means the one you’re going to buy, that means your house. Everything belongs to the Lord. Shawn (11:48): Not everything in your life and your wallet is somehow not part of that. Bob (11:51): You know I’m Baptist, and we go all the way under, but I’ve heard some, they take their wallet out and hold it up when they’re under. Shawn (11:58): They dunk everything except the wallet. Bob (12:01): Yeah. Don’t dunk the wallet. But those decisions need to be made with prayer and in scripture and you can get that advice from a elder or a deacon. Shawn (12:11): Exactly. So number 12, investing everything in one financial sector and misunderstanding investment risk and volatility, which leads to premature selling. Bob (12:21): There’s two or three things in here, as we mentioned this, because one is investing in just that one sector. And that’s been happening a lot, especially this year and the technology and especially in one main company, I’m not going to mention, but I think everybody knows who I’m talking about. Artificial intelligence is what they’re involved in. I won’t say anymore, but it’s one financial sector and really not understanding the risks that comes with that. And that again, people get in on the top and then they start selling or being in a long-term investment and premature selling. So, this all goes together. There’s two or three things in this one financial mistake. Shawn (13:07): Number 13, not sticking to a holistic financial plan annually and consistently withdrawing too much from retirement savings. Bob (13:16): Boy, we see that around here, don’t we? We really do. We come up with a financial plan. It’s got to be updated at least annually. Every time there’s a major purchase or even the thought of a major purchase, it needs to go into the financial plan. And see how is this going to affect me over time? And we have, many times, seen withdrawing too much. We’ve got an example of that, but that’s actually that comes into kind of… Shawn (13:45): Coming in into number 13, we have number 14, which is annually withdrawing more than a portfolio can sustain, leading to total depletion. So Bob, why don’t you go over the example we have. Bob (13:57): Go over the example I had? Well, the example I’m using is somebody like with a $500,000 portfolio all the way up to a $2 million portfolio. And we will see this around here where maybe that’s a lump sum they’ve gotten and they don’t realize that that’s not that much today. And they think… Shawn (14:15): If you’re wanting that to produce an income stream for the next 30 years. Bob (14:19): And based on long-term goals and long-term mathematical calculations, if you’re under 65, you should never pull more than 4% from a portfolio. So a $500,000 portfolio. Yeah, it sounds big, but really, you should not take more than $20,000 a year from that. Even a $2 million portfolio at a 4% withdrawal is $80,000 a year. We’ve gotten these people – clients that think that $2 million is much more than it is and they’ll start withdrawing $200,000 a year. And what happens is, is you’re withdrawing that principle down as you’re doing that because… Shawn (14:59): The problem is it’s a compounding effect, but not in a good way, not compounding returns or something like that. But when you withdraw more than that 4%, then what happens is over time, not only does the portfolio have less in there after you make that withdrawal, but now the issue is, is how much it can actually continue to produce each year has also gone down significantly. So then the next time you take out $100,000 or $200,000 instead of the $80,000, well that’s even bigger of an impact and made it even worse. Bob (15:33): Bottom line is don’t make the mistake of thinking that your portfolio can sustain more than it actually can. And you need a good fiduciary, not commission based, but a good fiduciary financial advisor planner to help you with that. Shawn (15:50): Meaning they are not financially compensated based on how much they get you to invest, because otherwise it’s going to be a conflict of interest. But you want someone that is vested with you on the better you do, the better they do. Bob (16:07): And this takes us to our last point today of the financial mistakes, which is number 15, self investing. Shawn (16:14): Without proper knowledge, experience, or written strategy. Bob (16:18): Shawn is amazing to me how many people want to do investing on their own and they don’t have a written strategy. And I’ve asked this question over and over, what’s your written strategy? And they kind of look at you like a deer-in-the-headlights-look, like what do you mean written strategy? And the second thing that they do that kind of goes with this is they end up following the crowd. Shawn (16:42): Well, because if you don’t have a written strategy, you’re going to be way more susceptible to following the crowd because you don’t have a plan. Bob (16:52): But that crowd, you could take 10 people out of that crowd, right? And they’re all going to have different goals. They’re different ages, they have different goals. Shawn (16:59): They have different risk tolerance, like what they’re actually comfortable with. Bob (17:03): And how they can handle that. They have different time horizons, because you pull 10 people out, one of them might be 20. Well one of them might be 60. Shawn (17:11): Yeah, that’s right. So don’t invest on your own without a written strategy, without proper knowledge. If possible, get some experience or learn from somebody else, and don’t follow the crowd because you don’t know if the person you’re following is even remotely close to the same goals, objectives, and risk and time horizon as you. Bob (17:34): So there we go. There’s 15 financial mistakes we don’t want you to make. I’ve made several of these, especially up in the car buying territory when I was in my younger years, and I hope that this really helps you a lot. Pass this on to somebody, maybe it could help them. Shawn (17:51): And we’d love to hear from you. If there’s ever any topics you want to have us cover, comment. If you’re on YouTube, call us, text us at (830) 609-6986 or visit our website www.ChristianFinancialAdvisors.com. Thanks for joining us and as always, God bless. [DISCLOSURES] * Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors®, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.