3 Keys to Success

Chelise Pack

Financial Control
INTRODUCTION
As my children enter young adulthood, I feel an increasing
urgency to instill in them an understanding of the

importance of controlling their finances. In a world that

embraces the slogan Buy now, pay later, children are

emerging into adulthood with the unrealistic expectation

that they should have everything that their parents have

and moreright now. This attitude too often leads to

A budget is
telling your
money where
to go instead of
wondering
where it went.
-Dave Ramsey

Financial Control

3 Keys to Success

unnecessary debt that can be difficult, if not impossible, to

repay. The bondage of debt frequently results in negative
consequences that can haunt individuals throughout a
lifetime. This doesnt need to be the case, however.

Though financial peace has no one hundred percent

guarantee, it can be accessible to everyone. Maintaining a

healthy budget, exercising discipline and wisdom in

making purchases, and investing judiciously are the keys to

young adults controlling their personal finances, rather

than allowing their finances to control them. The following

document illustrates both the impact of these keys and the
dramatic contrast between utilizing them and ignoring
them.

BUDGETING
Studies have revealed that people who lose control of their finances

experience higher levels of financial stress, increased incidences of depression,

and greater relationship strain, often resulting in divorce. In contrast, those who
report personal financial control profess greater overall happiness and life

satisfaction, even when they may not be considered wealthy (Bennett). These

findings clearly indicate the benefits of maintaining control of personal finance,

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and the first key to gaining that control is budgeting.

Keeping track of finances is essential to creating a budget. This practice

assists individuals in being more mindful of their money and where it is going.

Carefully tracking account balances and spending establishes a natural sense of

accountability that transfers to better money management and causes money to
stretch farther (Ramsey 63). Additionally, the awareness of spending helps curb
impulse buying, which can quickly deplete a bank account if not monitored.
Famed financial expert, Dave Ramsey asserts, The average family allows

$400,000 to slip through their fingers every five or ten years (56). The following
example illustrates how quickly only a few unplanned purchases can add up:

John is a full-time student with a part-time job and is struggling to make

ends meet. His busy schedule can be challenging, and he is often tired. To
combat this lack of energy, he stops by the local convenience store daily to
pick up an energy drink that costs $2.30. John also quickly grabs a $3.00

protein bar on his way to the gym five days per week. Finally, he enjoys
meeting friends for lattes that cost $3.20 three times weekly. When John
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calculates these purchases at the end of the month, he is shocked to

discover that he has paid out a total of $167.40 in unplanned spending, as

seen in Figure 1. If John had prepared a budget and kept track of his

spending, he would have not only been more aware of where his money was
going but also able to adjust his expenditures to adhere to his spending

Expense

Cost

Frequency

Monthly Total

Energy Drink

$2.30

Daily

$69

Protein Bar

$3.00

5 times weekly

$60

Latte

$3.20

3 times weekly

$38.40

TOTAL

Figure 1

$167.40

Making the effort to build and follow a realistic budget results in financial
stability and peace of mind. The process is simple:

List all income. (Calculate the monthly income average.)

Subtract expenses from the total income to reveal final cash flow.

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plan.

List all monthly expenses.

Analyze and adjust the budget frequently (Bennet).

PURCHASES: TO BORROW OR NOT TO BORROW?

Spending money is a normal part of life. Whether purchasing food, clothing, toys
or entertainment, everyone makes choices almost daily about how their money

will be spent. The challenge lies in exercising patience and wisdom when making
these purchases. An important consideration is how to pay for the things that we

buy. There are two main options when it comes to buying goods and services:
paying with cash or paying with credit. The following two examples will
demonstrate some basic differences in these two payment options:

Justin has just graduated from college. He lives frugally, spending his
money logically and thinking ahead to his future. Though his finances are

tight, Justin has set aside a little money every month in a savings account
that has paid modest simple interest, and he has accumulated about $8,000.
When he realizes that he needs to buy a car, he chooses a reliable vehicle
that meets his needs for $3,000. He now considers his payment options: he
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can get a loan through his credit union and have a monthly car payment, or

he can purchase the car with cash and invest the money he would otherwise
have allocated to a car payment. Justin decides to pay cash for the car, rather
than to bind himself to a monthly payment.

Henry, too, has recently graduated and sets out to buy his first car. Wanting

to impress, he visits a dealership and selects a brand-new SUV. Henrys

parents have given him $3,000 as a graduation gift, so he decides to follow
the salesmans advice, use the gift as a down payment, and get a loan to pay

for the remainder of the purchase. He borrows $25,800 and is given a

compounding interest rate of 3.4%. His car payment is calculated as $397 a

month for 72 months. Henry figures that if he is careful, he can make the
car payment and still cover his other expenses. At the end of the six year

term of his loan, he has paid a total $28,584 toward his car loan. Considering
his $3,000 down payment, he has spent just over $31,500 for his car.

The greatest contrast between these two purchasing choices is evidenced by

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comparing the way that both Justin and Henry have chosen to use their money
and what that money will do over time.

INVESTMENT

Dave Ramsey describes compound interest as a mathematical explosion that

quickly adds up until it eventually goes nuts (18). In Justins case, this

explosion yields increase. Henrys situation, however, is just the opposite. The
rest of their stories begin to reveal the remarkable power of compound interest:

As we have seen, Justin chose to pay cash for his car. After budgeting $50 a
month for car maintenance, he invests the money he would have spent on a

car payment for a used car. He allocates a modest $250 a month to an

Figure 2 clearly displays the ultimate possible results if Justin continues to

contribute only $250 a month to this moderate investment over a period of

30 years.

Approximate Investment Returns

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investment that pays a conservative average of 5% compounding interest.

250000
200000
150000
100000

50000
0

Figure 2

5 Years

10 Years

15 Years

20 Years

25 Years

30 Years

Unfortunately for Henry, by limiting himself with debt he was not only
unable to invest money, but he also struggled to make the monthly

payments for his car. His credit became scarred by late and missed

payments. Finally, Henry realized that he had made a poor decision and
decided to sell his SUV. Little did he know, however, that new cars lose
70% of their value within the first four years of purchase (Ramsey 88).
Henry was left with very little to show for his financial decision.

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CONCLUSION

There is no such thing as financial security. No one can predict what the future
will bring. However, financial maturity brings people closer to security than

simply doing what feels good. When individuals discipline themselves, devise a

plan, and stick to it, they enjoy peace of mind. When they exercise patience and
wisdom in making purchasing decisions, they keep themselves free from the

bondage of debt. And when they educate themselves about the powerful effects
of compound interest, they achieve financial harmony.

References

Bennett, Briggs. Using and Understanding Mathematics. Boston, Massachusetts: Pearson

Learning Solutions, 2015.

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Ramsey, Dave. Dave Ramsey's Complete Guide to Money. Brentwood, Tennessee : Lampo Press,
The Lampo Group, Inc., 2011.