This month I want to start you off with a riddle.  Here are the facts:

1. You have two coins that total $.30.
2. One of the coins is not a nickel.

Here is the question:  How do you make $.30 with two coins if one of them is not a nickel?  (Answer at end of the article).

Sometimes we miss the obvious. We get so consumed by everything around us we forget the basics. I am always fooled by riddles. And, when I hear the answer to the riddle, I usually say something like “duh.” I can’t believe the answer was so simple. Sometimes I get caught up thinking things have to be difficult when in fact they rarely are. A lot of us can feel that way about our finances. Sometimes I share a concept with someone and they looked at me as if to say “that’s it?”  “That’s all you’ve got, Mr. CFP?” Sometimes it is. Sometimes, there are some obvious things that people miss when trying to figure out their finances. Sometimes I feel like the things I tell people are so simple they won’t believe me. The older I get, the more I realize that most things are really simple.

As you start 2007, I want to encourage you to think about trying to do two simple things to help improve your finances. I don’t want you to make a resolution to do it because we know that no one keeps their resolutions. 

1. Spend less than you make.

Proverbs 21:20 (NIV) - In the house of the wise are stores of choice food and oil,
but a foolish man devours all he has.

This sounds easy, but less than 10% of the population actually does it. The average family in America now spends 106% of its income1. How does that happen you might ask? It’s simple: easy credit. Easy credit has made it so that we can buy what we want, when we want it. We don’t have to develop the discipline of saving because we can simply charge it. 

If you spend less than you make, you will never struggle with money. There will always be something left over.   

You may have heard this before: Give 10%, save 10%, and live on the rest. This is a great principle to live by. Now, how do you live on 80% of what you earn when the average (read: normal) family spends 106%? The answer is quite simple: don’t be normal. If normal causes you become financially strapped, stop being normal. Normal is being in debt. You want to be abnormal. As a kid, I was told I was abnormal. I always thought that was a derogatory comment. Now I’m flattered by it.
“Normal” is trying to impress others with your stuff.  It doesn’t work. Chris Andrews of BYI has been credited with saying: "We buy things we don't need with money we don't have in order to impress people we don't really care about." How true is that? This just in: The Jones’ don’t care about you. They don’t even know who you are. Stop trying to impress them.

2. Save early and save often
My seventh grade computer teacher used to say this all the time and now I find myself saying it quite often. This basic principle of computers can help ensure you don’t lose your work. When applied to finances, it can help you become financially free.

Proverbs 6:6 – 8 (NIV) says:  “Go to the ant, you sluggard; consider its ways and be wise!  It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

Albert Einstein said:  “Compound interest is the most powerful force on the earth.” That’s a pretty strong statement from someone who understood power. It was his E=MC2 formula that led to the creation of the atom bomb. Here’s a sample of the power of compound interest:

At age 20, John begins to save $2,000 per year and he does this for a period of ten years at which time he stops. He leaves his investment alone and allows it grow at a hypothetical return of 10%. When he is age 65 that account would be worth almost $900,000! His $20,000 investment grew 45-fold.

Fred decides that he’s having too much fun right now and decides to put off investing. He waits until he is 30. But, he figures, he’ll do one better than John and he will invest $2,000 per year until he is 65 for a total investment of $70,000. Now, it stands to reason that Fred would have much more money than John because he is going to invest a great deal more. But, not so fast. Fred ends up with a measly $550,000. As a matter of fact, Fred would have to invest over $3,300 per year at 10% for the 30 year period to catch up with John. That’s a total investment of almost $100,000. 

Note:  this is a mathematical illustration and is not based on any investment portfolio. Past performance is not a guarantee of future results. 

Time is your greatest advocate when it comes to saving money. It allows the compounding effect to pay off for you.

These are just two of the basic principles we should all understand. If you master these you will be well on your way to financial freedom.

Riddle answer: You have a quarter and a nickel. The quarter is one of the coins that is not a nickel.

1 Source – www.cnnfn.com.  December 14, 2003.  “Has your debt taken over your life?”


Steve Scalici is the Vice President of Treasure Coast Financial, a financial planning firm in Stuart, FL. He is co-host of God's Money which can be heard weekdays at www.oneplace.com. He can also be reached at his website www.tcfin.com.