Spending Wisely

If you’ll recall, we learned that there are four things we can do with money. We’ve covered a bit on savings. Now, let’s talk about spending wisely.

We often rush out to buy something before we seek God and pray for Him to provide. We need to wait for the Lord to provide. When we wait on the Lord it will increase our faith when we see that He answers our prayers. Don’t limit God. God provides for the animals.

Matthew 6:25-34 – “Therefore I tell you, do not be anxious about your life, what you will eat or what you will drink, nor about your body, what you will put on. Is not life more than food, and the body more than clothing? Look at the birds of the air: they neither sow nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not of more value than they? And which of you by being anxious can add a single hour to his span of life? And why are you anxious about clothing? Consider the lilies of the field, how they grow: they neither toil nor spin, yet I tell you, even Solomon in all his glory was not arrayed like one of these.” 

When you want to buy something, you do not want to borrow money to buy the item. When you borrow, you are not really buying the item. It’s not yours if the bank can come back and repo it. It’s not yours if you charged it on your credit card. It is only yours when you actually pay for it outright. Credit purchases are deferred purchases. You need to pay cash for your purchases. You do this by creating a sinking fund to pay for those future purchases.

What is a sinking fund? Sinking fund is a financial/commercial real estate term. The definition of a sinking fund is a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset. To simplify, when you have a commercial building you know that something is going to have to be replaced like the air conditioning in ten years. Every year you set aside 1/10 of the cost of the air conditioning. Then, when the AC conks out, you have the money to pay for it. Isn’t that great. We can do the same thing for our purchases. We put a percentage aside each month and earn a little interest. Then, when we need to replace the item we can pay cash instead of borrowing.

The money you want to save in this account is for the eventual replacement of any one of your pieces of furniture, your car, your roof, etc. Let’s say you go down to the store and they offering 90-days same as cash financing. Don’t get fooled by this deal. 88% of those who get into these 90-days same as cash do not payoff in 90-days. Shocking, right? What this means is that company will now back charge you the interest. This happens if you pay late as well. The interest rates on these “deals” is often very high. For example, if you bought something for $5,000 at 24% interest your payments will be $264.36 for 24 months. You would end-up paying $6,344.64! You paid $1,344.53 in interest!

Instead of borrowing the money let’s use the sinking fund approach.

Guess what else. Let’s say that we have been saving $264 a month for about a year and a half. Then, an item breaks down and it cannot be repaired. We have $4,752 in cash. We go down to the store and flash our cash. Do you think that we could get a deal and buy the item for $4,752 instead of $5,000? I’m pretty sure we can. If that store won’t do it, try another store. Money talks.

You also need to save money for your car. Right now, you might have a car that is paid for but not brand new. You know that it will need to be replaced soon. Your car might not be worth more than $5,000 or $6,000. Start putting away about $500 a month into your sinking fund account. In year, you’ll have $6,000 to buy a car. No, it won’t be a new car, but it will be new to you. If you can’t put away the full $500, then put away about $460 a month. It might take you a little longer to save for a replacement car, but you’ll have money in there to replace your car with a good used car. You’ll have a car without payments. You can buy yourself a nice used car to get you back and forth for the next year.

Remember to keep putting money into your sinking fund for the car. In another year, you can buy another car. If the car you bought goes for longer than a year, so much the better. When it does conk out, you’ll have a little more money that you can use to buy a little better car. Don’t forget to keep replenishing the sinking fund. The sinking fund approach allows you to experience a very old concept that many have forgotten. It is saving up money and paying for things without debt. What a great idea. Guess what, our grandparents did just that. They saved for things they wanted to buy and then bought it only when they had the money saved up. 

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