“You’ve got to spend money to make money.” A common saying we’ve all heard, but it doesn’t always resonate well with farmers and ranchers who are typically risk-averse when it comes to spending and investing their cash. Bob Baker of Farm Bureau Bank shares how to weigh short-term and long-term trade-offs and the benefits of spending versus investing.
Priorities from the porch.
Much of what Bob has learned regarding finances was learned from his grandpa during evenings spent with him on the porch of his farm house.
His grandpa inspired him with the advice, “The only tragedy in life is having something beautiful inside that the world never gets to see.” However, it takes a vision and financial discipline in order to get where you want to go and do what you want to do.
Grandpa also urged Bob to plan in order to make a positive impact on your life and those around you. He personally witnessed how his grandpa was able to help friends and neighbors in his community when tough times hit. That “investment” in his grandpa’s town and in people he cared about were priceless and left a legacy of love and respect. Keep this in mind as you advance in your career. Even if you don’t feel this way now, when time and money is in short supply you will want to make a difference in your community, in your children’s life or in your church or other social priorities. Smart financial decisions allow you to leave a legacy.
Saving vs Investing
Saving is short term, investing is for your long term benefit. In the long-term, time is on your side for building wealth so find a way to get started.
Where do you find money for investment when you are first starting out?
- Budgets are critical. Create a budget and list all sources of income and all expenses. Bob sees many people fail because they create an unrealistic budget by not including small expenses that really add up.
- Divert funds. Once you have a budget, look for ways to divert funds such as reducing the number of times you eat out or making coffee at home rather than stopping at Starbucks.
- Every penny matters. Any money that you save from your budget now, can really grow with time when it’s invested.
Managing Your Credit
Be extremely careful with your credit for a number of reasons. You do need to build your credit because a better credit score can save you a lot of money in interest charges when you do need to take out a loan. However, credit cards can really hurt your budget. Be careful not to use credit to purchase items that you can do without. For example, you really want that new iPad, but don’t have the cash on hand. So you buy the iPad using your credit card. Given the average consumers’ interest rate for credit cards that $750 iPad will end up costing $1,313 and take 75 months to pay off if you pay the minimum amount due.
How do I improve my credit score? Pay your bills on time!
It does take credit to build credit, but never charge more than 1/2 your limit on any card. Make sure you pay down revolving debt, but accounts with a good payment record that have a long history will help your credit score. Be careful with opening new accounts. When you open a new account your lender will check your credit score and too much of this can actually reduce your score.
Have Diligence and Build Towards the Life You Want
- It’s important to find “accountability partners” who you trust. This doesn’t only mean your spouse. It is also vital that you find a good accountant, a good banker and someone to give you advice on investments. Make sure they hold you accountable through regular appointments.
- Payoff high interest debt. Investing is important, but if the interest rate you are receiving is not more than what you are being charged you are going backward.
- As your income increases, try to live by the budget you are on before a raise and save the additional money or use it to pay off debt.
- Use windfalls wisely. Rather than splurge when you receive that tax refund or other windfall, invest it so that the life you want can become a reality.