Zenvesting Tips for Budgets, Time, Money, and the Three 10 Percents
Young relationships often catch the brunt of financial anxiety. Incomes are lower, savings often non-existent, and household expenditures are ever present. Incorporating restraint, long-term thinking, humor, understanding, acceptance, and diplomacy into the cauldron of new love can be a difficult task. Working from the My Way/Our Way system allows you to work towards your ideal life and financial goals in a holistic manner.
Ideally, balanced and healthy spending habits are acquired at an early age, so that you can avoid a cumbersome debt load and the resulting sentence to debtor’s prison—a state of mind that makes it hard to smile and breathe comfortably. While old habits are hard to break, the following eleven rules will keep you from mismanaging income, assets, and debt. If you follow them, you can be virtually assured of a more balanced life. If you reflect on the accompanying Tao verses, you can be assured of nothing, but with Taoism, that’s kind of the point!
In any case, here are some budgeting rules of thumb that I live by:
Rule 1 – 10% for Yourself
Save a minimum of 10% of your income in your IRA, 401K or another tax-favored retirement plan. This money, while often not convenient to withdraw, is nonetheless usually available if you have financial trouble. Savings is a habit. The average American makes about $2,500 monthly. If they saved $250 each month for 30 years and made 6% interest, they would have more than $250,000. If they earned a return of 10%, they would accrue more than $550,000 on their $90,000 investment. Of course, investment returns cannot be guaranteed and the future is unknown, but I am confident that if you save nothing you’ll have nothing. The most important financial habit is to save and invest 10% of your income. It should be invested wisely so that, as the Richest Man in Babylon stresses, “Gold can have children and those children’s children” (compounding).
From Verse 1, “The nameless is the beginning of heaven and earth. The name is the mother of the ten thousand things. Send your desires away and you will see the mystery. Be filled with desire and you will see only the manifestation.”
Rule 2 – 10% as a “Divine Surplus”
Work to increase your monthly “divine surplus” and set aside 10% of your fixed budget for the “unexpected”—car repairs, a new boiler, or a trip to see your ailing mother. Planner Jennifer Lazarus calls it a bucket of money for “this year only” type of expenses. “By putting it in your spending plan at the beginning of the year, you're recognizing that there will be something unexpected that'll pop up.” The easiest way to handle it is to directly deposit 10% of your paycheck into a credit union savings account. If you need it, simply transfer to your checking account. Depending on the security of your job, a revolving surplus of between 10% and 40% of your net yearly income is ideal. Self-employed individuals would be wise to keep a surplus of upwards of 25%, if possible, due to their sometimes unstable nature of their work, while those easily employed or contractually employed by the government or large corporations, for instance, can usually get away with a 10% surplus.
From Verse 2, “Deny nothing to the ten thousand things. Nourish them without claiming authority, Benefit them without demanding gratitude, Do the work, then move on. And, the fruits of your labor will last forever.”
Rule 3 – 10% for Others
In the spirit of generosity discussed throughout this book, set aside 10% of your budget for family, friends, charities, tithing, gifts, and helping others. It’s the right thing to do, and karma will reward you. I mentioned earlier in this book that in the middle of one sleepless night during my divorce, I counted 100 couches I could sleep on if my money ran short. I know members of my family and many of my friends would have told me, “You and the kids sleep in my bed, I’ll sleep on the couch.” That is security. Security comes from good, committed relationships! They are built on our sincere behaviors of kindness, generosity and compassion. So pay yourself first. Save 10% for others. Budget.
From Verse 3, “Not exalting the talented prevents rivalry. Not valuing goods that are hard to obtain prevents stealing. Not displaying desirable things prevents confusion of the heart.”
Rule 4 – Liquid Assets and InvestmentsAs you invest, be sure to park some of your assets in a liquid, interest-bearing account, such as a money market higher yield savings. Ideally, your liquid savings should equal six months of your budget. Do that and, most likely, you’ll never go into debt. This means that if your total monthly expenses (including mortgage, school loans, charity, savings, food, entertainment, utilities – EVERYTHING) total $4,000, you need to accumulate $24,000 as a security valve. If you earn $5,000 monthly ($1,000 surplus each month) and want a new car that costs $400 a month, you should save the down payment so you don’t dip into your six-month reserve fund. Feel free to consider CDs and conservative mutual funds like the Utopia Yield Income Conservative Fund as part of your liquid assets when faced with setting up your reserve fund. If you have some stock only portfolios, on the other hand, they should be counted on for half their current value.
From Verse 4, “The Tao is like an empty bowl, yet it may be used without ever needing to be filled. It is the deep and unfathomable source of the ten thousand things. Blunt the sharpness. Untie the knot. Soften the glare. Settle with the dust.”
Rule 5 – Balancing Debt
Think balance – life lasts a long time. Debt is not a pretender of the road to ruin. Don’t be convinced that a debt-free life is the ideal. Karma does not work that way. Consolidate your home, investment properties, home improvements, and other long-term assets into one big loan with a fixed interest rate and the minimum required payment.
From Verse 5, “The space between heaven and earth is like a bellows. It is empty and yet never exhausted. The more it works the more comes out. Many words lead to exhaustion. Better to hold fast to your center.” (Quickly go on to rule 6.)
Rule 6 – Taxes Can Help
Take full advantage of the fact that the interest on home loans is deductible. Restructure your credit card bills to take advantage of the equity in your home, but vow to not let your consumer debt pile up again.
From Verse 6, “The valley spirit never dies. It is the unknown first mother, whose gate is the root from which grew heaven and earth. It is dimly seen, yet always present. Draw from it all you wish; it will never run dry.”
Rule 7 – Use Common Sense
Never pay down your home interest rate by paying points. Instead, go for a fixed rate, 15-year to 30-year mortgage that has no points. The idea is to always allow yourself to refinance when interest rates fall.
From Verse 7, “Heaven and earth last forever. The reason why heaven and earth last forever is that they do not live for themselves. Hence, they last forever.”
Rule 8 – Be Your Own Banker
Aspire to be your own banker by paying cash for cars, home repairs, remodeling, boats, etc., to avoid high interest costs. When anticipating a large purchase, begin saving in a liquid account so that when the time comes, ample cash is available.
From Verse 8, “The highest good is like water. For water benefits the ten thousand things without striving. It settles in places that people avoid and so is like the Tao.”
Rule 9 – Pay Off Your Credit Cards Each Month
Maintain control over your “instant karma” cards (credit cards). Again, like other debt vehicles, credit cards offer wonderful freedom and quite often there are frequent flyer miles to accrue, charities to benefit, and other perks. But be careful; debtor’s prison is very quickly accessed through credit cards. Adhere to the following dharma for help in balanced credit card use: If you can’t pay off the balance each month, cut them up and cancel them.
From Verse 9, “Better to stop in time than to fill to the brim. Hone a blade to the sharpest point and it will soon be blunt. Fill your house with gold and jade, and no one can protect it. Be prideful about wealth and position, and you bring disasters upon yourself. Retire when the work is done. This is the way of heaven.”
Rule 10 – Honor Your Commitments
Keep promises, even at difficult moments when the pressure to consume is strongest. Don’t play the irresponsible game of justifying your aberrant spending behavior as someone else’s fault. Integrity is keeping a promise even after you’ve had a change of heart. If you sign the loan application, accept the credit card, or close the deal with the car dealer, it’s your karma to live up to the commitment, each and every payment. Occasionally, legitimate problems arise and it is necessary to appeal to your banker for relief. They are prepared for calls like this, so don’t wait too long.
From Verse 10, “While carrying your active life on your head can you embrace the quiet spirit in your arms, and not let go?”
Rule 11 – Get it Done Now
Don’t wait until you lose your job or have a medical crisis to get your debt/liquidity life in order. Do it now! Banks will loan you money when you “don’t need it” so to speak, but too often decline when difficulties arise. This is reality.
From Verse 11, “Clay is shaped into a vessel; yet, it is the emptiness within that makes it useful. Doors and windows are cut for a room; yet it is the space where there is nothing that makes it useful. Therefore, though advantage comes from what is; usefulness comes from what is not.”
Knowing those 11 Rules doesn’t do any good unless you implement them – Do It Now!!
Paul H. Sutherland is president of Financial & Investment Management Group and manager of the Utopia Funds. His book, Zenvesting, is due out in 2008. This is an excerpt from the book.