Sound financial management


Financial planning and financial management has been a part of the work I have done as an Agriculture Extension Agent. This work has typically been with farmers who have issues with staying ahead of the bill collector or perhaps were looking for assistance with personal finances or with a farm expansion.

At one time I assisted with a high school that worked with area businesses to put on day of financial planning education for the high school seniors. The seniors participated in a scenario where some of them played the part of young adults who got married, had children and who then had to face the realities of staying ahead of the bills. The issues of unexpected bills such as a drunk driving ticket, additional insurance cost, a sick child, a car breakdown and a faulty water heater were all additional issues that these young people were faced with. I was amazed at the lack of financial knowledge that these seniors had. I came away from this event with the realization that as parents and adults we need to do more to increase the financial savvy of the younger generation.

Today we see adver-tisements for great debit cards that allow a person to get paid two days early. I see reality. The reality is that most businesses today use electronic means to pay their employees. Another reality is that even if a person accepted one of these offers the two days early would only apply to the very first payment. If a person was paid every two weeks, all the following payments would still be two weeks apart.

Another advertisement that bothers me is the offer for people who have structured settlements with payments over a period of time or people with annuities to get their cash now. In the financial world there are formulas for calculating the present value of a stream of cash payments over a period of time. Here the reality is that to get a payout of cash for a stream of future payments means a significant reduction in the amount of that payment. One only needs to look at the news releases for winners of lottery jackpots to see this. A California jackpot winner wins 530 million dollars which would have a cash payment option of 345.2 million. Another lottery listed a winner of 117 million with a cash payout of 94.9 million.

Many of the old financial sayings have meaning that is based in reality.

There is no free ride. The way to have money is to spend less than you earn.

This brings up another reality that I make a point to bring up when I am doing any financial counseling. The old saying that “a penny saved is a penny earned” is normally attributed to Benjamin Franklin. In todays’ business world I revise that by telling people that a dollar saved is a dollar and a half earned. When we look at our paychecks we can look at around a third of our income being deducted for taxes and social security.