This was an original post I did over at ChristianPF - you can check it out in its entirety there.

My wife and I recently built a new home and moved in a few months ago.  It feels good to be done with the process!

There are some good financial lessons to be learned from building a home.  If any of you have done it, you know what I’m talking about.

There’s a lot that goes into building and each step needs to be done in a certain order otherwise nothing will get accomplished!

The same can be said for our personal finances.  We need to have a good plan and make sure things get done correctly, otherwise we’ll be spinning our wheels.

So, here are some lessons learned from the building process and a blueprint for all of us to build our financial house:

Footings

Under every house is a foundation, and under most foundations are footings. Footings are extremely important because they are the basis on which the foundation is laid. 

Improper footings will not allow the foundation to withstand the give and take of the soil.So what are the footings in personal finance?

Giving

A heart of generosity and a willingness to let go of our own stuff to meet the needs of others is one of the footings on which we build our financial house. 

Why? Because God was so generous to us – therefore that characteristic should flow through us as well.

I know what some of you are thinking, “But I don’t have enough money to give” – well certainly there are other things you can give, like time.  But let me ask you – how much have you prayed about your giving?  Have you considered selling things you do have to help meet the needs of others? 

Giving is a critical footing that we must not simply ignore.

Proper Attitude

An attitude of stewardship - not ownership – should be a key footing as well. In other words, as stewards we should desire to make more money, get out of debt, and get our spending under control because we are handling God’s money – not ours.

When we realize that we are to be responsible managers for God’s currency and that our money is simply a conduit of grace, we can begin to have the proper motivation to get a handle on our money.

Foundation

The foundation is the next crucial piece to building a house.  The foundation for constructing a well-built financial house are things like cash flow, emergency funds and a commitment to getting rid of non-mortgage debt! 

Cash Flow

This is simply your income minus expenses. 

Why is this so important?  Because the secret to getting ahead financially is that there is no secret – spend less than you make.  Everything else hinges on this very point.

Emergency Funds

This also is extremely important because inevitably things come up.  Cars break down, roofs leak, furnaces go out.  So you must have the ability to pay for the emergencies without racking up credit card debt.

Framework

Framing is one of the exciting parts of building a house.  You finally get an idea of what the house will be like.  It’s also key because you need the proper beams in the right places to support the house.

Paying off  Non-Mortgage Debt

Credit cards, car loans and the like are mole hills in a garden.  Working hard at getting rid of those types of debts will help free you to give more, save more and invest for your future.

Insurance

Proper insurance coverage is your support beam for your financial house.  This includes reviewing and acquiring proper health, home/auto, disability and life insurance. 

Let’s take for example life insurance.  Unfortunately, there are a lot of misconceptions when purchasing these policies, so you need to make sure you ask the right questions before you buy life insurance.

Exterior Shell – Roof, Brick and Windows

Now this is where building really gets fun and the house begins to take on the character of what you were envisioning when you began the process.

In personal finance the exterior shell would be things like:

Saving for Retirement 

Funding your 401k plan, IRA or Roth IRA is a big step toward getting your financial house in order.  This is the fun part!  Seeing these accounts build up and realizing that you are saving toward a long-term goal is exciting.

Saving for Other Goals

This could be college savings for your kids, saving for a rental home or even your first house.  Having the ability to sock some cash away for these things is a great feeling.

Final Touches

Getting the drywall in and painted, the flooring and carpet in and making some final touches on the inside is when the house comes together and you’re just about ready to move in.

From a financial standpoint some of these final touches may include things like:

Tax Diversification 

This simply means utilizing your investment accounts from the best tax perspective so that you’re not left holding a huge tax time-bomb in retirement. 

You may want to consider shifting your savings around to help diversify yourself from a tax stand point.

Investment Strategies

At the beginning, it’s good to just get saving.  But as you progress and your account balances begin to grow, you may want to re-evaluate your portfolios to determine if you should employ more sophisticated investment strategies to help maximize your returns and minimize losses.

Something to Remember

Building a house is a process that takes time, effort and energy – and things don’t always go as planned.  Don’t get discouraged, and keep plugging away.  The end result will be well worth it!

Friday Finance Round Up is a weekly post that includes interesting articles and blog posts on money found during the week from across the web.

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Money: A Spiritual Check Up – Money Help For Christians

When we make decisions our choices have the potential to affect one of the following three parties in either a positive or negative way: God, Others, Self.

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An Introduction to Money Market Accounts – Get Rich Slowly

Since I touched on Money Market Accounts in my post Setting Up a Financial Safety Net – Three Tier Cash Reserve, I thought this would be a good follow up for more information. 

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Where the US Gets Its Oil – Money Energy

Thought this was an interesting post on the top five countries from which the US imports its oil.  #1 may surprise you!

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Your SSN Can Now Be Accurately Guessed Using Date and Place of Birth – Wise Bread

It seems that nothing is safe any more. And now your Social Security Number, the lynchpin to your credit score, taxes, government benefits and more, is under attack. It can be guessed, with a staggering degree of accuracy, using simple information you probably have on sites like Facebook and MySpace.

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Trapped With a Time Share – Thrive

 I seem to always run into people who wished they could get rid of their time shares.  Perhaps you can relate?

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Financial difficulties like recessions, job layoffs or reduced salaries have a way of revealing how important it is to build a financial safety net. 

Having funds available for emergencies helps weather the inevitable storms of life and can get you through some difficult circumstances without incurring credit card debt.  

Here are some things to consider when establishing your emergency fund.

How much is enough?

Generally speaking, most financial advisors will recommend you have at least three to six months worth of expenses in a cash reserve. 

Depending on your situation you may want more.  For example, if you have a commission-only job and your income fluctuates or you have a seasonal job where your income is low for a few months out of the year it might be wise for you to establish a larger net.

How do I begin establishing a cash reserve? 

If you find your reserves are a little anemic, consider these steps to start the process:

1. Take inventory of your monthly expenses.  Multiply this number by your desired reserve (i.e. 3 months, 6 months etc)
2. Make a budget so you can begin to “trim the fat”.  Cutting back on unnecessary expenses will free up extra cash that can be saved into your reserve.
3. Get creative on making additional money.  Sell your old “junk” on ebay, or have a garage sale.  Use these proceeds to start building your emergency fund.  My wife and I have made some extra money these last few years by selling our old cell phones, clothes and more on ebay.
4. Save aggressively into a savings account.  There are many great accounts out there.  Bob at ChristianPF has a post on the 10 reasons why he loves ING.  If you like using local banks, I suggest calling around to find out who is offering the highest interest.  Otherwise if you are comfortable with online banking then check out bankrate.com.  They allow you to search the highest yields at banks both locally and nationally.
5. Don’t dip into your reserve unless absolutely necessary.  One of the biggest mistakes people make in setting up cash reserves is a false sense of now “having money to spend”.  Stay focused on the task at hand.  After you’ve built up your cash reserve feel free to reward yourself.  Just remember this money is for a safety net.

I built up my cash reserves – now what?

Once you’ve reached your goal for your cash reserve it’s time to get strategic about earning the most interest. 

I usually recommend a Three Tier Cash Reserve System to help keep the funds liquid and yet earn a higher rate of return. 

A three tier cash reserve basically utilizes a checking account, a money market and a short term CD Ladder. 

Tier 1

Tier 1 consists of your checking account.  It acts as your revolving door, meaning  funds come in and go out on a regular basis.  

Since most checking accounts pay nothing, you want to keep no more than one months worth of expenses here. 

Tier 2

A money market fund is designed to provide a safe place to invest short term liquid assets.  They typically generate a higher interest rate than a savings account. 

If you are using a three month reserve you’ll want to keep about a months worth of expenses here and about two to three months worth if using a six month reserve.

Tier 3

A short term CD Ladder is essentially a 12-month CD bought each quarter or four total.  Divide the remaining amount of your reserve by four and buy a 12-month CD.  In three months do the same thing and so on. 

If you fast forward one year from now, you will have a CD coming due every three months in case of a major emergency and need to access the funds.

Theses ladders can be structured in various ways.  For example, you could buy a 3, 6, 9, & 12-month CD all at once if your bank offers those terms.  You could also buy 12, 24, & 36-month CDs to ladder your funds.  I am a big fan of the 12-month CDs for two reasons:

1. They typically offer higher interest than the shorter term CDs
2. You don’t have to lock up your money for a longer time period.  Since this is a saftey net, you don’t want to be in a position where you are cashing out a longer-term CD early and incurring a penalty or forgoing interest.

Set Targets and Avoid Discouragment

Don’t be discouraged if you are not able to get your cash reserve set up like this yet.  The key is to stay focused on saving your money so that you can get your emergency fund where it needs to be. 

Set a target for yourself of when you’d like to achieve this goal and also set little goals along the way (i.e. saving your first $1,000, getting Tier 2 set up etc.). 

Be sure to reward yourself along the way when your goals are met so that you can stay motivated and positive. 

Saving for Emergencies or Paying Down Debt

Inevitably a question will come up from time to time about whether it is smarter to save into an emergency fund or pay down credit card debt? 

I like Dave Ramsey’s “Baby Steps” idea when faced with a question like this.  What he usually recommends is that you save $1,000 into an emergency fund first and then start paying down your debt. 

You can worry about building up your Three-Tier Cash Reserve once you have your debt wiped out.

Resources To Help

• Bankrate.com - compare interest rates on savings, money markets and CDs from banks across the nation.
• Dave Ramsey’s Baby Steps