Read:When people hear the term investing, they may think of a loud and chaotic trading floor with people selling stocks and bonds. While that may be part of investing, investing is also the act of putting time, effort, or money into something and expecting some type of a return. In this sense, investing is an element of self-reliance.
In this chapter, you will explore three ways to invest:
Save money
Consider home ownership
Seek education
1. Save Money
Ponder:Take two minutes to think about the following question and write down your thoughts: What would I most like to save up for?
Read:One of the easiest ways to invest is to save money. You have been working to build an emergency fund, starting with one month’s worth of expenses and then building up to having three to six months’ worth of expenses. Imagine the possibilities if you continue to save even after establishing a strong emergency fund.
Elder L. Tom Perry taught, “Pay yourself a predetermined amount directly into savings. … It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing” (“Becoming Self-Reliant,” Ensign, Nov. 1991, 66).
As illustrated earlier with the jar example, it is critical to “pay yourself” first by putting money into savings. This will help you build financial security.
Image
common approach jars
Image
self-reliant approach jars
Discuss:Take a minute to review the jar example again. What is most meaningful to you about this example? How are you demonstrating faith by taking the self-reliant approach?
2. Consider Home Ownership
Read:Buying a home could be another way to invest. Home ownership is not for everyone, however, and often renting may be a better option.
Read:For those considering home ownership, remember these two principles:
Buy a home only when and where it makes sense for you.
Buy only what you can comfortably afford.
Now let’s discuss some factors that can influence these principles.
Discuss:Why are these questions important to ask yourself before purchasing a home?
Read:Most people buy a home using a loan called a mortgage. This mortgage is debt, and it will cost you interest. You are expected to make the monthly payments and pay back the loan.
For long-term financial stability, your monthly mortgage payment should not exceed 25 percent of your monthly income. Use this as a guide for what you can afford to pay, rather than what a lender is willing to let you borrow.
Discuss:What does it mean to you to purchase a home that you can comfortably afford?
Read:Keep in mind that there are other expenses of home ownership beyond the mortgage. When you own a home, you are responsible for the maintenance. Things break, wear out, and sometimes need updating. Financial advisors generally recommend saving at least 1 percent of the value of your home each year for maintenance.
Get out of Mortgage Debt
Read:As explained previously, a mortgage is a loan—it is debt—and it costs you interest. Reiterating President J. Reuben Clark’s teachings, President Ezra Taft Benson said, “Let every head of household aim to own his [or her] home, free from mortgage” (“Prepare for the Days of Tribulation,” Ensign, Nov. 1980, 33). Paying off a mortgage earlier might require some sacrifice, but the faster you pay it off, the more money paid out in interest you save. There are two ways to pay down your mortgage:
Pay extra
Structure a shorter-term loan with a lower interest rate
Paying extra toward the principal can save you many years of payments and tens of thousands in interest. For example, if you had a 150,000, 30-year mortgage with a 4.5 percent interest rate, you would pay 123,610 in interest over the life of the loan. Look at the chart below to see how much time and money you can save by paying 100 or 200 extra per month.
100 extra per month
200 extra per month
Time saved
Almost 7 years
Almost 11 years
Money saved
29,715
47,462
Another option to pay off a mortgage more quickly is to get a mortgage with a shorter term. Shorter-term mortgages typically come with lower interest rates. Your monthly payment is higher, but you will save years of payments and thousands in interest.
Let’s compare the same mortgage as before, but this time with a 15-year loan. The original example was a 150,000, 30-year mortgage with a 4.5 percent interest rate. Let’s compare that with a 15-year mortgage with a 3.5 percent rate.
30-Year Mortgage
15-Year Mortgage
Interest rate
4.5%
3.5%
Monthly payment
760
1,072
Total interest paid
123,610
43,018
Time to pay off
30 years
15 years
In this case, a 15-year mortgage means a monthly payment of about 312 more, but it would save you:
15 years of mortgage payments.
Over 80,000 in interest.
Discuss:What would you be willing to give up in order to pay extra on your mortgage or get a shorter-term mortgage to be free from debt sooner?
3. Seek Education
Read:Education is another form of investing. Typically, additional training or education will have a cost. If you are going to invest in education, ensure that it will lead to better work so there is a good return on your investment. President Gordon B. Hinckley counseled that the “world will in large measure pay you what it thinks you are worth, and your worth will increase as you gain education and proficiency in your chosen field” (“A Prophet’s Counsel and Prayer for Youth,” Ensign, Jan. 2001, 4).
Sometimes it may be appropriate to incur debt to gain education, but there are also many other ways to pay for school. Explore all other options before turning to debt. If you do go into debt for education, strive to pay it off as quickly as possible.
The Education for Better Work self-reliance group may be a great option for you when considering investing in education.
Discuss:How is education an investment in yourself?
Discuss Saving Money, Pursuing Home Ownership, and Investing in Yourself through Education in Your Family Council
Read:One of your commitments this week will be to discuss saving, home ownership, and investing in your education during family council. Discuss things you would like to save up for, whether you should rent or buy a home (or how you can begin paying down your mortgage), and what educational goals, if any, you should work toward. You may want to use the “Sample Family Council Discussion” outline below.