Friday, October 26, 2007

Financial Peace 4: The Marshmallow Plan for Financial Freedom

KNU International English Church

Matthew 25:14-30; Ecclesiastes 11:1-2;
Proverbs 6:6-11, 21:5, 21:20, 31:10-12, 16-21, 25

Super-Lotto Video:

If you want to be financially free, you’ve got to have a plan. Super-Lotto and Vegas just aren’t going to cut it.

Today I want to present to you “The Marshmallow Plan for Financial Freedom.” To help you remember this, we’re going to give you all one marshmallow. (Ushers, can you help me out here?)

Now, you may be wondering why marshmallows and money have anything in common. There is a story behind these marshmallows.

In the 1960’s a researcher at Stanford University conducted the marshmallow experiment with a group of 4 year olds (5 Korean age). They gave each kid a marshmallow and said, “I have to go out for a few minutes. If you still have that marshmallow when I come back, I’ll give you another one.” Then, the researcher left the room for 20 minutes, and they watched what happened.

Some of the kids ate the marshmallow right away. Some of the kids waited for the reward.

Here’s the really interesting part. They did a follow-up study 14 years later when these kids were graduating high school. The kids who had waited for the extra marshmallow were “better adjusted and more dependable.” Amazingly, they were also better students. On the SAT (the USA’s college entrance exam) the kids who waited scored on average 210 points higher than the kids who couldn’t wait![1]

Most of us know that we should save money. We know that saving money will help us in the future. We know that saving money will help us in the future. We know this, but most of us don’t save – at least not very much.

I like how Dave Ramsey explains this:

Saving money is not a matter of math. You will not save money when you get that next raise. You will not save money when that car is paid off. You will not save money when the kids are grown. You will only save money when it becomes an emotional priority.

We all know we need to save, but most people don't save like they know they need to save. Why? Because they have competing goals. The goal to save isn't a high enough priority to delay that purchase of the pizza, DVD player, new computer, or china cabinet. So we purchase, buy, consume all our dollars away or, worse yet, go into debt to buy these things. That debt means monthly payments that control our paychecks and make us say things like, "We just don't make enough to save any money!" Wrong, wrong, wrong! We DO make enough to save money; we just aren't willing to quit spoiling ourselves with our little projects or pleasures to have enough left to save. I don't care what you make - you can save money. It just has to become a big enough priority to you.

If a doctor told you that your child was dying and could only be saved with a $15,000 operation that your insurance would not cover and could only be performed 9 months from today, could you save $15,000? Yes! Of course you could! You would sell things, you would stop any spending that wasn't required to survive, and you would take two extra jobs. For that short 9 months, you would become a saving madman (or madwoman). You would give up virtually anything to accomplish that $15,000 goal. SAVING WOULD BECOME A PRIORITY.

[What is] the secret to saving? FOCUSED EMOTION.[2]

How do we get this “focused emotion”? What we are saving for has to feel more important to us that what we are giving up. We need a vision of why we are saving and investing. We need a clear picture in our minds of what is going to happen with this money that we are saving. The idea of just putting money in the bank is not going to stop us from buying that latte or movie or trip to Jeju. Bank – boring! Jeju, latte – fun! We need a clear picture of where that money is going. What do we want that money to do? What do we want our lives to be like in 10 years, 20 years, 30 years?

I believe God wants us to save money and to invest it wisely so that we can do three things.

  1. Provide for ourselves and our families during hard times.
  2. Become financially free, so we can serve God without concerns about money.
  3. Help others.

Imagine being free. Imagine what your life would be like if you had zero debt. Imagine what your life would be like if you had enough money saved up so that you could pay your expenses just from the interest. What would you do? Where would you go? If you didn’t have to make money, what kind of work would you do? If you had enough money to pay your own way, where would you go and what would you do?

Imagine being free. Not free to spend all your money on yourself. Not free to play golf all summer and take cruises all winter. Imagine being free to give your life to God, free to give your life to the world. Imagine being free to give all of your time and energy to changing the world, making our world a better place. What would you do?

Take a few minutes to talk about with your neighbors. Get into groups of 2-3 and answer these questions: “If you had enough money saved up to support yourself and your family for the rest of your life, what would you do? How would you try to help the world? How would you serve God if money didn’t matter?”


Imagine being free. Imagine if you could do these things. Imagine if we could all do these things. Imagine a whole generation of 40, 50, 60 year olds – experienced leaders, teachers, doctors, managers – who are financially free and ready to change the world! Imagine if we all had enough saved up so that we didn’t have to worry about tomorrow. Imagine what would happen if we were all financially free and ready to work for economic justice, peace, reconciliation, and connection with God and humanity! Imagine what we could do! Imagine how we could change the world!

THAT is why saving money is important! That is why spending less is important. That – changing the world, in radical, new, full, never before, ways – that is why we need to save more and invest it wisely. That is our vision. That is why we should say no to that game of golf, that new shirt, that new computer. We can change the world! You can change the world! You can become financially free and give your life to changing the way our world works. Imagine that!

Before we go on, though, we need to address some popular money myths. So here goes.

Money Myth #1: Money is the root of all evil. Some Christians say that wanting to get rich is bad. Some Christians say that saving money is bad and shows a lack of trust in God. I understand where they are coming from. Money is a dangerous blessing, and it can easily become a curse to us.

But that verse from 1 Timothy 6:10 actually says, “For the love of money is a root of all kinds of evil.” Money is amoral, neither good or bad. It’s like a brick. You can throw it through a window, or you can use it to build a hospital. How you use money can be good or bad. Your attitude toward money can be good or bad.[3] If we save money so that we can get rich and have nice things, that’s bad. If we are saving money so that we can become free and participate with God in blessing the world, that’s good.

Money Myth #2: Only rich people need to think about saving and investing. This is not true. If you live like this, you will always live from paycheck to paycheck, or at best from year to year. I love what Dave Ramsey says about this, “Do rich people stuff, and you get rich. Do poor people stuff, and you get poor.”[4] If you want to build wealth, you have to do the actions that build wealth. That means saving and investing in wise ways.

Money Myth #3: You have to have money to make money. This is technically true, but what we usually think when we hear this is, “You have to have A LOT OF MONEY to make money.” We usually think that people who have average incomes are stuck with having low or average wealth. This is simply not true. What you do with your money is far more important than how much money you make.

Let me tell you about Anne Scheiber. She worked her whole career with the US tax office (the IRS), and when she retired in 1943, she was earning only $3,150 a year. When she retired, her total savings were only $5,000. However, she managed to live on her small pension and retirement benefits without using her savings. She spent very carefully, and she invested very wisely.

When she finally died in 1995, at the age of 101, she donated all her money to a Jewish university in New York. How much were her savings worth then? She started out with just $5,000, but 50 years later she had $22 million![5]

Behold – the power of compound interest! Compound interest is what happens to investments or debts over time. They grow and grow and grow and grow! Compound interest can be a Beauty or a Beast. If it’s working for you (like in investments), compound interest is a beautiful, wealth-building thing. But if it’s working against you (like in credit card debt), it is an ugly, beastly, poverty-inducing thing. The higher the interest, the higher the impact.

Consider some of these numbers. (I’m going to use US dollars, because the math is easier than Korean won.):

  • $1,000 invested at 6% interest for 40 years becomes $11,000.
  • $1,000 invested at 12% interest for 40 years becomes $119,000.
  • $1,000 invested at 18% interest for 40 years becomes $1,300,000. That’s a whole lot of marshmallows!

What’s the moral of this story? If you put your money in a good investment for a long time, a little becomes a lot.

Money Myth #4: Expensive vacations, expensive food, and expensive stuff are worth the price. You have to consider the opportunity cost here. Is that vacation really worth a million dollars to you? Would you really trade a few dozen pizzas for half a million dollars when you retire? I’m not saying, “Never go on vacation. Never buy something new.” I am saying do something cheap. Be careful. Spend less, and save more! You’ll be glad you did.

OK, so now that we’ve busted a few myths, let’s get on to the planning. What is The Marshmallow Plan for Financial Freedom? How do we actually make this happen? How can we really become financially free?

It starts taking one little step at a time, baby steps.[6]

Step #1: Save 1 million won ($1,000) as an emergency fund, ASAP (as soon as possible). Put this money aside in a separate account, and save it only for REAL emergencies (not a new pair of shoes or a new TV that is on sale).

Step #2: Pay off all consumer debts. We talked about this last week. Remember that $1,000 invested at 18% interest that grew to $1.3 million. There are some excellent mutual funds that will earn that rate most years. But there is one guaranteed way to get this kind of return for your money. Pay off your credit cards! Credit cards usually charge at least 18% percent interest, and if you are ever late on a payment, some cards jump to 25% or 30% interest! That’s a lot of marshmallows going down the drain.

Step #3: Increase your emergency fund to 3 to 6 months of your expenses. Money Magazine predicts that with in the next 10 years 78% of people will have a major negative financial crisis (5-10 million won problem).[7] Be ready. Those aren’t good odds. Keep your emergency fund in a Money Market Account or, in Korea, a Cash Management Account (CMA). That way it will grow a little, but you can use it any time you need it.

Step #4: Invest for retirement. Most developed nations have some kind of tax-protected retirement savings account. Use it! If you save just $100 a month, every month, and you invest that money at 15%, look at the results.

After 30 years: total contributions = $36,000 à total value = $701,000.

After 40 years: total contributions = $48,000 à total value = $3,140,000.

If you invest wisely, a little bit for a long time makes a lot! Just double those numbers if you save $200 a month. (That’s about what Sarah and I are trying to save.) I highly recommend investing in mutual funds. They diversify your investment so that you have less risk. If you need help investing, get connected with a reliable investment agency and do some homework.

And you need to do this as soon as possible, before you pay off your low interest loans. Saving $100 a month for an extra 10 years makes the total value move from $700,000 to $3.1 million!

Step #5: Pay off low interest loans. Take your extra money (the money you’re saving by spending less), and pay off those school loans and home mortgages. For Sarah and I, our goal is to completely pay off our school loans by the end of 2008. That will mean using 100% of Sarah’s income for our debts.

Step #6: Save for education and big expenses. This week I realized that if we are going to pay for 100% of Emma’s university education, we will need to save about $5,000 if we start saving in 2009.

You can also save for big expenses. If you want to buy something that you can’t pay for right now, don’t go into debt for it. Save up for it. Let compound interest work for you not against you. This way you will also have time to think about whether you REALLY want to buy that expensive thing. There is an old saying in marketing: “a purchase delayed is a purchase not made.”[8] After 6 months or a year, you may decide that you don’t really need that thing you are dying to have now.

Step #7: Keep saving, keep investing, and keep blessing others. As we become financially free, the real danger is to keep the blessing from becoming a curse. Remember that financial blessing is a dangerous blessing. As we save more and more and make more and more, we can easily decide to keep more and more and to spend more and more on ourselves. We can forget that God is blessing us to bless others. Remember why we are saving and investing. It’s not just so we can have more and see more and eat more. We are saving so that we can be free to join God’s mission of blessing the whole world.

Look at those marshmallows. This marshmallow represents all of those things you want to buy now but don’t really need. Look at it. Are you thinking of that stuff? I’m thinking of a new pair of pants, a coffee grinder, a new laptop, a blooming onion at Outback. What do you see? All of that stuff is in this marshmallow.

Now think about our reward. If we don’t eat this marshmallow, we can pay off our debts. We can save for the future. We can become financially free, totally free to follow God without concerns about money. Imagine what you could do if you were financially free. Imagine what we could all do together if we were financially free. Imagine what would happen if we could all join God’s mission of blessing the whole world without any concern about money. That’s a whole lot of marshmallows!

Don’t eat your marshmallows. Wait for the reward.

[1] “Deferred Gratification,” Wikipedia,, downloaded 10.25.07.

[2] Dave Ramsey, “The Secret to Saving Money,”, downloaded 10.25.07.

[3] Dave Ramsey, “Super Savers,” Financial Peace video series.

[4] Ibid.

[5] John Maxwell, The 21 Irrefutable Laws of Leadership, (Nashville: Thomas Nelson, 1998), 21-22.

[6] This is a modified version of Dave Ramsey’s “Baby Steps” in “Investment Philosophy,”, downloaded on 10.25.07.

[7] Quoted in Dave Ramsey, “Super Savers.”

[8] Morgan James, “Delayed Gratification and Money (or, Marshmallows and Your Financial Health),”,-Marshmallows-and-Your-Financial-Health)&id=237818, downloaded 10.24.07.

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