by Anthony Stone and Kevin P. Kilburn
Introduction
This is the first of a multipart post that explains the Stone Money Foundations, beginning with our philosophy and its principles.
The Stone Money Foundations are available for free and encompass both a philosophy and a methodology. Our philosophy represents the truths (principles) and beliefs (tenets), while our methodology represents the "how to" of our Foundations.
Our team has developed and refined the Foundations over many years and has propagated them extensively through Anthony Stone in various Facebook groups, particularly A Relaxed Approach to Personal Finance.
Understanding the Stone Money Foundations will help you make better decisions regarding your personal finances, particularly with debt elimination, emergency savings, and credit usage. Foundations are superior to other programs in many ways because they offer flexibility and freedom of choice through emphasis on knowledge, critical thinking, and sound judgment.
Dave Ramsey uses basic financial principles that he has branded as his program. He then derides other programs similar to ours as copies (using the inflammatory term Dave-ish). We are definitely not Dave-ish. All foundational programs are similar, but not copies of Ramsey's program. The Stone Money Foundations address the deficiencies inherent in other popular programs, but any similarity to those programs is the result of sharing common financial principles, not mimicry.
Some financial celebrities tie their programs to their religion, faith, and morality, hoping to co-opt believers to spread their inflexible and self-righteous messages. Foundations are secular in that they are accessible to everyone and don't promote Christian practices like tithing. We are not anti-religion, though religious money practices that jeopardize one's ability to fund living essentials (food, shelter, medicine, transportation) is not consistent with our philosophy and won't be condoned.
Psychology has its place in personal finance, but Foundations are built upon proven financial principles, not amateur analysis of obscure psychological studies. We emphasize simple logic and math. We understand the psychology as presented by the experts, but we trust the math to get the work done.
Finally, there is no Foundations+ program. You get what you get. No hidden agendas or bait-and-switch for a paid program. We do not sell a program with recurring payments. Subscription services don't necessarily equate to a better program. Free information is often as good or better than pay-for-use information.
You can find a Quick Reference chart for the Stone Money Foundations here on our blog.
Philosophy
The Stone Money Foundations Philosophy consists of principles (truths) and tenets (our beliefs). In this post, we'll discuss the principles:
Principles
Respect for People and Money
Money is a tool and like all tools, you must respect it. Take it for granted and you'll find yourself in trouble. When you understand budgeting, cash flow, credit, and taxes you begin to wield the full power of your money. Depending on your circumstances regarding indebtedness, you may not have respected money the way you should have in the past. That's understandable and why we've grouped people into this principle.
In teaching people how to respect and handle money, there is absolutely no reason to belittle, intimidate, or lie to them. This is all-to-popular with financial celebrities whose shows are more about theatrics and drama instead of genuine assistance. Maltreating someone who's had tragic circumstances leading to indebtedness is inexcusable. Maltreating someone is inexcusable, period. Celebrity "tough love" is just an excuse they use to bully others in order to increase their ratings. Yelling at callers and hanging up on them when they ask tough questions is just plain rude. It's a character flaw with the celebrity, not the caller.
Any military leader will tell you that people respond better when you treat them well. Respect is a core U.S. Army value that specifies "treat others with dignity and respect while expecting others to do the same." If the U.S. military can do it, then all of the financial celebrities should be able to refrain from being jerks to the very people who made them. You can be firm without being an asshole and calling it tough love.
Maintaining Sufficient Cash Flow to Build Foundations
Some financial groups don't like the term "cash flow". That's fine. We'll use "cash flow" to mean the amount of cash coming in through whatever source--job, pension, investments, rentals, etc. Don't get too hung up on terminology and instead understand concepts. No need to overthink it.
Whatever Foundation you're building, you must have enough income to accomplish your objectives. Large amounts of debt hinder your ability to pay it off due to constantly accumulating (compounding) interest and cutting into your available funds. There is a point where your income will be insufficient to pay off debt or establish savings for future expenses (scheduled car/house repairs, college, etc.) or funding part of your Contingency Resource Plan (see below).
Personal finance is a math problem, regardless of what some financial celebrities preach. You must do math (and we're talking about simple math, not calculus). Your cash-in must absolutely be more than your cash-out, or you'll incur debt. Interest rates are important and must be part of your budget calculations. You should understand the psychology of personal finance, but you must trust and use the math.
Adherence to a Written Budget
We highly recommend that you create a budget. If you have been challenged by finances, you must make a clear-eyed picture of your financial situation and future. This math requires actual numbers in order to make sense. Theoretical discussions about how to spend money aren't sufficient. You have to see for yourself where your money goes.
A written budget can take many forms and allows you to visualize your expenses and adjust them on-the-fly. An electronic spreadsheet (many of which are free/open source) is particularly helpful because you can easily conduct an on-the-fly and "what if" analysis of your budget, like applying more principle payments to debts or eliminating unnecessary expenses.
You'll see some financial celebrities use the term zero-based budget (ZBB), which is actually a misnomer the way they use it. Dave Ramsey in particular likes to push the term to mean, "your income minus your expenses equals zero", but zero-based doesn't mean that. Zero-based means that you start your budget from zero (i.e., no line items--a blank slate) at the beginning of each period, whether that be monthly, quarterly, annually, etc. You can do this if you wish, but its cumbersome. Incremental budgeting is usually sufficient for most people. ZBB is more applicable for businesses.
And don't get caught in the trap of trying to bring your bank account down to zero each pay period. This happens because people misunderstand ZBB (another reason not to use the term at all). You never want your bank account to equal zero. That's just inviting trouble. There should always be some buffer in your account in case of overdraft. People shouldn't be judged for overdrawing on an account. It happens to the best of us.
Debt Elimination and Avoidance of High-Risk Debt
We're not anti-debt. We understand that sometimes debt is necessary; however, we don't use the term "good debt" (that's like "good surgery" or "good root canal"). The ends are favorable, but the means to get there may not be particularly pleasant. College tuition, medical issues, and natural disasters are just a few reasons people incur debt. Some financial celebrities scoff when they hear how much debt callers admit they have and scold them for not having saved for "known expenses". There's no reason to berate someone who is reaching out for help. People are in various stages of building Foundations, so we understand that they may not have sufficient income and are working extra jobs just to cover basic needs. We focus on teaching and helping, not judgment.
Whatever type of debt you have, you should strive to eliminate it unless there is some situation that makes the debt a better option than spending money to pay it off.
Some examples are:
home mortgage - you may get a better net return on investments than paying off the house.
medical bills - you may be able to lower the total debt through negotiation, especially if there is an insurance issue.
credit cards - you're out of a job and barely can pay for food and rent; paying the credit cards wouldn't make sense.
part of your Contingency Resource Plan - you may already have significant savings and applying it to debt repayment may put you at higher risk if emergency/urgency situations arise; think of it as insurance--it costs you money, but you're covered.
We don't necessarily advocate this, but if you consider keeping debt, you should understand that all debt comes with risk. That risk is determined by the amount of the debt (including the payments), the interest rate, your ability to repay the debt (income stability, cash flow), and the levels of risk for other situations in your life. A seemingly insignificant debt can become a major burden if you lose your job or experience a catastrophe that requires you to divert funds to resolve it.
Develop a Contingency Resource Plan (CRP)
A Contingency Resource Plan (CRP) is your methodology to handle crises. The commonly used term emergency and the concept of an emergency fund is too restrictive. It discounts everything other than a pot of money stashed away for a rainy day. CRP better describes not only the fund you establish, but the overall plan you'll use to implement unforeseen spending during a crisis.
A CRP may include cash-on-hand in the form of hard currency or a savings account, lines of credit like credit cards/HELOCs, and other ways to pay for goods and services during a crisis. This is highly individualized, which is why the CRP requires a little more work than the oft-cited "emergency fund" financial celebrities tout as the panacea that will save you during an emergency. In the absence of a fully developed CRP, you should have an emergency fund of cash-on-hand to help you in a crisis, though this isn't ideal. You should view your CRP as a constantly evolving plan, not something that is developed and forgotten.
This is a topic that we'll discuss in far more detail in order to convey its importance.
Life, Health, and Living Essentials Insurance
Based on your circumstances, you will need varying degrees of life, health/dental, and living essentials insurance. This may range from $0 to millions of dollars. (And some of this is specific to the United States, so apologies to our international friends.)
Life and health insurance are well known. Life insurance provide a payout if you die and comes in two basic types--term and whole life. Health and dental insurances partly cover your medical and dental expenses. Term life insurance is almost always a better deal than whole. Health insurance is a must, even if you're healthy. A car wreck, cancer, or viral illness like COVID-19 can cost you hundreds of thousands without insurance.
What we call living essentials includes shelter (housing), transportation (vehicles, public conveyance), food (including baby formula and special dietary needs), utilities (water, electricity, gas, air conditioning/heat), and medicine (especially life-saving medicine like EpiPens, insulin, and antibiotics; consider long-term also, like cholesterol and blood pressure medicine). Internet and/or phone access could also be considered a living essential considering the need for location-based 911 access and connectivity for work-from-home employees.
Future Planning
You have to always look forward to the future, which translates to planning. "No plan survives first contact with the enemy," said Helmuth von Moltke the Elder (paraphrased). This means that unexpected situations and crises will force you to deviate from your plan. You will have to adjust your financial plan continually as your personal situation changes (for better or worse). Building contingencies into your plan (like your CRP or short sales on expensive cars/boats) will soften the impact crises may have on you.
Conclusion
This ends Part 1 of our discussion on the Stone Money Foundations Philosophy (Principles). We'll continue the discussion with Additional Principles, Tenets (Beliefs), and Methodology.
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