Financial Tools / Capital Fund The Credit Card Alternative
The capital fund is the credit card alternative because you buy stuff for cash saved in the fund for the specific items. Thus, you do not carry a balance on a credit card, and leads to a debt free lifestyle. The fund mimics depreciation, an established business practice that provides systematically for regular replacement of equipment. It is akin, too, to capital budgets of businesses. And it compliments your operating budget. Simplistically, to replace an item costing $1000 with a ten-year life, corporations would set aside $100 yearly for ten years. At year ten, they replace the item and repeat the procedure. Imagine interest you would not incur if you had a credit card alternative that allowed you to pay cash for everything except a home—using a credit card and paying the full balance monthly counts as paying cash.
Individuals and couples I counsel, and who attend my seminars, testify repeatedly that their capital fund had a significant positive effect on their finances and stress levels—it was the single most important tool that contributed to their debt free life style.
Encourage children to start a capital fund. Model this debt free lifestyle for your them. They should get a clear picture of how to live this debt free lifestyle. You can tell them what's involved, but they need to see you living debt free. Teach your children to build savings and then spend from these savings for specifc previpusly agreed items.
If you did not start a capital fund as a child, start when you repay all consumer debt. Remember, do not wait to be debt free before you start the debt free lifestyle. Adults, save to pay cash for items such as these:
Here are thoughts for an individual and for a couple:
Review your lifestyle and your capital fund yearly and adjust as need. Revert to the debt free lifestyle if you strayed; review and change monthly contributions only after thorough evaluation and prayer. Read Genesis Chapter 41 before this review, which should address questions such as these:
These are two major challenges to starting and continuing a capital fund: First, how do you get information and motivation to prepare the first items' list and amounts to save? Review your earlier spending and think about future needs. That's the best you have. Second, once you start a capital fund, how do you keep the discipline to set aside funds monthly without exception? Only by God's grace. Ask Him to give you insight and discipline to honour Him with handling His finances.
If you decided to save to buy a car for cash, here is an example of the monthly capital fund calculation:
You can save and restore incomplete or completed work on the Capital Fund Calculation Form (Form) by clicking the "Save Your Work" button below. A file "capitalfund.mgm" is generated and can be opened only by clicking the "Restore Saved Work" button. You cannot open it by clicking the file. As well, you could save information to a spreadsheet to record spending against this plan. After you are happy with your inputs to the Form, clicking "Save to Spreadsheet" will generate seven spreadsheets. The first is an exact copy of the Form, and will look like
this. The other six spreadsheets allow you to record actual spending against the plan yearly for six years.
Monthly, the amount to save will be added automatically at the top of the spreadsheet based on inputs on the Form. The first month's savings will be the month you start to save in the spreadsheet. At year end, the balance is transferred automatically to the following year and the cycle repeats.
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Before you implement financial decisions, consult an Independent Financial Advisor. Scripture quotations, unless otherwise noted, are from the New International Version (NIV) of the Bible (Copyright © 1973, 1978, 1984 International Bible Society. Used by permission of Zondervan Bible Publishers. All rights reserved.)