By Ron Blue and Jeremy L. White
It’s January. Resolution time. But have you noticed? Despite all the talk at this season of the year about losing weight, exercising more often, organising closets, and getting out of debt, very few of us bother to take the first and most obvious step in the direction of achieving our objectives – we don’t set meaningful, written goals for ourselves. As a result, our determination tends to fizzle by the time the first week of February rolls around.
If you really want to implement substantial changes in your life, you have to be intentional and proactive about it. The reactive approach (our normal human “default” mode) just doesn’t cut it. This is particularly true when it comes to managing money.
Anybody who has the responsibility of running a household knows that fiscal fitness is vital to the health and well-being of every family. To put it another way, family finance isn’t something to play around with or leave to chance. If your money situation has reached the point where you find yourself sweating the arrival of each new batch of bills – if you’re habitually operating in the red and lying awake nights wondering how you’re going to make ends meet – there’s no time like the present to take things firmly in hand. Remember, decisions determine destiny. Don’t just fret about your financial woes and worries. Take the bull by the horns and do something about them – right now, before the inspiration of the new year slips away!
Mapping Out Your Plan
Here are the steps you’ll need to follow from this point forward as you develop a workable budget plan.
1. First, be sure that you apply the basics of financial planning. Author and financial planning expert Ron Blue says that they’re “as easy as 4 – 5 – 6”:
a. The four transcendent planning principles of financial success:
- Spend less than you earn.
- Avoid the use of debt.
- Maintain liquidity (emergency savings).
- Set long-term goals.
b. The five basic uses of money:
- Debt repayment.
- Lifestyle choices.
c. The six common long-term financial goals:
- Financial independence.
- Maximized giving.
- Debt elimination.
- Lifestyle choices.
- Family needs.
- Starting a business.
2. Keeping these guiding concepts in mind, set aside some time with your spouse to write out a number of specific financial goals or objectives for the coming year. Your list might include “cover our housing expenses,” “start a savings account,” “pay off credit card debt,” “give more to charities,” or “get our son through his first year of college.” This process is absolutely essential to the success of any budgeting endeavour. You can’t expect to get where you want to go if you don’t have carefully defined goals.
3. Next, sketch out your budget. It’s with this third step that the process begins to move in a more concrete, practical direction. You can get the ball rolling by asking yourself two simple questions: “What am I spending now?” and “What would I like to spend on?” The first question is calculated to lead you into a careful assessment and evaluation of your current financial practices. The second represents the point at which your new spending plan or budget actually starts to take shape.
4. The fourth step is re-assessment. Once you’ve devised what you consider a realistic budget, work with it, making adjustments as needed, for twelve months. At the end of that time, take another weekend retreat to examine the results and determine whether the current plan is working. Did it leave you with a comfortable margin – that is, did you end the year with extra cash? Or did you fall short and end up incurring debt to cover the deficiency? If you find yourself in the latter situation, it’s time to refine your plan again. In plain language, you need to decide where you can make cuts. (Hint: begin with “discretionary” spending, such as entertainment and luxury items.)
5. Fifth, it’s crucial to underscore the importance of including savings as one of your regular line-item monthly expenses. In other words, we’re encouraging you to discipline yourself to maintain liquidity. Liquidity is just another term for readily available cash.
6. Finally, if debt has become an issue for you, you should also build some kind of repayment strategy into your regular monthly budget plan. Follow this 5-step strategy to manage debt efficiently and start moving in the direction of eliminating debt altogether:
- Figure out where you are financially. In other words, determine your total amount of debt, including your home mortgage and any car payments you’re making.
- Stop going further into debt. If necessary, perform a “plastectomy” (cut up your credit cards) in order to achieve this goal.
- On the basis of your cash flow and living expenses, develop a repayment plan. Decide how much money you can put towards debt repayment each month. Work on eliminating smaller debts first.
- Include this plan as part of your monthly budget.
- Establish some form of accountability. Make regular reports of your progress to a trusted friend or financial advisor.
- Reward yourself when you achieve your goals (but don’t incur further debt in the process!).
Excerpted from Complete Guide to Faith-Based Family Finances, published by Tyndale House Publishers. Copyright © 2008, Ron Blue with Jeremy L. White, CPA. All rights reserved. International copyright secured. Used by permission.