Keys to Successful Money Management
When we decide to use our money according to applicable scriptural principles, we soon see the need for planning and review. Notice some advice from the book of Proverbs:
"Be diligent to know the state of your flocks, and attend to your herds; for riches are not forever, nor does a crown endure to all generations. When the hay is removed, and the tender grass shows itself, and the herbs of the mountains are gathered in, the lambs will provide your clothing, and the goats the price of a field; you shall have enough goats' milk for your food, for the food of your household, and the nourishment of your maidservants" (Proverbs 27:23-27).
This passage shows why we need a financial plan—a budget—for our household. Notice that several timeless principles spring from this passage.
First, we need diligence to successfully implement any financial plan. In the example above, we are advised to carefully monitor the state and condition of our animals. If an animal becomes ill, it needs special care. Insufficient food or water for livestock requires immediate attention. A farmer with herds must look after his animals if they are to survive and the household is to prosper.
How does this apply to those of us who aren't farmers or ranchers? The fundamental lesson is that we cannot expect financial success by simply devising a plan and then blissfully ignoring the factors that affect it. Instead, we must know where, how and why we spend our money. If we ignore this principle, we will find ourselves making poor decisions and spending money we don't have.
This passage also outlines the needs of a household and how they must be met throughout the year: hay and herbs harvested at the proper time, property purchases where and when appropriate, and the need for household necessities such as clothing and a steady supply of food.
Planning is another key to successful money management. From the book of Proverbs we glean the need for foresight. "A prudent man foresees evil and hides himself, but the simple pass on and are punished" (Proverbs 22:3).
These principles demonstrate the value of making and following a budget. Budgeting allows us to systematically allocate resources to meet our current and future needs.
When we accept God's instruction to tithe, we automatically begin the process of budgeting. We calculate what comes to us as an increase and set aside percentages of that increase for God's work, suitable offerings, helping the needy and caring for our families.
Now let's tighten our focus and apply these budgeting principles to our households.
Figuring your net worth
Where and how do we begin to formulate a workable financial strategy for our families? Following are some practical steps to consider.
The first step in designing a personal spending plan—a budget—is to determine your net worth. In other words, find out your overall financial condition. Begin with a list of your assets: possessions (and their fair market value) that you own and could sell. (See worksheet)
Then make a list of your debts: the amounts you owe to creditors (banks, mortgage companies, stores, credit cards and the like).
Subtract your total indebtedness (the total of your debt list) from your assets (the total monetary value of your asset list) and you have your net worth: a summary of your financial condition.
If the combination of your assets and debts is a positive number, you have a positive net worth. If it is a negative number, you are in debt. If you have a significant amount of debt, regardless of your net worth, you need to prepare and follow a budget that will help you improve your financial picture.
Analyze your monthly cash flow
After determining your overall financial condition, the next step is to analyze your monthly cash flow. This will show you which direction you are headed—whether you are accumulating money, holding steady or going further in debt. You can do this by examining your monthly income and expenses. (See worksheet for determining your monthly income and expenses on pages 24-25.)
If you have money left over at the end of the month after paying all your expenses (including housing, food, clothing, utilities, transportation, insurance, taxes and recreation), your net worth is increasing, and you should have money to save or invest. If you are not meeting your expenses, you need to make adjustments so you can pay your bills. If you are in dire need of major adjustments, carefully read the rest of this chapter and "Financial Black Holes" (beginning on page 36) for ways to cut expenses.
No matter your financial direction, diligent, periodic examination of your expenses is important to successfully managing your money. Here are a few things to consider about some typical expenses.
One of the first issues to consider in a financial plan is education. Although obtaining a college degree or certification in a particular trade costs money, this expense is almost always one of the best investments we can make. On average, people with higher education and marketable job skills consistently earn more money.
Proverbs 4:5-7 tells us: "Get wisdom! Get understanding! Do not forget, nor turn away from the words of my mouth. Do not forsake her, and she will preserve you; love her, and she will keep you. Wisdom is the principal thing; therefore get wisdom. And in all your getting, get understanding." Gaining additional education is one of the best financial investments we can take.
Proverbs 24:27 similarly advises: "Prepare your outside work, make it fit for yourself in the field; and afterward build your house." In other words, prepare yourself with the resources to make a living—through education and job training—before settling in and making yourself comfortable with material possessions.
Going into debt is generally not a good idea. "The borrower is servant to the lender" (Proverbs 22:7). The difficulty with debt is that, in addition to paying back the principal (the amount borrowed), we also have to pay interest on the outstanding balance. Over the course of a typical 30-year loan for a house, for example, the borrower pays more than double the purchase price of the house, with the additional money going to pay the interest on the loan. Skyrocketing costs of new cars and multiyear loans create a similar problem with automobile loans. The more we can avoid borrowing money, the better off we'll be in the long run.
On the other hand, sometimes it may be necessary to borrow money. You may need it for business purposes, buying a house or purchasing a car. Even when you borrow money for these reasons, it is good to be sure you have sufficient extra funds for emergencies within your budget before proceeding. Emergencies and unexpected expenses always arise.
Be cautious before committing yourself to any debt. Debts we cannot immediately repay have a way of compounding our financial problems.
Buying a house
In addition to costs associated with buying a house, such as a down payment (often 10 or 20 percent of the purchase price) and mortgage fees, you should also consider maintenance costs and taxes.
If you choose to sell your house, you often have to pay fees to a selling agent that can range up to 7 percent of the selling price. Because of these costs, buying a house and living in it for a short time before selling it again may be a chancy financial decision.
Other factors you should consider when purchasing a house are the local market (whether houses in your area are gaining or losing value), the location (those in desirable areas usually resell better) and whether the house will serve your needs as well as the needs of a future buyer.
Owning an automobile is a wonderful convenience, but it can consume a large portion of any household or personal budget. Considering the costs of fuel, insurance, repairs and car payments, if you cannot purchase a vehicle outright automobile expenses can quickly add up to a significant amount. Because of these costs, using public transportation (buses, trains, etc.) may be a better choice. Although not as convenient, this option is generally less expensive.
If we need a car because public transportation is not available or for other valid reasons, we should be sure we are able to pay for all the costs involved with owning a vehicle, including insurance.
Many countries require drivers to carry some form of automobile insurance. God expects His followers to obey the laws of the land (Romans 13:1-7) and to love their fellowman by covering the cost of accidents or injuries they may cause (Matthew 22:37-39; Exodus 21:18-19). Lack of insurance may leave you vulnerable to a huge financial liability should you be involved in an accident.
The cost of food is a significant portion of a household budget. In general, purchasing basic commodities in bulk and preparing meals at home is cheaper than buying highly processed items and eating out at restaurants. Some families find that having a garden and purchasing fruits and vegetables in bulk when they are in season are also helpful in stretching their food budget.
Everyone must have clothes, yet this area also provides opportunities for economy. A planned wardrobe vs. impulsive buying is much easier on clothing budgets. Purchasing good-quality, but traditionally styled, clothing will often be the most economical approach in the long run.
Because such clothing will last and remain in style for a long time, it is less expensive over time than clothing of poorer quality or fashions that match the latest fad but quickly go out of style.
Many types of insurance are available today—life, home, automobile and health. As the Bible tells us: "A prudent man foresees evil and hides himself, but the simple pass on and are punished" (Proverbs 22:3). Because of the potential for tremendous expense in these areas, each of us has to make important decisions regarding insurance.
Concerning life insurance, the time of greatest need for this insurance is when a family has small children. As children leave the home and are able to provide for themselves, the need for life insurance lessens.
With the potential for property destruction from storms, fire, vandalism and the like, home insurance is especially important if we do not have funds to repair or replace damage. If we have a property mortgage, lenders generally require insurance to safeguard their investment.
In this day of mounting costs for medical services, health insurance is also vital. Although premiums can be expensive, trying to pay astronomical bills that can arise from a single accident or illness can be devastating if we do not have insurance.
Since a wide variety of insurance is available, we have to consider our individual circumstances in making decisions about the kinds and levels of insurance we need.
Last but not least, let's consider savings. Although savings are often considered a luxury or afterthought, they should be included in every household budget. The reason is simple: Emergencies and unexpected expenses will always arise. When we have savings to cushion the blow, the effects of these surprises are not as devastating. From this perspective, saving is simply delayed spending.
In addition to having a cushion set aside for emergencies, there are many other reasons for saving money: homes, cars, personal items, education and leaving an inheritance. All of these, of course, require setting money aside on a regular basis. Self-discipline is one of the most important characteristics necessary for accumulating wealth.
Be aware that marketing techniques try to focus your mind on the opposite. They encourage you to buy now and pay later and convey a "you deserve it today" mentality and approach to life. Having the self-discipline to save, and then to know when it is appropriate to buy, is one of the most important principles for successfully building up financial reserves.
In the next chapter, we consider how husbands and wives can work together in applying some of these basic concepts.
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