In Part One of this series I explained how I feel that we can build our faith and better attune our lives to God's will through the proper use of money.
The Mechanics of Developing and Living on a Budget
When you budget, take an annual, not a monthly approach. Start with the big necessities and work your way down to the small wants. I recommend that you begin the process with earnest prayer. If you seem to have an impossible situation, consider fasting before you sit down to prepare your budget.
Once you have all your expenses roughed out for the year, mark those that are not incurred regularly each month. Things in this category are usually items like semi-annual insurance premiums, car repairs and maintenance, major holidays and birthdays, vacations, etc. To make sure that you don't overlook something it is a good idea to skim through your checkbook and credit card statements so you see a full year's spending activity. Be sure to budget for "unexpected repairs." Leave an allowance in the budget for repairing each vehicle and major appliance you own unless covered by a warranty over the year you are budgeting.
Now calculate your annual gross income. Multiply it by 10% and you have your tithe amount and savings amount. This savings is only for major things like weddings, funerals, down payments on houses, etc. — "rainy day money." If you are saving for something special, create a special "budget account" for that item.
Next, calculate your estimated net cash income (net check) and subtract the tithe and savings amount. This remainder should be the amount you live on; the means within which you live.
Finally, convert your annual expenditures to monthly allowances by dividing by 12.
If you are normal, your annual projected expenses exceed your annual cash income. It is at this time you seek God's wisdom (that you prayed for in the first step above) in helping you decide what to cut, what to trim and what to leave in your spending budget. Remember to employ the heart of a servant but be real. Continually revise your spending budget until it can be managed within the constraints of your income. Try to leave a 5% "cushion" between cash income and cash spending for contingencies. You may not be able to change to this system over night; it may take a few years of working toward it. For my wife and I, it was always our goal to get "there". As long as we kept getting closer to the ideal situation, we felt we were growing.
If you find yourself in an impossible situation, a major change in lifestyle may be in order. This is when it is most important to pray and await the Lord's guidance. Be not afraid! You are placing control of your situation in the hands of God. Trust Him with your situation and don't be afraid to make changes. You will experience great peace; that will be the sign that you are following God's will.
Living Within Your Budget
I recommend the following procedures to facilitate living this way:
1) Cash Envelopes:
For areas of the budget that are most conveniently paid with cash (see examples below), put the budgeted monthly amount of cash in separate envelopes and keep them in a safe place. It is also a good idea sometimes to make cash envelopes for categories which you are likely to overspend — which will implement forced budgeting. When the envelope is empty, you spend no more until the following month.
In addition, use cash envelopes for categories you are likely to spend when you have children with you so that they have the opportunity to see how cash is spent and what things cost. This will help them greatly later in life. Too many children see their parents use a card every time they buy something, so they grow up without knowing that it really takes money to buy stuff. This teaching opportunity is far more valuable than the miles or points you lose by using cash instead of your "mileage plus" credit card.
Examples of envelope accounts in a family budget: clothes, dry cleaning, hair care, pharmacy and medical, entertainment, gifts, home repairs, food, eating out.
2) Credit Card Expenditures:
Most people carry a credit card for safety reasons. My recommendation is, each time you make a credit card purchase, write a check to the credit card company or, if spent out of a "cash envelope category," remove the cash from the envelope and place it (and the checks) in an envelope with the credit card name on it. This will prevent a very common budgeting error — spending a finite amount of money in the budget multiple times. When the credit card bill comes, the money to pay off current charges in full should be in the envelope with the credit card's name on it!
3) Non-Regular Expenditures:
It is critical that, each month, you send the appropriate amount of cash in the form of a check or electronic transfer to a savings account for the budgeted amount of non-regular expenses.
For example: Auto Insurance
Annual Premium $1,200
Payable Semi Annually $600
Monthly Budget $100
In this example, you would deposit $100 into the savings "budget account" over and above the 10% monthly "rainy day" amount each month between premium billings. Use this same approach for things like car repairs that you can predict annually but come up only periodically.
By using this method, you set aside adequate funds each month to pay expenses timely without creating a cash crisis in the month the premium is due. Use this method for all expenses that cycle other than monthly. This will keep you within your means on a monthly basis.
Keeping Track of Savings
Using this system you will have money in savings under many different categories. I recommend maintaining a spreadsheet with a column for each category in savings. Yes, it seems like lots of detail… but it works, relieves stress and frees your attention up to pursue greater things.
Ongoing Discipline
It is a really bad idea to take unspent money in a budget category and spend it on something else. (I'm not talking about an occasional $5 reallocation here). A really good discipline is to add the money you didn't spend each month and put it into savings. Example: You allocate $100 per month for your electric bill. In the winter, the bill is under $100 and in the summer it is greater than $100. Each month, calculate the amount by which your actual expenses are above or below your budgeted amount. Transfer any unspent money to savings. When you are short of the monthly bill, the money you need should be in savings.
Major Purchases
I consider a major purchase something that costs 1% or more of your gross monthly income. For example, a household that earns $4500 per month: $4500 x .01= $45. So in this example, whenever a purchase of $45 or more comes up it should be taken seriously. If it is something you "want" but don't need, discuss it with your spouse, lift it up to God in your daily prayer time and wait 24 hours. Often due to advertising pressure, perceived savings, etc., a purchase seems like a "no brainer" today, but 24 hours later it may not present the same level of urgency.
However, if the major purchase is already in the budget, go ahead. Example: you have saved $300 in the clothes budget either in an envelope or in savings and you go to a sale or on a special shopping trip — go for it — you already prepared for this purchase. Spend up to $300 and enjoy it!
