In a previous article, I discussed the importance of assessing where you are financially with the use of two important financial planning tools: the balance sheet and the summary of debts. Now, I want to add a third tool to your financial-planning arsenal: the budget.
Looking Back to Move Forward
It takes time to get used to the terminology of budgeting and the various “how-to’s.” Don’t be intimidated. Take your time and go step by step. While you may start out thinking budgets are constraining, you’ll come to see that they are truly liberating, and a key to reaching financial freedom. Once you determine the goals you have for the future, your budget will be one of the key gauges as to whether you are making progress toward meeting those goals.
We are going to spend some time now going through the basics of what a budget is and the steps you need to take to develop and maintain one. For now we will focus on Budget Step A: Guideline Budget Review.
For many going through this process, the Guideline Budget Review represents a transition from old ways to new ways. It provides an opportunity for a fresh start, one that leads you out of financial bondage to true financial freedom. In this step, you take a look back at where you have been financially. This includes the good, the bad, and the ugly! Some find it hard to take an honest look at where they’ve been. But don’t be afraid. It’s the best way for you to move forward on this freedom journey.
Do you remember when you made your first confession? Or do you have a young child who has recently made his or her first confession? Especially for folks with a sensitive spirit, there is a great deal of trepidation taking that step. But once it is over, there is a joy and peace that comes with having made a good confession. Now don’t get me wrong. The Guideline Budget Review isn’t confession! But it does involve the same looking back at behavior that may not have been so healthy, and looking ahead to change that behavior based on the godly principles of financial freedom you have been learning.
From Still to Moving Pictures
You’ll recall that I described the balance sheet as a “snapshot” of your financial position at one point in time. The budget, on the other hand, is more like a “video” of your finances over a chosen period of time. A budget is a forecast or projection of what you expect your income and expenses to be during the chosen time-frame.
Many budget methods focus on a weekly or monthly budget. In my experience, this tends to get people bogged down in details so they have a hard time seeing the forest through the trees. I find an annual budget to be a more effective way to see the big picture.
This practical exercise is broken down into four steps:
• Budget Step A: Complete Guideline Budget Review;
• Budget Step B: Create Veritas Annual Budget;
• Budget Step C: Track Income and Expenses;
• Budget Step D: Complete Periodic Reviews.
Priorities That Reflect Our Faith
With that thought in mind, you’ll begin your Guideline Budget Review by estimating your annual income and expenses, and comparing them to the suggested amounts from the Guideline Budget Table. Because very few people have been taught how to use a budget, they often have difficulty determining what amount to allow for each spending category. That is why we provide a guideline budget.
The Guideline Budget Review is only meant to help you get started and show you where you may be overspending. As you continue to track your income and expenses over the next few months, you will be in a position to create and update your own personal budget. It will take into account your special circumstances and priorities. It is not important that your spending agree with the guideline in every area, but it is critical that your expenses not exceed your income. Just as important is that your priorities reflect your Catholic faith. Therefore, education, savings, and tithing/giving, are all given high priority and planned for like any other expense. Take a moment to familiarize yourself with the Guideline Budget Table.
The Guideline Budget Table provides suggested spending for each category as a percentage of gross income. Next time we’ll continue with the Guideline Budget Review and getting started on your own personal budget.
Phil Lenahan is President of Veritas Financial Ministries. If you have questions you would like Phil to address, please email them to [email protected]. You can also up for the free Veritas Financial Ministries E-Letter at www.veritasfinancialministries.
