When you’re first beginning the process of trying to take control of your finances, it can be totally overwhelming. In a world as complicated as ours, you find yourself having to juggle so many payments and fees and bills that it’s hard to know where to start.
But those who won’t care for their relatives, especially those in their own household, have denied the true faith. Such people are worse than unbelievers.
1 Timothy 5:8
The right way to start is by building your financial household first. Get to know what your core basic needs are and take care of them before you worry about anything else. Unfortunately, our complicated world has begun to confuse what a need is, so let me elaborate. Basic needs can be limited to three categories, which make up our roof in the picture below.
Healthy: The stuff that keeps your family alive and in reasonably good condition. This will include groceries and any medicine your family must take. (i.e. medicines for high blood pressure, diabetes, chronic depression, and the like. My acid-reflux medication wouldn’t make this list.) It might also include health insurance and/or co-pays.
Safe: The stuff that keeps you out of the elements and a reasonable amount of security. This will include your basic utility services (such as electricity and water) and your mortgage or rent. You might want to include the cost of necessary home repairs here as well. Don’t include every possible security measure, though. No amount of money can make you 100% secure.
Productive: The stuff that keeps you generating an income and ready to work. This will include transportation, which could be a car, a bus pass, or a good pair of shoes. It will probably also include a phone of some kind. It might include Internet access and an email account, a reliable cellular phone, and a reasonable clothing budget.
In all cases, the goal is to determine a reasonable number for your basic needs. Keep your numbers realistic, and don’t overload any of the categories with fluff you really can do without. For example, a young couple, just married, probably shouldn’t be spending $800 each month for groceries. A $200 per month cell phone contract with all the bells and whistles doesn’t qualify, either. And an Xbox will never be a necessary component to maintain productivity, no matter what anyone says.
Also, you’ll have to plan for different types of expenses.
A good example of a fixed cost expense would be your mortgage or rent. It’s a bill that’s due every month, and the amount owed doesn’t change very often, if at all. They’re predictable costs, and we wish that every core item was a fixed cost expense. Unfortunately, they’re not.
A variable cost expense would be things like gasoline for your car, or your electricity bill. Each month the amount spent on this item is going to change, either because the price of the good is constantly under change (gasoline), or your use varies (electricity). The is the simplest thing to do is put down a number that represents a high average for that item that month. It’s rare that you’ll find yourself at risk of going over.
Items like car maintenance or clothing would be a non-monthly expense. It’s a cost you know will be coming eventually, and you’re socking money away for it now so it won’t break the bank later. Use a savings account and put a little aside every month for each of these types of expenses.
Making sure that you’re covering your basic needs gives your budget a foundation to build on. It shows you that, no matter what else happens, you can keep the lights on, put food on the table, and stay employed. And if you’re not covering your needs, then it’s clearly time to improve your income. Without any margin, you’ll never be able to move beyond the struggle of living paycheck to paycheck. Every dollar earned above that core is the fuel to be used for reaching financial goals, but you have to build your financial house first.
This is the form I built based around the information in this post. I’m using it to help people start getting their finances in order when they’re struggling. Feel free to share it, or this post, with others.
The total you figure from your core needs can be used as a base number for your emergency fund. How many months can you live off of your savings when you’re just taking care of your basic needs? How many months do you want it to be?
I’m ramping up to coordinate my second Financial Peace University session for the year. The Spring session I had the privilege to coordinate was amazing, with 20 families completing the material and over a $100,000 turn around of their finances. It’s great to be able to be a part of a life-changing event for so many people.
If you’ve never taken Financial Peace University, I recommend it. It’s a great first step for families who are struggling with money issues and don’t know where to start. If you’re in the Tucson area, and you’re interested in joining a class, you’re all welcome to join mine.
We’ll be starting with a short orientation meeting for anyone interested in finding out more about FPU. We’ll be going over the class schedule and format, talk about what we expect from class members, how childcare will be handled, and answer any additional questions. That will happen on May 21st at 6:00 pm, and it shouldn’t last more than forty-five minutes.
The schedule breaks down as follows:
- May 21 – Orientation
- June 4 – Super Saving: Why you should save money, and why you need to start now.
- June 11 – Relating With Money: Why families must work together to achieve financial goals.
- June 25 – Cash Flow Planning: How to develop a monthly budget that really works.
- July 2 – Dumping Debt: What myths we believe about debt, and how to become debt free.
- July 9 – Buyer Beware: Why marketing is so powerful, and how to reduce it’s influence.
- July 16 – The Role of Insurance: What insurance you need to have, and what to avoid.
- July 23 – Retirement and College Planning: How to plan for the future.
- July 30 – Real Estate and Mortgages: How to buy or sell a home.
- August 6 – The Great Misunderstanding: Why you should live a generous life.
All meetings, including the orientation will be held at Saguaro Canyon Church at 10111 E Old Spanish Trail. Childcare is provided each time with a suggested donation.
If you want to find out more information or register for the class, you can check out the class page on DaveRamsey.com for all of your answers. Hope to see you this Summer!
Have you taken FPU? What was your experience? What was the most important thing you learned? How did it change your life and your finances?
One of the issues when you’re known for being the “money guy” is that your friends will inevitably fall into one of two groups. The first will mum up entirely, and trying to talk to them about it will increase tension in the room. The other group will not shut up about it. They’ll tell you about their income, what they’ve been buying, how they financed it, what they’re planning to invest in and do you think all of that is a good idea? In either case, I try to listen to what they’re saying (even when they’re not talking).
One family friend of ours has been struggling financially for a while. He and his spouse have ever growing debt, and occasional income problems. They’re not able to meet any of their financial goals. And while all of that is terrible, there’s a bigger problem that they’re not talking about.
The good thing is that he’s not in denial anymore. He recognizes that he has to start changing things to get out of the mess that they’re in. He’s been writing a budget for his family. They’ve sold some stuff. I can see the start of a plan forming in his mind. He could use some guidance and there are a bunch of hard decisions ahead, but there’s hope, right?
Yes and no.
When he shows his budget to his wife, she always agrees to it. I’ve never been in the room when it happens, but my gut is telling me that her agreement sounds something like, “That’s great, honey. Whatever you say.” And that’s not really an agreement. It’s more of an acquiescence. And she tries to go along with his budget, but then a need or an “emergency” comes up and she has to go buy something to cover it, or commit financially to something that’s outside of what’s on paper, and all of his work is blown.
The cycle continues to repeat, and their problems continue to slowly grow.
Now, understand, what I described makes her look really bad, but that’s not the case. She’s just trying to do the best she can to serve her family, the same as he is. She’s plugging holes and meeting needs, just like he’s trying to do. Don’t judge her harshly, because this isn’t all her fault.
This problem belongs to both of them. It’s that core problem I mentioned earlier. They’re not in unison.
His plan is his plan. The budget he creates is trying to solve the problem he’s seeing. Which is great, but his wife isn’t really bought in, despite what she says, because that budget doesn’t address any of the problems she’s seeing. It’s not her budget, and it’s not her plan – it’s her husband’s. And when one of the needs she sees comes up, his plan drops to the wayside, and she meets the need.
They need unity.
His plan needs to change and become their plan. His budget needs to become their budget. When that happens they’ll be in actual agreement, it will build trust, and they’ll come to find they can depend on each other. It’s amazing how much less of a struggle life is when you’re working together.