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 started reading Crazy Love by Francis Chan this week. It’s not my first book by Chan, I read and reviewed Forgotten God a couple of years ago, so I knew that it would be a challenging and inspiring read. I didn’t expect him to get there while I was still working my way through the Introduction.
I believe He wants us to love others so much that we go to extremes to help them. I believe He wants us to be known for giving—of our time, our money, and our abilities—and to start a movement of “giving” churches. In so doing, we can alleviate the suffering in the world and change the reputation of His bride in America. Some people, even some at my church, have told me flat-out, “You’re crazy.” But I can’t imagine devoting my life to a greater vision.
That’s a huge vision, a crazy vision, and he expressed it perfectly. I feel that down to my very core.
Almost four years ago, when my wife and I started working our way out of debt, I didn’t know how that one decision was going to change our lives. As I look back on this journey, I am floored by the grace we’ve experienced. Taking control of our finances was the pivotal step towards becoming free to respond to God. We can be more generous, and more available to serve, simply because we don’t have any payments tying us down.
That’s not a life lesson you keep locked down and hidden to yourself. You stand up and shout about it. It’s the reason why I coordinate Financial Peace University classes. It’s the reason why I’ve started doing financial coaching. It’s the reason I’m dreaming of doing more.
“Giving” churches are made up of generous individuals with the vision of serving their world. I want each individual to be able to become more generous. I want each individual to be able to see the possibility of their lives being available to God. I don’t know how many lives can be touched through me, but I can’t imagine devoting my life to a greater vision.
Question: What crazy vision are you devoting your life to?
This week, we’re beginning a new session of Financial Peace University at one of our local churches. We already have about 30 people signed up, and I’m personally hoping for a lot to happen over the next couple of months. I’ve got a few reasons to be excited.
- Dave Ramsey and his team have recently reworked the course. The last time they updated was before the housing crash, so I’m expecting some new information in regards to that. There are so many people hurting in this area because of their out of control house payments, and I hope that we can really offer a few people some help.
- We have a few families attending. Parents are taking the time to make sure that their older children have learned the basics of handling money before they go out into the world. I love that.
- The course is now nine weeks instead of thirteen. I’m going to miss some of the material that’s been cut, but a shorter time commitment probably means more class retention, which is a good thing. Also, we might be able to fit in an additional session every year, and that would be awesome.
Here are the nine lessons:
- Super Saving – Why you should save money, and why you need to start now.
- Relating With Money – Why families must work together to achieve financial goals.
- Cash Flow Planning – How to develop a monthly budget that really works.
- Dumping Debt – What myths we believe about debt, and how to become debt free.
- Buyer Beware – Why marketing is so powerful, and how to reduce it’s influence.
- The Role of Insurance – What insurance you need to have, and what to avoid.
- Retirement and College Planning – How to plan for the future.
- Real Estate and Mortgages – How to buy or sell a home.
- The Great Misunderstanding – Why you should live a generous life.
If you’ve never taken Financial Peace University, I highly 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, let me know. Send me an email and I’ll see if I can hook you up.
Question: 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?