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?
Ever since my I wised up and started taking my family’s money seriously, I’ve become intentionally focused on teaching more and more people how to do the same. Currently, I coordinate a session of Dave Ramsey’s Financial Peace University twice a year through a local church. It’s an awesome way to give people the basic financial building blocks they need to start changing their lives.
I’m in the middle of leading another session of FPU even as I type this, and I thought it would be interesting to share my notes from each lesson here. These are the key points that I highlight from the video when leading the class, plus any supplemental material that I think could help the class go further on the topic we’re covering.
Lesson 1, Super Savings, is all about the practice of saving money. The video covers the excuses we have for not saving, the reasons why we should save, and what kinds of things we should be saving money for.
Saving must become a priority. You must learn to pay yourself first*. Savings have to come off the top of your stack when it first comes in, not from the bottom.You can’t effectively save from what remains after you pay for everything else in your day to day life.
*Standard Christian Disclaimer (SCD): after your tithe.
You must save for an emergency fund, major purchases and wealth building. There are three things that money has to be set aside for:
- An Emergency Fund is insurance that guards you against major negative financial events. Start with $1000, eventually build it up to number representing several months of expenses.
- When you can’t pay for something out of your regular monthly income, that’s a Major Purchase. Make a plan to save up for several months and pay cash for it, instead of going into debt to have it now, which will always cost you more.
- Don’t neglect Building Wealth for the future. Given a reasonable income and the power of compound interest, hardly anyone should ever reach old age broke.
Money is amoral, but you must approach it with the right attitude. Having a lot of money will not automatically make you greedy, stingy or evil. The attitude you have with few resources will be same attitude you will have with many resources. Learn the right approach now.
It’s not over until you quit. You must start saving NOW. It doesn’t matter if you’re 18 or 85, saving is a fundamental part of healthy money management. It’s never too late to start saving.
Next week we’ll cover Lesson 2 – Relating with Money. How to make discussions about money a healthy part of your relationships.