Money and Wealth (Part 14) – Budgeting

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Money and Wealth (Part 14) – Budgeting

Budgeting

1. “A budget is people telling their money where to go instead of wondering where it went.” (Dave Ramsey quoting John Maxwell, The Total Money Makeover, p. 62)
2. Jesus taught the principle of budgeting when He used the illustration of the man sitting down and counting the cost before starting a building project (Luk 14:28-30).
3. The Bible implicitly teaches budgeting because it teaches the concept of tithing (which is budgeting by definition), saving, staying out of debt, giving to the poor, etc., all of which require that a man set aside some of his income for other purposes rather than immediately spending it all on his immediate desires.
4. There are only two ways that I know of to build wealth: budgeting or imposing artificial scarcity upon oneself.
   1. This is what nearly all millionaires do, and it’s how they became millionaires.
   2. “Do you plan your consumption spending according to a variety of food, clothing, and shelter categories each year? Rule does, and so do most millionaires. In fact, in our latest national survey of millionaires, we found that for every 100 millionaires who don’t budget, there are about 120 who do.
   3. “We anticipate your question about those millionaires who don’t budget. How did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of nonbudgeters invest first and spend the balance of their income. Many call this the “pay yourself first” strategy. These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like.” (Thomas J. Stanley, The Millionaire Next Door, pp. 40-41)
   4. I have done both of these things for my entire adult life.
5. It’s good idea to create a budget.
   1. Having a budget and sticking to it will:
      1. Keep you out of debt
      2. Help you build wealth for the future
      3. Help you to enjoy the fruit of your labor responsibly
   2. A budget will help you to tell your money where to go each month and see where it went.
      1. Always pay God first (tithing).
      2. Pay yourself second (saving).
      3. Pay for necessary things next (food, shelter, utilities, transportation).
      4. Pay for unnecessary and fun things last.
   3. Couples should create a budget together.
      1. Both partners should agree on where all the money has been allotted to and then agree to stick to it.
      2. A budget will minimize marital strife.
   4. You can use an Excel spreadsheet to create a budget.
      1. A spreadsheet will allow you to easily calculate percentages and totals.
      2. Numbers will automatically adjust when changes are made.
   5. I recommend using the “Spending” app and entering your income and all expenses into it.
      1. It can be synced so that the data will be shared on your and your spouse’s phone.
      2. You can enter each expense in a category which will help you to easily see where your money is going.
      3. Every time you buy something, get a receipt and put it in your wallet so that you will be reminded to enter it into the Spending app.
      4. When you pay your credit card balance daily (and you should), you can verify that all the new charges are in the Spending app.
      5. When you enter your income into the app, be sure to enter the income tax as an expense.
         • Remember that taxes are just another expense like rent, house payments, insurance, utilities, etc.
         • Your gross income before taxes is your income.
           1. Self-employed people understand very well that taxes are just another expense and that their income is the profit they make before taxes are paid.
           2. Employees tend to view the amount of their paycheck as their income because the taxes are automatically withheld.
           3. This is one of the reasons our taxes are so high. If most people were self-employed and writing out a big fat check to the United States Treasury every three months, there would have likely been a tax revolt long ago.
         • So, in your budget, when you calculate the percentage you give to God and save for retirement, it should be calculated from your gross income before taxes, because that is your actual income.
      6. Enter any other expenses that are automatically withheld from your paycheck such as medical insurance premiums, 401k contributions, etc. into the Spending app as an expense.
      7. Remember to enter the money you give to God as an expense.
      8. You can setup automatic recurring expenses in the app for expenses that are the same every month.
      9. By using the Spending app, you will be able to see exactly where your money is going, and how much you have left at the end of the month and year.
   6. Ramsey Solutions also sells the Every Dollar app which syncs with your bank account (the free version does not).
      • It allows you to budget your income at the beginning of every month.
      • You determine where every dollar is going to be spent (in categories) before the month begins and then assign every expense to a category throughout the month.
      • This way you determine where your money will go at the beginning of the month instead of wondering where it went at the end of the month.
6. Find a bank which will allow you to have many shares within one main account.
   1. Here are some suggestions for separate shares to create:
      1. God’s money
      2. Emergency fund
         • Should have 3-6 months of living expenses in it.
         • This is for unknown and unplanned for large expenses.
         • It’s best to have this in a high-yield savings account.
      3. General savings
      4. Checking
      5. Bill money
      6. Generosity (different from God’s money)
      7. Fun money (going out to eat, for example)
      8. Husband’s fun money
      9. Wife’s fun money
      10. Vacation and travel
      11. Taxes (income)
      12. Taxes (property)
      13. Car fund
      14. Medical fund
      15. Insurance (car, property, renter)
      16. College
      17. Children’s savings
      18. House fund (savings for a house, maintenance for existing house, appliances)
      19. Retirement
      20. Electronics (laptops, phones, etc.)
      21. Groceries
      22. Clothing
   2. Put a certain percentage or dollar amount in each of these accounts every paycheck or month so that you have money set aside for these types of expenses.
      1. Having these different shares will serve two purposes.
         • It will ensure that funds are available for larger, periodic expenses such as vacations, tax bills, car purchases or repair bills, medical emergencies, bi-annual car insurance payments (which save you money over monthly payments), house repairs, and new laptops or phones. These are called “sinking funds.”
         • It will ensure that you don’t overspend on things like going out to eat, entertainment, clothes, and buying junk you don’t need.
      2. Having these funds makes fun purchases actually fun and frustrating expenses no big deal.