Let the Excitement Begin!

By John Scrofano
Entrepreneur/Navigator Grad (Indiana University)

Budgets. Just thinking about budgets can make most people cringe.

Too often, the approach of budgeting and personal finance is: ignorance is bliss. When it comes to budgeting, almost everyone has a visceral reaction. It can be intimidating, complex, and challenging. Plus, it’s one more area where I spiritually feel shame. And ignorance can be bliss for a few weeks each month until the credit card bills come, rent is due, and the car payment needs to be paid. Then it is extremely painful.

Dealing with any problem – including money and budgeting issues – through avoidance, ignorance, or deflection, solves nothing. Those choices often lead to greater pain, spiritual deadening, and isolation. However, when God puts His finger on these painful places, and we enter that pain, God faithfully brings us through more sanctified and more like Christ. Greater freedom is on the other side. We are no longer trapped by the sin and its slavery.

If it seems like I am blowing a short posting on budgeting out of proportion, forgive me. It’s just my experience that we can’t really talk about budgeting until we start thinking about money in terms of stewardship, in terms of our hearts, and in terms of God’s heart. You won’t be able to follow through on your budget consistently unless you allow God to change your heart and mind about money, and let Him be the one to provide you strength to do the right things. Here’s the great news: there is an immense amount of freedom in the theology and practicality ahead.

Why have a budget?

Here are a few reasons:

• God calls us to be good stewards of the resources He gives to us.
• God says that it is extremely wise.
• A budget enables us to get out of the “rat race” of living paycheck to paycheck.
• A budget allows us to more freely give away money.
• It allows us to be prepared for emergencies and long term goals, like college funds.
• It allows us to have our money work for us, like with good investments.

The Bible has over a thousand verses related to money, but Proverbs 21:20 counsels specifically in terms of budgeting: “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” The wise man (or woman) acts with prudence and self-control, and does not consume all that he has. Whereas the foolish man lets money burn a hole in his pocket. God calls us not be greedy or controlled by money. Instead, He directs us to be wise with the money He gives us, and a personal budget helps us wisely manage it. God also specifically calls us to live within our means – even if we feel our “means” are meager.

In addition, budgets create freedom. They really do! My wife and I love great food. She is a fabulous cook, and God created amazing things to taste and enjoy. However, I grew up in a very frugal household, which applied to everything, including food. This sometimes leads to differences of opinion between the two of us. For example, my wife wants something like an Asian pear. But I would adamantly forbid the purchase of just one pear at the cost of $3! It seemed ridiculous to me. For her though, she enjoys that Asian pear far more than the three apples we could purchase for the same price. Since we started our grocery budget, now she can buy whatever she wants as long as it is in the budget! This gives her the freedom to buy little fancy things, and it frees me from getting worked up over a silly pear. We are both happy!

Practical Tips

Here are some basic steps to get started with your budget.

1. Use a budget template to go through and create your starting point. Click here for a template designed to help you begin.

1. Put your monthly income on the top line as revenue
2. Deduct the non-negotiables first. I believe these are the non-negotiables:
   1. Tithe (10% +?)
   2. Taxes (15%-30%)
   3. Savings (10%)
   4. And I personally take these from GROSS income, which is my paycheck if nothing were taken out of it. So if I make $5,000 a month, that means: $500 for tithe, $500 for savings, and $1000 for taxes (20%). That leaves me with $3000 a month for everything else.
3. Next create spending categories and assign a theoretical budget to each category for each month. Create categories that make sense for you. You don’t need to ascribe to some template or categories that don’t apply to you. Use the categories as an opportunity not just to budget, but for freedom. Do you love shoes? As long as you budget wisely towards this category, having a budget just for shoes will allow you the freedom to purchase shoes wisely, and feel great about staying on budget and having a new pair of shoes.
4. Let the spreadsheet do the math and watch your total. Because savings is a non-negotiable, you could choose to have your total go down to 0 every month. Or if it is positive, that will allow you to save extra money.
5. This was the easy part!

2. Revise the budget based on ACTUAL spending habits. Usually people are wildly off base with what they think they spend on certain categories and what they actually spend. Without looking at your actual spending habits, you will set yourself up for failure immediately. Once you learn what you are actually spending, there are some categories where you may need to radically change your spending habits (like dining out).

Credit Card/Debit Card Users: I highly recommend a service like mint.com. If you set up an account with Mint, it can import data from your cards and automatically categorize many of your transactions. Then you only have to categorize the ones it doesn’t recognize. Use this information to figure what you usually spend each month.

Don’t forget to tally up anything you pay for routinely with cash or check (if mint didn’t pull through your checking account), like the few trips to the farmer’s market across the street.

Figure out any incidental expenses that haven’t happened in the past couple months, and add those in too. This can include things like car maintenance.

Cash Users: What? Who uses cash for anything? Actually you will find out later that using cash can be one of the most effective and smart ways to stay within your budget. In other words, it helps you not spend more than what you make. If you don’t collect receipts and write them down systematically, then it probably just makes sense to start your first month on the budget and give yourself room for grace, especially during the first few months.

3. Now that you have a budget that looks good on paper and actually reflects some of your real spending habits, you need to figure out how stick to it!

Cash Envelopes: This has been the best way for my wife and me to control spending in areas where we are bad with sticking to the budget. This has also worked for many of the couples I have counseled. There are two ways to accomplish this:

1. Whole Hog: Every month, or biweekly with paychecks, set aside cash into envelopes at the house in a secure place where you allot the budgeted amounts for each category. When it is time to go grocery shopping, take your envelope and spend out of it. When you go shoe shopping, take your envelope for shoe shopping. For categories that are intermittent expenses, like car maintenance, you can just leave that money in the bank.
2. Problem areas/Freedom areas: My wife and I are fairly frugal, so creating cash envelopes for every category would actually be more of a hassle because we are already disciplined about not overspending. However, we aren’t great about things like groceries and dining out, so cash envelopes help us control these problem areas. We also need what I call “freedom areas.” This is where my taste and her taste are very different and it causes conflict. If we can agree to allot a budget category for these areas for each of us, then we are both free to spend our budget without the other getting upset.

Separate Accounts: This is a method my in-laws use. At first I questioned this approach, but it really works well for them. They have a main checking account and several other checking accounts as well. Paychecks are directly deposited into a few different accounts for savings, monthly bills, and charity. Debit cards are always used as the means for spending from these accounts. And my mother-in-law has her own account for whatever she wants. So bills are all paid out of one main account, savings are automatic, and each person has the freedom to spend the budgeted funds on clothes, food, etc. This gets away from such strict “category” spending, which can be freeing. The downside of this method is figuring out who buys dinner when dining out or what to do when there is a major car problem. These are solvable problems, but should be addressed.

4. Rejoice or Repent. Like any aspect of our life, rejoice when you do well with your budget, and repent when you aren’t faithful. Don’t simply just overlook it, but actually repent if you were foolish and receive grace and move on, learning from the mistake.

A Few Other Rules of Thumb

These are for dealing with all this new found money at the end of the month:

• Savings: Work toward having three months of cash savings (monthly expenses x 3). When you get there, start investing wisely (a different article) and work towards six months of savings as a cushion.
• Debt payment: Work to pay down your highest interest rate debt first, especially if it is credit card debt. (See the Getting Out of Debt article for more specific help with this.) If you are deciding between paying down debt and creating savings, I would tell you to split it until you have at least two months of savings. Then aggressively start to pay down debt and just save a little until you get to three months savings. Then pay down high interest debt as aggressively as possible. I would make an exception here for mortgages, low interest school loans, and potentially low interest car loans.

A budget can be a thing of great freedom. Get started and use it wisely. You’ll be glad you did!