Budgeting and Setting Your Course
- Friday, August 04, 2000
Most people spend more time planning a two-week vacation than they do planning their family's financial future. Like a vacation, however, if you want to arrive at a desired financial destination, you must first establish a plan, then follow it as best you can.
Three essential steps to achieving any financial plan are
- establishing a clear picture of your current financial status
- setting realistic goals
To set up a family budget, you must first determine three things:
- where you are (financially)
- where you'd like to be and
- how fast you want to get there
"The first key is to actively involve the entire family," says Larry Ruddell, executive director of financial services for Harvest Christian Fellowship. "If everyone will be expected to live within the boundaries laid down in the budget, it is a good idea to involve them in the decision-making process."
Secondly, set aside quality time to brainstorm. That means eliminating distractions such as the television, radio and telephone, and making arrangements for pets and small children. It also means choosing a time that works out for everyone. For example, if Dad is usually stressed out the first hour after work, find another time. If your children have homework on week nights, schedule your budget conversations on a weekend.
Do whatever it takes to ensure that both bodies and minds are present at the family discussions.
The first family meeting should be a time for brainstorming goalscollege, retirement, houses, home improvement, cars, boats, hobbies, vacations, weddings, ministry opportunities, charities and anything else that comes to mind, suggests Ruddell.
"The key to a successful brainstorming meeting is not to make any value judgments concerning someone's suggestions or goals," he said. This is a time to explore the possibilities.
After a healthy exchange of ideas, each family member should be given an assignment to attach a dollar value to everything for which they expressed a need or desire. Without cost estimates, Ruddell said, it will be impossible to make priority judgements.
For example, if Johnny wants a brand new Corvette, he needs to find out how much it will cost, including insurance rates, gasoline and maintenance costs. This is a good lesson for young people.
Make sure to attach a dollar amount to nonmaterial goals as well. Goals like staying home with the kids, living in the country, raising animals, giving to charities or even going away on a mission, can sometimes cost more than material things. Even if they don't go on sale at the local store, most dreams still have a price tag. Find out what they are before you meet next.
Making a Game Plan
After gathering the pertinent facts, it's time to determine where you want to go by setting priorities.
Ruddell suggests dividing the items your family talks about first into needs and wants and second into short-term and long-term goals.
Try folding a sheet of paper in half both lengthwise and width-wise. Label the top left quadrant "short-term needs," the lower left quadrant "long-term needs," the upper right quadrant "short-term wants," and the lower right "long-term wants."
As each person reports back with the cost of various items and projects, your family can discuss them if necessary and then write them in the proper section. An example of a short-term need might be to repair a crashed hard drive on the family's computer. A short-term want might be to get a new car. A long-term need could be to get out of debt. And a long-term want might be for the family to spend a month traveling in Europe.
Make sure not to compare yourself to others when determining needs versus wants.
After you've completed this exercise, which may take several meetings, you should be left with a general road map of where you'd like to be. The next step will be determining where you are.
Where are you?
Determining your current financial position is not always as easy as it soundssometimes due to lack of knowledge, sometimes due to perspective.
"Most people do not consider a home mortgage or car loan as debt," says Ron Blue in his book, Taming the Money Monster.
Blue, who is the founder and managing partner of Ronald Blue and Co., a financial advisory firm, defines debt is anything owed to anyone for any reason.
To determine your debt load, make a list of all the companies and people to whom money is owed, the amount owed, the interest rate, the due date and the payment schedule.
On another sheet of paper, list all your monthly expenseseverything from mortgage payments to parking expenses, from haircuts to school lunches and from newspaper subscriptions to monthly tithe.
If you have any annual or quarterly bills, translate them into equivalent monthly costs.
Remember don't write down what you know you should be spending, but rather what you actually are spending. Be honest. A doctor has to know all the symptoms before he can make a proper diagnosis, and so do you if you're going to prescribe a budget that's right for your family.
It might be helpful to get out the checkbook, bank statements and a calendar to remember where money was spent.
Next, the moment of truth. Add up your normal monthly costs and subtract that figure from your total monthly income. That's what you've got to work with.
If you're not happy with that amount, there are only two ways to increase it. You can either decrease your costs or increase the income. If you think that things will get better on their own, banish the thought.
"You're not going to get where you need to go, if you remain where you are," says Dean Whitman, director of WMA Securities, Inc. "And where you are is where you've been long enough."
A little sacrifice
Achieving goals in your financial plan is most likely going to involve sacrifice. But that sacrifice will be rewarded when it leads to something better. This concept is called "delayed gratification."
Conversely, if you're not willing to give up a few things nowtime, money or material thingsyou probably will reach your destination too late or not at all.
"If money isn't working for you, it's working against you ... you just don't know it yet," says Whitman.
Satan works in the craftiest of ways, and one of them is to manipulate a family into the bondage of debt. God's people can be in servitude to money and have very little of it for themselves. For example, having cable television, a new car and two dogs might be causing a family to be in debt or might be forcing a Mom who wants to stay home to work.
In short, you need to consider how important the things in your life really are.
"You've got to stop spending and start saving," Whitman says. "It's that simple."
He also points out that saving or paying off debt should be the first thing that's done in a budget. Many people spend, spend, spend and then hope that there's some left over to save. Instead, save first. Then you can spend the rest without guilt and worry.
As you chart your family's game plan, write everything down. If you don't, there will be no way to hold yourselves accountable. Then, as you work out the details, remember to constantly pray. Your ultimate vision as a family should be to free yourself of the worries of money in order to do what God calls you to do.
Rewards & Accountability
Someone once said, "A vision without a task is a dream. A task without a vision is drudgery. But a vision with a task is destiny."
God tells us in Proverbs 29:17, Where there is no vision, the people perish.
Once you've established a set of goals and a budget, post it where family members can easily refer to it. It helps to keep those visions fresh and to keep family members on track.
In addition, set up a time to meet again to determine whether you have been accountable to the plan.
To build enthusiasm and momentum, you also need to plan in a system of rewards. Take a few of the items in your short-term wants list and use them as rewards. When you have been accountable for a certain period of time or have saved a set amount of money toward a long-term goal, reward yourself. This will keep the budget from becoming drudgery and will actually make it fun to work as a team.
Lastly, as the head of a family, a husband should act as a financial coach.
A quote from former Dallas Cowboys coach Tom Landry sums up a husband's role perfectly: "A good coach makes his people do what they don't want to do to become who they want to become."
Getting out of debt and moving on to financial freedom is simple, but not simplistic, says Blue. The key is to take the first step.
Someone once asked, "How do you eat an elephant?" The answer is, "One bite at a time." Though it may appear an impossible task at first, setting a family budget is surely something that the grace of God is sufficient to help you through.
If any of you lacks wisdom, he should ask God, who gives generously to all without finding fault, and it will be given to him. James 1:5
Reprinted with permission from No-Debt Living Newsletter, copyright 2000 No-Debt Living. Robert Frank is editor of No-Debt Living Newsletter which provides financial, consumer and time-management news with a Christian perspective.
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