You Should Always Have a Plan
- Monday, December 10, 2012
This article originally appeared on Christian Personal Finance. Used with permission.
You often hear about people who suddenly came into a lot of money, changed their lifestyle, blew the money and in a few years were back to their old life. When I was younger, I never understood how this could happen. With age and experience, it seems to me that this can happen, unless you have a spending planning process.
My parents are in their early 80’s, and so in the next five to ten years it is fairly likely that my wife and I will inherit several hundred thousand dollars. It will not be enough to allow us to retire on, but it will be a once in a lifetime opportunity that we want to spend wisely. As Christians we are conscious of the importance of good financial stewardship. With that in mind, here is how we thought through the process.
The Framework Model
We are big fans of what I call the framework model. It says that you should have a framework first, then develop draft percentages, and then finally select the exact detailed spending plan. Thus when the money comes along, the only real issues are the exact percentages and the actual purchases. This was our attempt to try and take some of the emotion out of the process. While in our case our inheritance will be ‘found money’ so to speak, we want to spend it much as we would our own money. Knowing that we can expect about $400,000, based on the framework approach here is what we came up with:
- 10% to charity – possibly undesignated funds for our church
- 10% for some wild and crazy spend – possibly a cover for our back yard pool
- 5% for a special vacation – maybe a last family vacation with our university age children
- 5% for a home renovation – not clear what will need to be done, but there is always something
- 70% for our retirement savings
There is no magic to the percentages and except for the first allocation, there is little biblical information about them either. What I like about this approach is that we have thought through the percentages long before we have the money in hand. This reduces the risk that we will spend the money frivolously, or on some hot topic of the moment.
Financial Planning with Church Finances
A recent event at our church emphasized the value of this process. A long and faithful member died recently and left the church $150,000 as a bequest. In our church incorporation documents there was provision that if we ever had over $100,000 to invest, we would strike an investment committee. In our nearly 100 years of existence, this had never come up before. I am part of the church executive this year and the first thing we realized, was that we left out a key component. While the investment committee will decide where and how to invest the money; we never thought through the other more important aspect, which is where and how to spend the bequest.
We realized that we need to have a framework in place, before we even begin to start spending the money. One other item we wanted to ensure was that we used the current committees and boards to make the final spending decisions. We just wanted to provide the framework for those decisions. Our draft thought is that we will allocate the money follows: No more than 10% in any one year, and no more than 25% of that on the physical building of the church.
We reasoned, that unless we had a plan in place, it might be tempting to spend new money in ways that we would never have considered, if we had earned the money week by week. We also wanted to ensure that we did not commit the church to an undertaking that could have long lasting cost implications, such as hiring more staff.
As a former boss of mine used to say, “People fail, not because they planned to fail, but because they failed to plan.”
Christian Personal Finance is a resource dedicated to building God's Kingdom and helping others through money.
Publication date: December 10, 2012
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