Tending to the Fields

Two articles ago, we discussed the budget process. At that time, you simply wrote down where the money goes. That is important historical information. Today’s article takes the next step — controlling where the money goes. A budget does not just record where your money went. A budget plans where your money is going.

First we take the list of categories. Down the left hand side we’ll place numbers, starting with 1. Find the most important thing in your list — food. Trust me, you want to eat. Put a 1 next to food. Now find clothing and put a 2 next to it. The mortgage or rent goes next. Follow that with your savings for a car, insurance, and license fees. What we’ve done is build four walls.

Imagine raising a house. You build the roof first. Then construct a wall. Lean the roof from that one wall to the ground. Now slip another wall underneath. This isn’t going too well, is it? You would never build the roof first. That’s just crazy. Put up four walls and the roof goes on quite easily.

Personal finance shares much in common with our imaginary house. We have four walls supporting the rest of the structure:

1. Food
2. Clothing
3. Shelter
4. Transportation

These represent the very basic necessities. You need something of all these elements to live and work. It does you no good paying Visa while going hungry for three days. You can only earn more money staying healthy enough for work.

Proverbs 24:27 puts it this way: Finish your outdoor work and get your fields ready; after that, build your house. Always put necessities first. When examining the remainder of your budget, ask the question What happens if this doesn’t get paid? Does it threaten your ability to work? Then that category goes higher on the list. Set your priorities down on paper, on purpose.

In Due Time

Wow, a budget is hard work. Are they really worth the hassle? When I ask myself this question, hassle is the last thing on my mind.

A budget reveals our priorities. I spend money on things important to me. You spend money on things important to you. Really, it’s that simple. You can spend $5 on a cup of Starbucks coffee, or orange juice for your entire family, or lunch with a friend. But not all three.

It sounds so dramatic. Truth be told, we make these decisions all day long. Every time you pull out cash or a credit card, you made a decision. You chose groceries over eating out. Or you chose coffee over investing in a mutual fund. You spent your money on the things most important for you — priorities.

I’m a selfish person. Left on my own, I would spend everything on stuff that makes me feel good right now. Shocking, isn’t it? That is our sin nature at work. John 3:19b says but men loved darkness instead of light because their deeds were evil. Writing a budget exposes our spending habits to the light. The budget isn’t magical. It confronts you with your own behavior.

Personal finance is 20% knowledge and 80% behavior. The budget draws a line in the sand. It marks a clear boundary. And I cannot hide my selfishness in the darkness of ignorance. Paul says in Romans 7:7b — Indeed I would not have known what sin was except through the law.

That is why I resist doing a budget. Because it requires discipline over my sinful nature. And discipline is really hard work.

Details, details, details

Now where were we? Ah yes — the budget. Take a deep breath and we’ll dive right in…

First we gather our supplies: a notepad, pencil, pay stubs and bills from last month. Our budget begins with the income. Write down all sources of income – one per line. You have a salary. Does your spouse also have a salary? Stocks, bonds? Me neither.

Now write the amount next to each item. This is the total amount each month. After the amount, write how often. For example, I’m paid the 15th and last day. Are you paid weekly? Write down weekly. This isn’t so hard.

Next come our expenses. Where do we spend our money? Don’t worry about the order. Just write them in the order they come to mind: food, clothes, gas, oil changes, car insurance, mortgage, home insurance, renter’s insurance, electricity, natural gas, Internet, cable, water, sewer, trash pickup, gifts (birthday, Christmas, anniversary), haircuts, and all of the other things your family uses.

Next to each, write down the amount you will spend this month. If your amount goes down to the penny, you are a nerd. At least round it up to the next whole dollar.

With a calculator, add up the monthly income. Write that number at the bottom of your list. Now add up all of the expenses. Write that number below the income. Subtract the total expenses from the total income.

Negative numbers are bad. You cannot spend more than you make. Here comes the hard part… Go back and cut expenses. Your total expenses must equal your total income. We call this a zero based budget. Income minus outgo equals zero.

What happens to positive numbers (income > expenses)? You spend more! No, no, don’t rush out to the mall. I mean spend the money on paper — in your budget. Set the money aside for savings. Things break and children get sick. Whatever you call these funds, do it on paper, on purpose.

Unsteady Income

Invariably, someone has an irregular income. They earn commission, and their income depends on the sales that month. Or hours vary week to week. Either way, you can’t really predict how much money arrives.

Start with a low average for the income. Do you work between 32 and 38 hours a week? Budget for 32. That is your most likely minimum. What about commission? Calculate your average for the last two months. For the cautious, ignore your 2 best weeks when calculating the average. That weights your budget towards the lower end.

Now list expenses just as we explained above. Do not put dollar amounts next to them yet. First we prioritize the expenses. Tithe goes at the top — we honor God above all else. Next build the four walls: food, shelter, transportation, and clothing. Write these expenses into your budget.

Okay, now add more categories based on the welfare of your family. Yes, Visa wants their money back. They will sue you if you don’t pay them. And that doesn’t really matter when your baby’s cold turns into pneumonia. Take care of your family. This is your money, not Visa’s.

List debts — except the mortgage — at the bottom. The mortgage counts towards the shelter wall. Credit cards, bank loans, and financing all go on the end.

Finally, start down the expenses list with the amounts. Go until you reach zero. Just under the zero, draw a line across the page. Any extra money above what the budget shows applies underneath the line in the order shown. Always pay the highest priorities first. Do not let American Express take away money for your glasses. Because then you fail the eye exam at the BMV and lose your license. Makes getting to work all the more difficult.

Sample Forms

The Lampo Group, LLC, provides excellent budget forms. Their forms already list the most common expenses (utilities, food, etc.). It’s easier than writing the budget out longhand every month.

• Budget Form: http://www.daveramsey.com/media/pdf/fpu_qbudget.pdf
• Irregular Income Budget: http://www.daveramsey.com/media/pdf/irregular_income_planning.pdf

Mathematically, a budget is simple. Discipline-wise, however, it is a completely different ball game.

Two Types of People

Can I Buy That covered why we keep a budget. Knowing it’s a good idea, though, is a far cry from actually having a budget. And before we discuss real-life budget tips, we need to cover one other important topic.

Stop me if you’ve heard this one… there are two types of people in the world… Don’t worry — no corny punch line. When it comes to a budget, there really are two types of people. For the sake of discussion, let us call them nerds and free spirits.

No, the nerds do not have pocket protectors, tape on their glasses, and a nasal laugh. Nerds like details. Nerds put things in their place — and everything has a place. They can read maps. And if you let a nerd loose on the budget, he/she will calculate it to the penny. I know — I’m a nerd.

Free spirits, on the other hand, look at the big picture. Those pesky details — like how much money is actually available — get in the way. Free spirits feel their finances, go with the flow, and live in the moment. Free spirits enjoy money.

Did you identify your spouse? Yeah, I did it too. Guess what? You’re the other one! God has wisely complemented us with a spouse different than us. Neither the nerd nor the free spirit are wrong. And they are both right. Any well-rounded budget needs a little of both.

So here is where we start… Nerds write the budget. The nerd calls a budget committee meeting. The nerd presents this budget to the free spirit. And then the nerd shuts up. You cannot say one single, solitary word. Finally, the nerd must let the free spirit change something. Ah-ah, remember, not one word.

For their first step, the free spirit actually shows up at the budget meeting. Change anything you like. Your spouse may cringe the first few times. They’ll recover — I did. And after all of your changes, the budget must balance. That means your income equals your outgo. This meeting does not end until that budget balances.

Sounds so easy, right? Next we’ll get into some concrete budget writing tips.

Can I Buy That?

Twice last week, someone asked for permission for New Life to purchase some equipment. For those wondering, the correct answer is — as long as there’s money in the budget. Truthfully, giving permission is not part of the treasurer’s job. I can tell a ministry team if they have enough money in their budget (in these cases, they did). But permission comes from the church.

Did you realize that? New Life gave these teams the permission to buy something new. Last January, the Session approved a budget for this year. And that budget set spending parameters for every ministry team. We had a hearty discussion about it during the annual meeting.

Far too often, we view budgets as a chain. They restrain us from doing all of the cool and important stuff we want. Without such a tiny Worship team budget, we’d have a totally awesome mixer board, wireless gizmos, and hookups for all kinds of instruments. Imagine Bob’s sermon in studio quality sound.

Now imagine there’s no heat in December because New Life has zero cash left for the gas bill. And that fancy mixer board only produces silence without electricity. It’s not so fun anymore, is it?

The budget is not a chain. The budget is a promise. Up until that final approval, every category is fair game for changes. But that approval, it seals the deal. It is a contract — a covenant — between the congregation, the church officers, and the ministry teams.

The contract does not prevent spending. It empowers spending. After that meeting, each team has the power to spend money on behalf of New Life Presbyterian. No permission necessary. The budget lets New Life spend without worry.

And the really cool part? This also works for your family. See, go back through the previous paragraphs. Everywhere it says New Life, replace it with your family name. Go on, I’ll wait. Finished? Good.

Let this sink in a minute. You and your spouse covenant — promise — to spend money together. You agree on the limits. And then you spend it. Can you handle that? Couldn’t you enjoy agreeing to spend money?

Without a budget, we argue about where the money went. “You spent $100 on shoes!” “Well, you spent $300 on a fishing pole. We don’t even eat fish!” Yeah, I’ve survived those conversations too.

With a budget, we may argue over where the money will go. At some point we compromise and make a promise. And then we spend without fear, without worry, without stress.