Financial stability is a beautiful idea, but many people feel like they are climbing Mount Everest to reach their financial goals. Stability is also subjective from one family to the next, depending upon each family’s lifestyle. If you ask ten different people this question, you’d likely get ten different answers. That said, please know that I am not a financial advisor, and therefore, I am not saying that the following steps are the only way to achieve financial stability. They are helpful steps I’ve tried to incorporate in managing finances for my family, which you may find useful, too.
Budget
To achieve financial stability, it’s very important to start with a budget. Start with what is coming in, then build a plan of where that income goes so that there’s not more going out than coming in. This is a very simple formula:
Income – Expenses = Net Gain
The net gain, of course, assumes income is greater than expenses. If you don’t have a plan, it’s easy to allow your expenses to exceed your income. You should measure your income and expenses regularly because the more frequently they are measured, the better they are managed. Always measure your income and expenses, even if you know there is substantially more coming in than going out. Any net gain or excess needs to have a purpose to be stewarded well.
Tithe
Money can be deployed in many ways (this is the expense side of the budget formula), but I believe regular tithing is foundational for achieving financial stability. I prefer to manage finances in a way that would be blessed by the Lord rather than not. This doesn’t mean that tithing will result in the Lord giving me more money; instead, it means I strive to handle my finances in accordance with biblical principles. I always want to remember that my money is a gift from the Lord, and giving back to him through a regular tithe honors him and blesses my family. Pastor Jarrett recently shared a wonderful message entitled Jesus on Money. It is worth listening to this message if you have questions or hesitations about tithing. What you give to your local church is essential to your budget.
Debt
Being debt-free is a great goal to have in your financial plan. Until that day, one cannot ignore how much debt takes out of their regular budget. A debt payment is owed because of a promise to pay, which is why the payment cannot be ignored. Understanding that you have a goal to be debt-free, I also know that some debt is necessary. I believe most people get in trouble with debt or create unnecessary debt when they don’t match their source of funds with their use of funds. I’ll define the sources and uses of funds here:
- Source of Funds – The origin of funds used in a transaction.
- Use of Funds – The use of funds in a transaction.
An example of sources of funds and uses of funds matching is when a mortgage loan (the source) is used to purchase a home (the use). Usually, the planned use of a home is long-term, and a mortgage term is also long-term.
An example of sources and uses of funds not matching is when a credit card (short-term source) is used to purchase a meal (short-term use). Now, both the source and the use are short-term, assuming the credit card balance is paid in full when due. But if it isn’t paid in full when due—this is typically caused by credit card spending exceeding income—it has become a long-term source of funds. It might be better said this way: The use of the meal was 4 hours when the source of the meal was 45 days. Then, add interest to the cost of the meal. This example is usually caused by expenses exceeding income, which means a budget isn’t being monitored.
In short, avoid debt except where it’s necessary along the path to financial security.
Savings
We have yet to discuss consumables like groceries, fuel, insurance, utilities, hobbies, travel, etc. Unfortunately, savings usually take a back seat to these consumables, but it is necessary, as one plans to retire one day, to prioritize savings. In retirement, a good rule is to have replacement income in the 70% – 85% range of your final year income. A long-term savings plan helps achieve that goal. Time is a major factor in this. Start early and continually contribute to a retirement plan. If you didn’t start early, start now…it’s a great day to start saving! There are many free calculators available online to help know how much you should save to achieve your retirement goals. You could also ask a financial planner.
Don’t Have a Plan, Where Do I start?
We’ve discussed four steps for financial stability: budget, tithe, debt, and savings, but there are so many things that have been left out, including wise spending practices. If you don’t feel you have the tools to even begin working toward financial stability, Champion Forest has a resource for you. Consider the church’s partnership with Financial Peace University (FPU). This resource teaches you “how to make the right decisions with your money.” It also helps you gain “the practical skills and confidence needed to achieve your financial goals.” I encourage you to consider this resource!