A wise person once said that if you fail to plan then you plan to fail. To achieve success in any area of life, we need to set a goal and then break down the steps necessary to get there. Clearly this principle also extends to our finances.
In Proverbs 15:22 (ESV) it says:
‘Without counsel plans fail, but with many advisers they succeed.’
In this context, I believe counsel to mean obtaining sufficient research to support your plan, talking it through with the significant people in your life and having the plan scrutinised by a wise and trusted individual.
I was told a story of a man who was walking along a pavement and he saw that a fire hydrant had burst causing water to gush everywhere. As he watched the water flood the street, he considered the original plan and design for a waterworks system, which when working effectively allows us to turn on the tap to wash our hand or take a shower. However, when the plan for the water is not working effectively, or rather there is no plan, we see a waste of valuable resources, which is the water flowing on the streets.
The point of the above story is that if we have not established an effective plan for our money, we are not being good stewards of our money and we become like the fire hydrant spraying money everywhere in a wasteful manner.
This lack of planning is how somebody can be earning six figures but still living paycheck to paycheck. Conversely, effective planning is what allows someone on a modest salary to live comfortably and give generously.
Committing Our Plan to God
Now that we have hopefully established how important it is to plan, the next question might be ‘How do I plan effectively?’ Great question. As with all areas of life, I believe the first place to start is by bringing our planning process to God. In Proverbs 16:3 (NIV) it says:
‘Commit to the LORD whatever you do, and he will establish your plans’
Divine intervention in the plans that I’m making? Yes please. I believe that submitting our plans before God gives Him honour and allows Him to bless what we’re trying to do. Adding a practical element to this, I believe that if we are honouring God and establishing a financial plan that we want Him to bless, we should give Him the first 10% of our finances. All subsequent budgeting tips will assume that you have committed the first 10% of your income to God. So, when I say, ‘Pay yourself first,’ I will taken it as a given that you have already paid your tithe (10%) to God. To be clear, if you don’t tithe, it doesn’t make you a bad person. It just means that you are not allowing God to have control over your finances. I will cover tithing in more detail in a separate post.
How Do We Build A Plan?
So how do we start building our effective plan? The first step is to establish what your current financial situation is. Do you know how much you have coming in? More crucially, do you know how much you have going out each month? If this information is a mystery to you then now is time to get your head out of the sand and start investigating. Go through your bank statements for the last three months to get a good idea of your income and outgoings. The Money Advice Service has an Online Budget Planner that is simple to use and it also allows you to print/download the completed budget. Here is the link to the Online Budget Planner so that you can make your own budget.
I cannot stress enough how important it is to make a budget, as every other financial objective will flow from a carefully prepared budget.
Once you’ve gone through the numbers and discovered where your money is going each month, you may then wonder, ‘How much of my budget should I be spending in each category?’ There are countless strategies you could use but I have highlighted two methods below.
The 50:30:20 Rule
This basically says that 50% of your budget should cover your needs (mortgage, utility bills, council tax etc), 30% should be on your wants (eating out, cinema, video games) and 20% should be put towards savings and debt overpayments (pension, ISA, credit card etc).
Assuming a monthly income of £2,000, we’ll take 10% away as tithe leaving £1,800. Needs would be £900 of the budget, wants would be £540 and savings £360. More information on the 50:30:20 rule can be found here.
The Smart Spending System
If the 50:30:20 system is too rigid for your financial situation, you could use the Smart Spending System created Jason Butler. He recommends dividing spending into three categories:
1. Basic you – this is your core living costs, including housing, transport, food, regular bills, insurance premiums and any other essential ongoing expenses.
2. Future you – this is the money you are using to reduce debts, save for an emergency fund and invest for the long term (including through your workplace pension).
3. Fun you – this is the money you spend on all the luxuries and extras that make life more comfortable, interesting, exciting or varied.
Butler recommends that after deducting the amount for BASIC YOU expenditure, the remaining amount is divided between FUTURE YOU (40%) and FUN YOU (60%).
For example, if your income is £1,500 and your BASIC YOU expenditure is £1,000, you should put £200 to FUTURE YOU and £300 towards FUN YOU.
Ultimately, there is no one size fits all approach and you should go with what makes the most sense for your own situation. However, in either case I will stress the importance of ‘Paying yourself first’ This could mean setting up a standing order to automatically transfer a set amount to your savings account before you get your hands on it.
In Proverbs 21:5 (NLT) it says:
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.
Notice that it is the combination of good planning AND hard work that leads to prosperity. One without the other is insufficient. Let’s not be like the fire hydrant, working hard and pumping water but without any clear direction or strategy. I’ll assume that you already work hard so please ensure that you combine that with good planning to ensure your future prosperity.
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God Bless
Ten Talents
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