There was a time when I would encounter something about personal financial planning and my eyes would glaze over and my mind would wander like I was slogging through some treatise on the chemical structure of house paint. That was back when I used to wave off terms like “financial planning” and “retirement planning” as the obligatory chit-chat of the country club crowd as they raised their eyebrows and swirled their cocktails.
But as my view towards money began to evolve, I came to realize that some of my thinking couldn’t be further from the truth. The light bulb finally went on for me when I recognized that as far as financial goals for the future are concerned, the term “retirement” really didn’t mean a whole heck of a lot, and that the most worthy personal financial goals were:
Those two things made a lot more sense to me and were something I could get behind, something I was probably willing to sacrifice a little for. See, what I figured out was that one of the best things you can do when it comes to personal financial planning is to gain the proper perspective – to understand that:
Once you take on this mindset, your daily work can really become more about being a meaningful part of your life that funds and allows you to serve some larger purpose and less about being a job that you must slog through in order to pay bills and save for “the future”.
So even if you’re like I was, and a phrase like “personal finance” can begin to put you into a coma, you owe it to yourself to try to embrace this whole “family financial planning” thing.
And the first thing to do, the best way to get the ball rolling, is to seriously try and figure out TWO THINGS:
In other words, why do you want to have a growing pot of money put aside in the first place? Now, some goals may get modified or changed over time, but you need to have a base and a place of reference as you move through life.
Your ultimate life goal is your legacy, something you can leave behind that is good and enduring. Your general goals are short, medium and long-term goals that point toward and flesh out your ultimate goal.
Your general goals should accomplish two things:
- They should serve as progress markers on the road to your Ultimate Goal
- They should be accomplishments that can endure on their own merits
So do some soul-searching and figure these goals out and be very specific. Then, write these goals down. Yeah, write them down. Why? Well, research has shown time and time again that people who get into the habit of writing their goals down and reading them every once in a while are more satisfied with their lives and happier in the long run. That’s good enough for me. How about you?
So, what really matters to you, really stirs you in life? If you had more money than you could dream of, more millions than you could ever spend, what passions would you pursue? If you had all the time you needed, what kind of projects would you set in motion? You need to grab these dreams, verbalize them and then break them down into four parts:
Every one of us has different goals and our own special dreams; I’ve got mine, you’ve got yours. And while “being rich” may seem like a cool and worthy enough goal to have, I think that it’s important to understand that accumulating wealth should not be a means unto itself.
In other words, it’ll get pretty old pretty fast if your only motivation for amassing fat stacks of cash is, well, amassing fat stacks of cash. Think about it – money is only a means to an end, a medium of exchange, a common ground between a buyer and seller.
The thing that’s really important is to figure out what your true goals and dreams are in this life, and how money directly figures into the picture. This is what will sharpen your focus and help you come up with a real financial plan for your future. And when you boil it all down to its essence, I believe that for most people when it comes down to money, one overriding long-term goal should stand out – and that is the goal of “financial peace of mind”.
What is financial peace of mind? It’s when your finances aren’t something that you think about several times a day. It’s when you don’t fret over minor cash emergencies or obsess over your retirement prospects. Basically it’s a place of comfort, a state of living where you rarely dwell on money; where you can concentrate on achieving those things that truly fulfill you.
I think it would be fair to say that most people would like to achieve a state of financial peace of mind. They would like to live in a situation where they have as many life choices open to them as possible, due to the fact that they have gotten the upper hand over money and are in control of their financial situation, rather than having their financial concerns dictating their course of action in almost every aspect of their lives.
And the simple truth of the matter is that navigating a course toward financial peace of mind really only involves two basic steps:
To put it bluntly, all you’ve got to do is live within your means and spend less money on crap. And that’s it.
Simple? Yes. Easy? Not really. But hey, God never promised us that we wouldn’t have challenges, right? Many times the best things in life don’t come without a struggle of some kind.
Spending less than you make involves living within your means. For some people that may be as simple as setting a certain percentage of income aside each month and figuring out how to live on the rest. For others it’s going to mean coming up with a plan to categorize and track spending.
It also might mean finding ways to make more money by occasionally doing a little work on the side or selling stuff you don’t need. Or it could even mean working a little more on career development by building your job skills or continuing your education.
Regardless of the specific actions taken, keeping your expenses at bay usually involves a shift towards living a little more frugally and putting a little more thought into what you spend money on every time you spend it.
It means not buying stuff just to impress others, and not buying stuff on impulse. It means starting to prioritize your unnecessary spending. Hey, if it’s something you really enjoy, go for it – spend some money on it. But just make darn sure you compromise somewhere else. You don’t have to live like a pauper or some self-denying weirdo; just start spending your hard-earned cash more wisely and thoughtfully.
When you spend less than you make, obviously you’re going to have money left over – “a surplus” – and you are going to need to manage that surplus. This involves learning (or re-learning) some basic money management skills and understanding how to make a budget plan.
It means doing things like paying down your debt, building an emergency fund, saving and investing for retirement, saving for kids’ education, and even managing your risk by buying insurance. In short, in order to effectively take control of your personal finances, you need to make personal financial management a part of your life.
There’s an old saying that says something like, “falling into debt is easy, but climbing back out is hard.” And man, that simple truth holds as much meaning now as it ever has. These days, after years of everyone jumping on the easy-credit goodie cart, hard times have come fast and stuck around, and now lots of people have found themselves smothered in bill payments and in need of some serious debt management.
For many, it is a day of reckoning.
The thing about debt is that it’s equal opportunity; it doesn’t discriminate and there are no rules about who can get nailed by debt and who can’t. Things like job loss, medical expenses and other unforeseen emergencies are unfortunate but understandable situations that can cause big money problems. Some people are buried in debt through no fault of their own.
But what about debt that’s been racked up from trying to ramp up a lifestyle by buying stuff on credit? There’s no way to spin that into a positive. As a matter of fact, a large portion of the consumer debt that is out there wreaking havoc right now is a direct result of people having to have everything they see and thinking next to nothing about spending big wads of money on wants rather than needs.
Folks borrowing money from their future in order to impress other people in the present.
It’s a bad snare that many of us have fallen prey to – that trap of needing instant gratification rather than delayed satisfaction. We’re baited by culture into an unhealthy pattern of impulse purchases and “buying to impress”.
The Apostle Paul was not just spewing gibberish when he wrote that “if we have food and clothes, we will be satisfied with that.” But because we are human, and therefore prone to covetousness, we tend to not be content with what we have; it’s in our nature.
As we cruise along in the fast lane of our own little rat races we tend to lose sight of the fact that “serving God does make us very rich, if we are satisfied with what we have”. So we get stuff on credit and live above our means in order to satisfy our wants and look good to the outside world. Of course, a time always comes when the piper must be paid, and unfortunately for many, that time is now.
Lots of folks make excuses for themselves and blame many of their financial problems on things that are outside of their control, when instead it is they themselves that are the real culprits.
If a lot of this stuff hits close to home for you – if can see some of yourself in all this – then it’s a good bet that you may have been feeling some frustration and angst for awhile. Now is the time and today is the day to take a couple of deep breaths, stop the mental hand-wringing and calmly look for a way out.
Being in debt can stress you out like almost nothing else, so the first thing you need to do is realize that through Christ who strengthens you, debt can be conquered. And if you are ready to honestly deal with it, there is a light at the end of the tunnel; you can eliminate your debt.
But first you’ve got to steadfastly decide to do one big thing:
Living ‘Within Our Means’
Think about it; what is that weird aspect of our human nature that nudges us to show off? I mean, what is it that we are really trying to gain by putting on airs for people who will probably know right away or soon figure out that we are really just faking it? If we think about it in logical terms, besides the self-gratification that comes with making ourselves feel superior, the only way false appearances really have any kind of a benefit is if other people don’t realize that the appearance is false. Now isn’t that a crazy notion?
So if the only real justifications we can find for living beyond our means are to look good to the outside world and to pad our self esteem, are those good enough reasons to make a solid case for spending more than we make? And what about the other side of the coin? Are there any good reasons to not live beyond our means?
Here, as a quick exercise, let’s just outline this a little and see what it might look like.
5 Reasons to live beyond our means:
- It might somehow make us feel good
5 Reasons to not live beyond our means:
- Sooner or later we’ll be exposed for the posers we really are
- It keeps us from having the needed cash if we run into an emergency
- It sets a crummy example for our kids about family money management
- It makes us cut back in important areas like giving to the needy and saving for our future
- It is personally dishonest at its core
It sure doesn’t seem very difficult to compare the reasons for and against and come up with a winner, does it? Living within our means and finding money every month to put towards our future will surely have a more positive impact on our lives than wasting money acquiring “badges” in the hope that the outside world would perceive us as having fat wallets.
So how do you live within your means?
Well, all you’ve got to do is to make a commitment to not spend more than you earn. Rearrange your wants and your needs to better fit the amount of money you have. No doubt this will involve making some tough choices, especially since many of us balance on a razor’s edge just trying to cover our basic needs like food, shelter and clothing. Even so, in most situations there are still ways that we could all reduce the costs of even those most basic of necessities.
Here is a good way to begin the process:
- Carefully examine all your habits and look for and isolate ways to cut costs.
- Make the tough decision of whether you really want to make the necessary changes in order to cut these costs, or if you just want to talk about the idea.
- If you decide that you really do want to make some necessary adjustments in wasteful habits, prioritize the areas you have identified from least painful to most difficult.
- Make one change at a time until you are satisfied that the wasteful habit has been changed.
- Just start slowly, but stay consistent and be persistent; and if this process of cutting back involves more than just you, you will need to get the cooperation and commitment of everyone involved in order to be successful!
How to Start Managing Debt
Before we take those first steps on our journey towards confronting our debt and devising a debt management plan, we first need to just chill out about the whole thing. We’ll feel more in control and things will look so much clearer and go much more smoothly if we are calm and measured when we begin the process. Jesus never wrung his hands or worried because He knew His purpose was to fulfill God’s plans, not His own.
In contrast, much of our anxiety and worry tends to come from planning without God and forgetting that nothing is too much for Him to handle. Once we’ve mellowed out, once we’ve rested in the Lord, we can then go ahead and devise our actual debt management plan.
Deal with the fact that you are in debt and need to get out
Face up to it. No more ignoring the problem; it’s not going to go away by itself and striking it rich or winning the lottery are probably not going to happen anytime soon.
Figure out exactly what your current money situation is
Write down your:
- Monthly income
- Monthly expenses
- Monthly debt payments
- Total debt owed
This way you can easily see what your whole financial picture looks like. You’ll be able to see if your income is enough to cover your monthly expenses, if you can make your monthly minimum debt payments, if you can have money left over to pay down some debt, and how long it will take you to pay off your debt. Putting this all down on paper will also give you something easily understandable to show to anyone you may want to get some help from in dealing with your finances.
Set up a simple four-column account sheet
- In the left-side column, write down the name of each of your debts: each credit card, medical bill, car loan, personal loan – everything except your mortgage.
- In the second column, write down the amounts you owe for each of those debts.
- In the third column, write down the minimum monthly payment
- In the fourth column put down the interest percentage.
- Add up and total the second and third columns. This will show you what your total debt owed is and the minimum amount that you have to pay towards that debt each month.
Figure out how you are going to deal with your debts
If you’ve got enough income to make your monthly debt payments, you now need to concentrate on coming up with a plan to pay those debts down and eventually become debt free. Prioritize those debts and start making the minimum payment on every debt except the one you’ve designated your top priority. Pay as much extra as possible on that top priority debt, whether an extra $30 a month or $100 a month, because every little bit helps.
Once you’ve paid that one off, focus on number two, taking the amount you were paying on the first debt and adding it to the minimum payment on the second debt on your list. Keep doing this until every debt is paid off.
Begin working your plan immediately
Don’t wait; you have a plan, now go and put it into action! It probably won’t be easy, but do it, stick to it, and there will be an awesome personal payoff at the end.
Track the progress of your plan
To get the best benefit out of your plan in the fastest amount of time, you should monitor your plan along the way, track your progress and make any needed adjustments as you go along. Celebrate your accomplishments and milestones as you reach them in order to keep yourself motivated.
Lastly, give yourself some credit!
You have seen and dealt with your debt issues head-on. You have taken the actions that tons of other people in your exact situation have neglected to take. You are being responsible, taking control and are well on the way to financial peace of mind!
And one last thing, if you ever feel just too overwhelmed you should strongly consider getting some outside advice or help from someone who can view your exact financial situation. If you don’t know anyone personally that you would trust, there are many non-profit places where you can get debt counseling and consumer credit counseling from independent, trained advisers.
What you’re getting ready to do now is devise and work a simple plan that will help you get to a place of financial peace of mind. The most important thing to keep in mind is that this plan needs to allow you to enjoy the ride, meet your goals and cultivate a legacy on the way to your ultimate goal.
You shouldn’t feel like you are working someone else’s plan; you should feel that that it’s your plan. Keep in mind that how much money you make is usually less important than what you do with the money you make.
Okay, to get any kind of personal budget planning started, you’ve first got to promise yourself that you’re going to spend less than you make – live within your means – that’s the bottom line. Sounds simple enough, but in today’s world with all the sophisticated advertising media blasting messages at your brain 24-7, it is not easy! But every dollar you have left over after your expenses are covered can be thought of as one more paving stone in your path to financial freedom.
Likewise, a few extra dollars spent here and there can really add up in the long run and keep you off your desired path. The whole point is that however much money you have, you really should try to start spending less, and definitely spend less than you bring in.
Analyze Your Spending
The next thing that’s really going to help is to figure out where every bit of your money goes every month. An easy way to get going on this is to start right now and write down every penny you spend for the next 30 days. It’s really not that hard to do; one way to do this is to just put a pen and a folded up piece of paper in your pocket, bag or purse and write down how much you spend and what you spend it on each time you pay for something. It’ll take about fifteen seconds each time, no big deal.
Just write down EVERYTHING on that piece of paper: every online transaction, every bill payment, every debit card swipe, even the mortgage payment. You name it; if you spend money, it gets written down. It will probably only take a total of about 30 minutes for the entire month, seriously, but it will provide you with a load of valuable information you are going to need in order become your own money savings expert.
Create a Simple Budget
Okay, so now that you’ve gotten a handle on your goals and written them down, made an assessment of your debt and tracked your expenditures, you’re ready to create a budget. Do you want to know the simplest but most effective way to create a budget?
In other words, take a portion of the money left over after you have covered your mandatory expenses and set it aside before you spend any money on stuff or entertainment; designate it as “No-Touchie Money”. This way you are, in essence, budgeting, but without actually having to sit down and create a boring-as-heck, detailed spending plan in advance.
Of course, if detailed planning is more your bag, then definitely go for it. The point here is just that you don’t need to be schooled in the finer arts of business analytics in order to come up with a household budget. Rocket science it ain’t; it’s just money in, money out.
- Now, what do you do with that No-Touchie Money?
Well, the first thing to do is to split that chunk of money into two parts, giving the first part of it back to God’s Kingdom in some way. We need to affirm God’s sovereignty and our dependence on Him for the positives and successes we experience in life.
How much should we give? Well, that’s a personal matter that’s totally up to you. There is no fixed percentage that constitutes Christian generosity; giving is not about percentages, it’s about your heart. Maybe instead of asking, “How much am I required to give?” why not ask, “How much can I give?”
With the other part of this No-Touchie Money you will want to:
First, what’s an emergency fund? An emergency fund is just money that you can get your hands on quickly. When unexpected expenses arise and you don’t have an emergency fund, you may take on extra debt or skip some current debt payments to pay for the unexpected expenses. So an emergency fund will help protect you from acquiring more debt, and $1,000 is a good initial goal to have for this fund. Once that goal is reached, then a small amount should be continuously added into it every month.
Second, how do you know which debts to concentrate on paying down fastest as you start investing? Well, you’ve got to consider two things:
- What is the after tax interest rate you are paying on your debt?
- What is the after tax rate of return you expect to make on your investments?
See, there are basically two kinds of debt: Crappy debt where you borrow money in order to consume something, and reasonable debt where you borrow money to produce something.
Examples of crappy debt are credit card debt, department store debt, and financing a new car that’s out of your league. Examples of reasonable debt would be a home mortgage and student loans. The super-simple, most basic guideline here is that crappy debt is usually high-interest and not tax-deductible, while reasonable debt is usually lower interest and partially or fully tax-deductible.
So you should look at each individual debt; if you think investing will get you a better return (after taxes) on your money than the interest rate you pay on your debt (after taxes), then diverting more of your No-Touchie Money towards investing is probably a good idea. If not, then paying off that debt should take priority.
Of course, investing money wisely is the key here, but all the best investment books, retirement planning advice and financial planning education won’t enable anyone to predict the future. Nobody knows for certain what the inflation rate will be, how volatile the stock market or other investments will be, or how long they’ll live. Keep that in mind.
One last tip: Have some smaller financial goals on the way to your ultimate goal, and you can reward yourself as you reach these milestones. When you reward yourself when you reach a goal with a little something that you would really like to have but don’t need, that action can work wonders when it comes to the motivation needed to stick to a long-term savings plan where you routinely forego purchases in pursuit of your big goals. You may also find that whatever you reward yourself with takes on more value and meaning as well. Just don’t be stupid – don’t use debt when you reward yourself!
Here’s the deal: Planning and investing will help you to become financially free. Being financially free allows you to sleep at night and to rest in the comfort of knowing that if you don’t want to or can’t work anymore, you will still have free access to the money you need to cover your basic needs and living expenses.
Of course, it’s also fair warning to say that there is no guarantee that financial peace will bring you inner peace. That sort of joy and happiness is much more dependent upon your definition of the meaning of life and the caliber of your relationships with other people than it is about the size of your bank accounts.
And having more money is not the answer to the meaning of life or a necessary ingredient for enduring friendships or life-long love. Nor is it the end to personal problems. One of the truly scary things about money is that for many, the more money they have, the more the undesirable aspects of their life and character get magnified.
And that’s something worth thinking about.
Did you know that if you’re an average person living an average life in America right now, you probably have a standard of living that is better than 95 percent of the people who have ever walked on the face of this planet? That’s pretty awesome to think about, isn’t it?
Sometimes I wonder, though, if over the last generation or so a big chunk of the cost of this increase has been extracted from our daily lives. I mean, we might have more stuff and cushier surroundings, but do we have more personal time? Do we have more freedom to strengthen family bonds or cultivate personal relationships? We might have more money, but do we mostly do the right things with our money? Our culture raves about having piles of cash and cribs full of cool stuff, but does it gloss over – or worse, glamorize – the “wants” that having a bunch of money and stuff creates?
I’m not saying we should be against having stuff; I like cool stuff and our generation probably has more cool stuff than any other before us. And a lot of these neat things help us to be more productive, be healthier and live smarter. The problems creep in when we begin to define our lives by our possessions and end up having that ever-present umbilical cord of monthly bills affixed to our stockpiles of cool stuff.
These days, going through life with constant debt is the norm. I mean, how many people do you know that don’t have credit card debt, student loans, car loans, cell phone contracts and all that? I’d bet the answer is “not many.” And what I think really stinks is that I run across people all the time that have a generous heart, want to “give something back” but they just don’t think they have the free cash they wish they had to help the causes they believe in.
If we are slaves to a lifestyle propped up by our debts, then how can we be truly free to pursue a life lived for others and the promise of treasures stored in Heaven?
I hate to say it, but when I look around at myself and others, it’s pretty easy to see that these days, if and when any of us have extra money left over after taking care of our monthly obligations, the big temptation is to go right out and spend that extra money on ourselves. It’s like regardless of how much stuff we buy, there is always lots more stuff for us to want.
Surrounded by a culture that preaches a false gospel of materialism, we have developed a core dissatisfaction which has led many of us to a consumerist mindset, seeking out gratification through possessions, especially the “latest and greatest.”
Of course this is just fool’s gold, and contrary to what our modern culture would have us believe, the ones who win aren’t the ones who die with the most stuff. Instead, it is those who have cultivated the satisfaction that comes from living their lives for a purpose greater than themselves who are the ultimate victors.
So maybe what would be cool to do is to try and change the relationship we have with money – to change the way we think about consumerism, money and debt. We need to pay our bills. We need to save. And we all feel the pain of the pinch from time to time when we have to back off from some personal spending in order to cover some bills or make that necessary retirement fund deposit.
But maybe we should try something new; maybe we should find out what it’s like to experience that same pinch in order to give some money away. Most of us face an ongoing dilemma: We need to keep up with our current expenses and we want to sock money away for the future, but we also want to give money away.
So the struggle here is to find ways to stay afloat and save without having to sacrifice our giving. And the obvious way to do this is by cutting back on our lifestyle expenses. Generous giving does come at a price to the giver; there is no true generosity that has a cost of zero.
Now, if you haven’t ever sacrificed the personal pleasures of spending money on yourself in order to give that money away, you may think that what we’re talking about here is going to be too tough to do. But you may not be realizing the payoff for the sacrifice. Most people like payoffs, and this payoff is huge. It’s better than the self-esteem jolt of buying some new, hip clothes or some sweet, new Nike shoes; and definitely it’s better than the feeling brought on by a fleeting night out on the town.
The payoff we’re talking about here is an overall sense of fulfillment and truly feeling better about yourself and the immediate world around you. I’m speaking of experiencing a kind of personal balance that’s hard to get any other way – in short, a path to an honest feeling of contentment.
It’s Not “All About The Money”
If you’ve already gotten into the swing of sacrificially giving away some of the hard-earned money that you bring in every month, then you already know what I’m talking about. And if you don’t, well, all that can be said is that you’re definitely missing out. Big time. Seriously, the stuff you would normally grab with that extra money probably couldn’t come close to what that money would do for you and others when you thoughtfully direct it to another person, group or organization.
That said, the big picture thing to remember is that generosity is not just “all about the money.” Living a generous lifestyle is way more than that. It’s more than just giving to your church or offering part of your paycheck to a charity. As a matter of fact, in a lot of cases being generous doesn’t have to involve your money at all because one of the best gifts you can give is the gift of your time.
Giving away your time to people and organizations where you can see their needs first hand and help to put a solution in place can be one of the most rewarding habits you could ever get into. The personal rewards can be almost addictive. This is the essence of “volunteerism”, and one of the coolest things about volunteering is the whole range of opportunities that are out there.
It doesn’t matter how old you are, how educated you are, what kind of shape you’re in or what your personality is; there is such a world of need out there right now that you are going to discover lots of volunteering ideas that will mesh with your skills and resonate with the core values of true Christianity.
And that is the key – for us to look for opportunities that match up with our strengths and personalities while maintaining the views of love and compassion for others expressed by Jesus Christ. Otherwise, we run the risk of doing things that just end up being another activity we wedge into our lives that keeps us busy but doesn’t bring us any lasting change, meaning or joy.
Helping others in a regular, organized fashion also brings some practical, earthly rewards to the volunteer as well. Doing things for others stimulates the exact same neuro-pathways as sugar and crack cocaine, and studies have shown that people who volunteer regularly tend to be less overweight, have lower rates of heart disease and actually have lower health care costs. It is indeed more blessed to give than to receive!
So, why not give something back on a regular basis? Make it a part of your life. Explore some charity event ideas, look into some family volunteer vacations, mow an elderly person’s lawn for free, buy a panhandler a sandwich… Start somewhere; do something. Be generous.
Of course, being generous begins inside you, at your core. It really is a personal thing. If you are a stingy you-know-what and practice fake generosity just for recognition or to look good to the outside world, then what you’re probably going to end up with is cheap imitations of fulfillment and joy and wasted opportunities for personal growth.
If you had piles of money, what would you really do with your life? What passions would you pursue? What legacy would you try to leave behind? How could you make a lasting difference in your circle of influence? These are the types of things that you should be going after and working on right now. This is your calling.
Sure, in theory you would probably be able to accomplish more of your calling if you had a lot more money, but in reality would that really happen? Would you just be able to say, “Okay, I have enough now,” or would you just keep on working to amass more wealth? When circumstances are such that the money keeps rolling in, it can be very difficult to stave off the addiction of wanting and making more and more.
Remember, throughout our working lives we are always making a tradeoff of time for money, and this tradeoff must be constantly managed in light of our true calling in life. When our time horizon is long, we can lose sight of the fact that while we can always make more money, we can never buy any extra time. As we get older though, the more precious time becomes and the more difficult it becomes to forge a legacy of lasting significance.
Think about it.