Do you know how to manage your finances responsibly? Here is a biblical approach to balanced financial management.
Jesus taught His disciples a far-reaching parable that should guide a multitude of decisions in our lives. The parable is found in Luke 14:25-32. Christ asked the question, “For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?” (verse 28). We understand that this means we should first consider the situation before us to ensure we are capable of adequately dealing with it.
Christians have the responsibility to set a godly example in this sin-sick world. Perhaps one of the most glaring sins of our nations lies in our lust for a lifestyle we simply cannot afford. Many individuals, families and even national governments are simply living beyond their means. It is a vicious cycle that tends to draw people, and nations, further and further into debt.
A significant part of the problem lies in reckless accounting and improper use of the resources at our disposal. It is easy to dream of a quality of life we would like to obtain, but how do we get there? Society promotes the concept of buying today, but paying tomorrow. Credit can play into a severe human weakness of acquiring things we can’t afford with the option to pay them off over time. While there is a time and place for the effective use of credit, we should make it a practice to live within our means.
Consider a principle taught by the Apostle Paul to the Hebrews: “Let your conversation be without covetousness; and be content with such things as ye have: for he hath said, I will never leave thee, nor forsake thee” (Hebrews 13:5). Are you content with your possessions and standard of living? We should strive to improve ourselves—but not at the cost of lust and greed.
We might feel that we should have more, but that is not always in our best interest (James 4). If we are living in obedience to God’s way, we can have faith that He will take care of our physical needs as Christ pointed out in Matthew 6:24-34. Take time to read those verses in the context of this subject. By placing our focus on and faith in God and His way of life, living obediently under His financial laws, we can have confidence our physical needs will be attended to. Our focus has to be on living God’s way.
Count the Costs
“Be thou diligent to know the state of thy flocks, and look well to thy herds. For riches are not for ever: and doth the crown endure to every generation?” (Proverbs 27:23-24). Here we read God’s approach to managing our physical goods. We should know the state of our flocks, or our possessions. Not only are we to be aware of our situation, we are to look well to our herds, or effectively manage and administer our possessions.
God expects us to be responsible stewards with the financial gifts He has bestowed upon us. We are under judgment in how we manage those blessings (Luke 16:1-8; 1 Peter 4:17). Take a look at your financial situation, and your management of that situation, and ask yourself if you are fulfilling your requirements before God.
One of the most effective ways to be a good steward over our financial affairs is to create and use a budget to guide our decisions. The budgetary practice is supported by the Bible, and is a commonly used tool in the lives of successful people and businesses. Using a budget requires discipline, but if you can form the habit, chances are you will be able to enjoy a more stable, less stressful life.
Readers of this article all over the world experience a variety of different standards and costs of living. The principles in this article should be considered in relation to your current financial position, geographic location, standard of living and other relevant economic conditions. For example, a family might already own a home, thus eliminating perhaps one of the larger categories from the budget. Others might not have the option of owning a home, and may have to budget up to 40 percent of their income just toward rent. Food costs, taxes and other economic conditions must all be factored into the equation. The underlying principle of this article is to exhort you to calculate your needs in proportion to your income, and then to live within those boundaries. For simplicity’s sake, we will consider a monthly budget system that divides our income and expenditures into the 12 months of the year.
A successful budget can be derived once you understand and account for your income and expenditures. The principle of budgeting is a logical division of your income to cover the various categories of your expenditure.
But before we get into specifics, let’s understand one point first. We already discussed Christ’s advice in Matthew 6 in which we are advised to put our confidence in God. We can only do that if we are faithfully tithing. Blessings will overwhelm us if we are properly tithing (Malachi 3:10). Remember, those blessings might not always be apparent. This passage in Malachi doesn’t guarantee financial blessings in the form of cash, but God says that we will be taken care of in far greater proportion than the 10 percent we give back to Him. You can also glean an understanding from this same passage, and from the preceding verses in Malachi 3, that if we rob God, or if we fail to live obediently under His tithing laws, we should not expect blessings, success or a smooth way of life.
From the tithing laws, we can already begin our analysis of expenditures. We must commit the first 10 percent of our income to God in the form of first tithe. We also understand the obligation to save our second tithe for use during the holy days. And third tithe, which is paid during the third and sixth years of every seven-year cycle, should also be factored into our budget when applicable. For more information on tithing, request our free reprint article on this subject.
Those three “expenditures” are a given and must be accounted for. We should get in the habit of paying and saving our tithes first—then working with the remaining percentage of our income.
As we continue our analysis of expenditures, it is useful to divide our outflow of money or resources into two categories—fixed expenses and discretionary expenses. Fixed expenditures are repetitious and consistent, generally paid on a monthly basis. Examples of fixed expenditures would be your mortgage or rent payment, utilities, tax (often withheld from your paycheck before you are paid), food and transportation costs. Your fixed expenditures generally make up the most significant portion of your budget, which makes it easier to stick to your plan. Oftentimes, housing, food and utility costs combined make up the three largest categories. Transportation costs must also be factored in. Bear in mind the rising cost of gasoline, insurance and other costs of owning a car. Some families are able to rely on public transportation, thus eliminating a sizable portion of cost from their monthly income. Either way, we need to adequately account for the cost of transportation in our budget. Other examples of fixed expenses come in the variety of insurance premiums (automobile, life, homeowner’s or renter’s, and perhaps health). Attached are some worksheets to help you quantify and total your fixed expenditures on a monthly basis.
Your discretionary expenses are more variable in nature, and are dictated by the difference between your income and your fixed costs of living. Examples of variable expenses include clothing (a necessity, but generally not a fixed monthly amount), entertainment, recreation, vacation and travel, savings, gifts and personal allowances. As the name implies, the amount spent each month is more at your discretion, or more under your control, than the normal recurring monthly expenses. You can be more creative on a monthly basis adjusting these amounts to free up resources for a need or desire, but the adjustment should come from another discretionary category in your budget—that same month, as a good rule of practice! One of the secrets to an effective budget is a realistic estimation of your expenses.
Documenting income should be carefully evaluated as well. For many, bi-weekly or monthly paychecks provide our source of income. Other sources of income should also be considered if applicable, such as pensions, social security benefits or investments.
Once you have tallied your income and expenses (both fixed and discretionary), you are ready to set your budget to paper. We have provided sample worksheets for your use, or if you prefer them, computer software programs such as Microsoft Money or Intuit’s Quicken also provide budgeting tools. There are a plethora of books available that can be useful in laying out your budget. In addition, there are many useful resources available on the Internet should you choose that route. However you choose to do it, the simple principle behind budgeting is to balance your income with your expenditures on a consistent basis to ensure you won’t be over- or under-spending.
Starting the Process
Proper accounting and assessment of your financial standing is instrumental to successfully budgeting for you and your family. Simply analyzing one month is often not adequate to determine annual trends. We recommend you analyze three to six months of your financial lifestyle to best gauge what is a realistic budget to set.
You can examine previous months if you can fully account for all income and expenses. Even the occasional discretionary purchase of coffee, a bottle of juice or perhaps a quick bite to eat must be accounted for if you want to truly observe and work with the full picture. Oftentimes, we are unaware of the financial impact of these occasional discretionary purchases each month.
For that reason, we recommend you start with the beginning of each month and meticulously collect your receipts for purchases (whether you used cash, check or a credit card). Every expense should be tracked, regardless of how insignificant the cost might seem. If those insignificant costs are part of a habitual practice, you might be alarmed at how much that habit costs each year!
After you have compiled your monthly receipts, you need to sort through them and begin to fill out your worksheets dividing fixed expenses from variable expenses. Make sure you separate the receipts into monthly “piles” so you can track a full month at a time.
You will obviously need to accurately track all forms of income for the month as well. Your total income should be added to the monthly worksheets as you prepare to make a full and proper analysis.
If you set a budget that doesn’t account for all the expenses, then the whole process begins to break down as you consistently overspend and get into a lifestyle that is out of balance. So be careful and meticulous for this brief period of time. You only should have to analyze with this much detail at the beginning, prior to setting your budget. Future analysis should be less time-consuming as you compare your actual expenses with your budgeted expenses.
One other suggestion to consider: If you live in a climate that varies considerably between the seasons, make sure your utility category sufficiently covers each month of the year. For example, if you live in an area that gets very cold in the winter, and is temperate in the summer, then you want to be sure you budget enough for utilities to cover the high costs of winter heating.
Doing the Math
Collecting the receipts and accounting for our income is the most time-consuming portion of the budgeting process. Once you have all of the figures, you can use the worksheets in this article (or whatever other source you choose). The goal is to add all of your monthly expenses together to arrive at a total outflow of money each month, and to balance that amount with your total income for the same month.
If our expenditures exceed the income, we must find ways to reduce our expenses. Perhaps we have budgeted too much for a particular category in our discretionary expenses such as entertainment. We need to find a way to cut our expenses to match our income. Oftentimes the cuts will have to come from the variable or discretionary funds because the fixed costs in our lives are more permanent in nature. But if we can’t cut enough from our discretionary funds, then we might have to take more drastic steps to reduce our fixed monthly costs.
In a similar vein, if we find that we have more income than expense, great! The surplus could be used to pay down outstanding debt, or to supplement our savings. We should avoid the temptation to frivolously squander that money. Rather, we should look for other areas of “investment” that will bring a greater return. Perhaps you could supplement your offerings or contributions to the Work of God with the surplus, or build your “rainy day fund” (explained below).
Whatever the situation, a balanced budget is the ultimate goal. Strive to ensure you are not spending more than you are taking in—that is a simple concept that is made easier to fulfill if you are governing your financial life with a budget.
A Special Savings Account
A wise friend of mine once advised me to open a new savings account after I established my budget. He helped me create a well-documented method of tracking my budget. What I like to do is use the savings account to deposit the majority of my income according to my budget. The savings account is tied to my checking account through the same bank, which permits frequent transfers between the two accounts.
Though my monthly savings account bank statement just provides the balance, amount of deposits and withdraws, I track how much money is divided in my savings account according to my budget. For instance, I will put my mortgage, utilities and transportation budgeted amount into savings. Let’s say that represents a total deposit of $1,000 per month. My mortgage payment might account for $700 of that $1,000, my utilities account for $200, and my transportation $100. But if I examine the bank statement, I would only see a $1,000 deposit. I keep my budget breakdown of expected costs or expenditures in a computer spreadsheet. My mortgage payment generally does not change, so I budget exactly that amount each month. But even though I budget $200 for utilities, I might only have $190 worth of actual bills that month. I would transfer the $190 to checking to pay the utilities bills, but I would leave the extra $10 in savings (accounted for as utilities money in my budget). As I progress through the year, some months my utility costs exceed my budgeted amount, and other times the bills are lower than what I have saved. By the end of the year, most often, I have a small surplus in this category from my budget that can be saved for future needs.
This is just one method of accumulating small surpluses in working with a budget. Our goal should be to live within our means, or perhaps a bit under our means, thus enabling us to build a surplus of savings whenever possible. Again, we are working to avoid the trap of overspending, or outliving our means, and getting into credit problems.
Two Special Budgeted Items
I would like to recommend you consider adding two more categories to your monthly budget if they don’t already exist. First, consider adding a category to save your offerings throughout the year. This way, as the holy days approach, you might be able to contribute a larger amount because you have planned for them throughout the year. This is actually consistent with how the Bible teaches us to prepare our offerings for God—after careful consideration and planning (Deuteronomy 16:16-17). If we budget for our offerings throughout the year, it will eliminate the big “crunch” of trying to come up with an offering at the last minute.
Secondly, I would recommend what is often referred to as a “rainy-day fund.” This is a portion of your monthly budget that is set aside as savings for an emergency. This fund should accumulate over time and should be saved for true emergencies. God’s ministers often advise people to let this fund grow to at least three months of their current income and ideally to six months’ worth. If you have this type of a fund, it reduces the stress from a future event that has financial implications. Anything we can do to prepare for tomorrow in a regular, consistent manner, can diminish some of the emotional impact that might result from some form of an emergency.
The whole practice of using a budget to guide our financial lives requires diligence, thorough accounting and fortitude. Society throws many temptations our way—and human weakness often is hard to overcome. A good steward has the character to remain balanced and determined to live within the budget. A well-managed budget accounts for our needs and often permits the fulfillment of our desires. But we must be disciplined throughout the year to stick to our budgets.
We should review and change the budget whenever circumstances change, such as a pay raise at work, or an increase in insurance costs. At least once a year we need to review the accuracy of our budget. Throughout the year, we should evaluate our position to make sure we are consistently living within our means.
A budget shouldn’t be viewed or perceived as restrictive; rather, as a method of ensuring freedom from financial worry. It is like the law; happy are we if we do it! We can’t account for the emergencies that arise in life, but we can be prepared for the consistency that fills most of our days. If we are living a balanced lifestyle, with financial responsibility, then the emergencies that might arise can be handled more effectively, at least from a financial standpoint.
Set yourself a goal not to allow anything to deter you from setting and living according to a well-balanced budget! Doing so will most likely increase your financial freedom, and eliminate needless worry and concern. We don’t want to be governed by circumstance; we want to take charge of our lives and destiny. That is the financial example God desires from His children!
Sidebar: Seven Practical Laws for Financial Success
1. Work Hard (Proverbs 6:6-11; 13:4; Ecclesiastes 9:10)
2. Be Prudent and Diligent in Your Business Decisions Don’t be hasty or foolish. Be wise and shrewd in the management of your practical affairs (Proverbs 10:4-5; 22:29).
3. Be Decisive After weighing the options, make a decision in faith and move forward (James 1:6-8).
4. Perform a Three-Month Spending Analysis
- After the first month, you’ll know where everything goes.
- After the second month, you’ll see where changes could be made.
- After the third month, you can experiment with changes.
(Periodically go back to this to make sure you’re on track.)
5. Make and Stick to a Budget
6. Learn to Cut Costs
- Buy in bulk (family size, economy size, wholesale).
- Don’t be snowed by gourmet, name brands or fads.
- Grow your own food in a garden. Even small amounts add up.
- Reduce restaurant expenses.
- Always buy the best quality you can afford. Good quality will last and cost you less in the long run.
- Avoid seasonal fads and labels you can’t afford.
- Patiently await sales.
- Do your own sewing as much as possible—both in creating and altering or repairing clothes.
- Scout thrift stores, especially for children’s clothes. Here you can find good quality for inexpensive prices.
- Buy an automobile you can afford and hold on to it as long as necessary for maximum value.
- When buying an automobile, look for efficiency and for the ability to serve the needs of your family and the needs of others.
- Consider public transportation where possible.
In Miscellaneous Items:
- Know your limitations on home repairs—it could be less expensive when you allow a trained professional to repair it.
- A healthy diet and sufficient exercise help cut down future health expenses.
7. Investment Opportunities Investments and legitimate opportunities do come along and it is not wrong to take advantage of these. You can even look for these opportunities if you can afford them. Investments should not be a “roll of the dice.” Be sure to do your research, invest for the right reasons and make sure you can afford it.