Money and Wealth (Part 14) - Budgeting

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Money and Wealth (Part 14) - Budgeting I. Budgeting 1. “A budget is people telling their money where to go instead of wondering where it went.” (Dave Ramsey quoting John Maxwell, The Total Money Makeover, p. 62) 2. Jesus taught the principle of budgeting when He used the illustration of the man sitting down and counting the cost before starting a building project (Luk 14:28-30). 3. There are only two ways that I know of to build wealth: budgeting or imposing artificial scarcity upon oneself. A. This is what nearly all millionaires do, and it’s how they became millionaires. B. “Do you plan your consumption spending according to a variety of food, clothing, and shelter categories each year? Mrs. Rule does, and so do most millionaires. In fact, in our latest national survey of millionaires, we found that for every 100 millionaires who don’t budget, there are about 120 who do. “We anticipate your question about those millionaires who don’t budget. How did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of nonbudgeters invest first and spend the balance of their income. Many call this the “pay yourself first” strategy. These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like.” (Thomas J. Stanley, The Millionaire Next Door, pp. 40-41) C. I have done both of these things for my entire adult life. 4. It’s good idea to create a budget. A. This will help you to tell your money where to go each month and see where it went. i. Always pay God first (tithing). ii. Pay yourself next (saving). iii. Pay for necessary things next. iv. Pay for unnecessary and fun things last. B. You can use an Excel spreadsheet for this. C. I recommend using the “Spending” app and entering your income and all expenses into it. i. It can be synced so that the data will be shared on you and your spouse’s phone. ii. You can enter each expense in a category which will help you to easily see where your money is going. iii. Every time you buy something, get a receipt and put it in your wallet so that you will be reminded to enter it into the Spending app. iv. When you pay your credit card balance daily (and you should), you can verify that all the new charges are in the Spending app. v. When you enter your income into the app, be sure to enter the income tax as an expense. (i) Remember that taxes are just another expense like rent, house payments, insurance, utilities, etc. (ii) Your gross income before taxes is your income.  1. Self-employed people understand very well that taxes are just another expense and that their income is the profit they make before taxes are paid. 2. Employees tend to view the amount of their paycheck as their income because the taxes are automatically withheld. 3. This is one of the reasons our taxes are so high. If most people were self-employed and writing out a big fat check to the United States Treasury every three months, there would have likely been a tax revolt long ago. (iii)So, in your budget, when you calculate the percentage you give to God and save for retirement, it should be calculated from your gross income before taxes, because that is your actual income. vi. Enter any other expenses that are automatically withheld from your paycheck such as medical insurance premiums, 401k contributions, etc. into the Spending app as an expense. vii. Remember to enter the money you give to God as an expense. viii. You can setup automatic recurring expenses in the app for expenses that are the same every month. ix. By using the Spending app, you will be able to see exactly where your money is going, and how much you have left at the end of the month and year. x. Ramsey Solutions also sells the Every Dollar app which syncs with your bank account (the free version does not). (i) It allows you to budget your income at the beginning of every month. (ii) You determine where every dollar is going to be spent (in categories) before the month begins and then assign every expense to a category throughout the month. (iii)This way you determine where your money will go at the beginning of the month instead of wondering where it went at the end of the month. 5. Find a bank which will allow you to have many shares within one main account. A. Here are some suggestions for separate shares to create: i. God’s money ii. Emergency fund (i) Should have 3-6 months of living expenses in it. (ii) It’s best to have this in a high-yield savings account. iii. General savings iv. Checking v. Bill money vi. Generosity vii. Fun money (going out to eat, for example) viii. Husband’s fun money ix. Wife’s fun money x. Vacation and travel xi. Taxes (income) xii. Taxes (property)  xiii. Car fund xiv. Medical fund xv. Insurance (car, property, renter) xvi. College xvii. Children’s savings xviii. House fund (savings for a house, maintenance for existing house, appliances) xix. Retirement xx. Electronics (laptops, phones, etc.) xxi. Groceries xxii. Clothing B. Put a certain percentage or dollar amount in each of these accounts every paycheck or month so that you have money set aside for these types of expenses. i. Having these different shares will serve two purposes. (i) It will ensure that funds are available for larger, periodic expenses such as vacations, tax bills, car purchases or repair bills, medical emergencies, bi-annual car insurance payments (which save you money over monthly payments), house repairs, and new laptops or phones. (ii) It will ensure that you don’t overspend on things like going out to eat, entertainment, clothes, and buying junk you don’t need.