Household budgeting really can be fun! If you presently don’t have a budget, or don’t like the one you are using, we’ll walk you through the steps to tracking your income and expenses, regularly managing all your accounts through one month-at-a-glance spreadsheet. Before we get into the precise steps of household budgeting, let’s talk about why it’s important to have a budget in the first place. We must learn to see everything in life, including financial stewardship, from God’s point of view.
Assumptions from Scripture:
1. We are commissioned by God to rule
God created the world and then commissioned us to fill it and rule over it. Genesis [1:28] says, “And God blessed them. And God said to them, “Be fruitful and multiply and fill the earth and subdue it, and have dominion over the fish of the sea and over the birds of the heavens and over every living thing that moves on the earth.” God’s desire is that we take care of the earth—that we steward it well. We believe this means in all respects—the macro and the micro, from top to bottom, every aspects, and every detail—all the way down to the way we handle finances.
2. Stewardship of our resources is an act of worship to God.
Colossians [3:23] says, “Whatever you do, work at it with all your heart, as working for the Lord.” God sees our stewardship of resources as an act of worship to him. This idea repeats over and over again in both Old and New Testaments. God really does care about the way we steward our money and possessions. It’s interesting to note that there are over 800 references in Bible to the stewardship of our resources!
3. Being rich is not evil; it’s mis-managing riches and wealth that is evil.
If riches were evil, then God would have rebuked Job, Abraham, Jacob, Boaz, David, Solomon, and every other rich person in the Bible just because they were wealthy. But he did not. In fact, Jesus himself taught the people about how to steward money and possessions. His concern for the rich wasn’t the amount of money they possessed, but the extent to which their riches possessed them! If you find that money has become your idol—that your heart cannot handle great riches, then give it away! Mark [10:17]-22, Matthew 18:9, Matthew [6:24] When it comes to money, giving is always the best insurance for the heart. (For more on this, listen to episode 6, “The Blessing of Giving”.
4. Great things come through careful planning.
In Luke [14:28]-30 Jesus said, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish. (Hart’s paraphrase: “Which of you desiring to be financially successful, does not first sit down and create a master plan for financial success?”)
Proverbs [15:22] says, “Without counsel plans fail, but with many advisers they succeed.” If creating your own financial plans is way outside of your comfort zone – find a good financial planner! It will be well worth the effort. Contact us and we’ll send you a link that will help you find trusted advisors in your area.
5. Faithfulness with less leads to increased responsibility.
Luke [16:10] “One who is faithful in a very little is also faithful in much, and one who is dishonest in a very little is also dishonest in much. (Hart’s paraphrase: One who is faithful in household budgeting will one day be given much more to be faithful with.”)
6. God's desire is that we multiply our finances, talents, and skills.
Matthew 25:14-30 “For it will be like a man going on a journey, who called his servants and entrusted to them his property. To one he gave five talents, to another two, to another one, to each according to his ability. Then he went away. He who had received the five talents went at once and traded with them, and he made five talents more. So also he who had the two talents made two talents more. But he who had received the one talent went and dug in the ground and hid his master's money. . .” (Hart’s paraphrase: “Lord, you’ve given me this paycheck, this time, and these talents & skills. Give me wisdom to know what I can do to multiply all of this for your glory.)
7. Good accounting practices lead to prosperity.
“Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations?” (Hart’s paraphrase: Know well the condition of your accounts, and give attention to your spreadsheet, because money comes and goes quickly—and you can’t take it with you anyway.)
“Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it.” (Hart’s paraphrase: “A foolish man spends everything in his account without even knowing how much he has left.”
The prudent sees danger and hides himself, but the simple go on and suffer for it. (Hart’s paraphrase: “A wise person sees that his account is getting low and makes some smart decisions to avoid an overdraft—but the foolish person blunders on and suffers for his inattention.”
Household Budgeting Steps
It’s very important to know how much you are earning as well as how much is being spent every month—and to be able to see this information at a glance. If you earn income and spend without seeing where it’s going, you are headed for financial trouble, especially if you use a credit card.
Step 1: Track your monthly income and expenses.
If you doing household budgeting, we recommend using computer software for this task. (We really like Quicken Home & Business, but if you're not running a business, Quicken Deluxe is just fine.) Categorize each income source and every expense, then periodically create a report that shows you income vs spending. In the end you need a list of how much you are spending in every category every month.
Step 2: Set up a budget spreadsheet
This includes the average (or exact) monthly amounts for each expense category. (We have always used Excel for that, which is part of Microsoft Office 365.) If you are billed every two months, then divide that amount in half to calculate the monthly amount for that category. Be sure to set up your spreadsheet so that it shows you how much you are budgeting per month as well as how much you are actually spending in each category. The final column should show how much you are holding in your checking account to pay for each actual expense.
Note: If you need a visual aide for this step, download our Generic Budget Spreadsheet
Step 3: Set up "Sinking Funds"
There’s so much freedom in having money set aside to meet expenses that are variable or occasional, such as clothing and gifts. Think of a “sinking fund” as a money pot with a name on it, such as “auto repair”. (We call that pot a “sinking fund” because the money in the pot sinks as soon as you use it.)
Estimate how much money should be in the pot, put it there as soon as possible, then use those funds needs arise in that category rather than using a credit card.
The first sinking fund to fill should be your emergency fund. If you are just getting started with this approach, you may want to start as a low level, then work up. For example, make every effort to fill your emergency sinking fund with $1000. Once that is done, begin filling other sinking funds, such as clothes, gifts, vacation, etc. (We have one we’ve called miscellaneous that is used for expenses that are outside of both our monthly budget and our sinking funds.) After these funds are filled, make it your goal to work up to having 3-6 months of income in your emergency fund. We advocate keeping that fund in a money market account so that it is earning interest and not so easy to draw from. The goal should be to only draw from your emergency fund in an actual emergency—which is something you’ll need to define.
Living this way takes the stress out of paying for things like auto expenses, clothes, license tabs, vacations, and gifts. Once you’ve set up your sinking funds and you need money for something that is outside of your monthly budget, it’s there! And if it isn’t there for some reason, you may occasionally decide to move money from one sinking fund to another. For example, you had a growing sinking fund for clothes, but your car broke down, so you decided to move funds from your clothing fund to your auto fund to pay for the repairs. To maintain this way of spending, you’ll need to discipline yourself to using a good portion of your unexpected income to refill sinking funds that are getting low.
Step 4: Maintain a “Watched Expenses Report"
This report is for categories that can vary based on how much you spend. This will help you know how much to budget each month in a particular category, or how much to maintain in a particular sinking fund. Examples of watched expenses may include: groceries, eating out, clothes, gifts, and sundries. Using the same software, you used to track your expenses, create a new report and title it “Watched Expenses”. Select every variable expense you are tracking and view that report every week, making the needed changes on your spread sheet. The goal is not to be taken surprise by your own spending.
Maintaining your budget using a computer
Assuming you are using computer software similar to what is described above, you only need to do the following steps each week:
- Download your banking transactions from all your accounts account, including your credit card, then categorize any income and expenses that have not yet been categorized.
- Copy amounts you see in your watched expenses report to your spreadsheet, as well as all paid fixed expenses. (These should both be listed in the “paid” column of the spread sheet.)
- On your spreadsheet, list any actual income that is pending, then move it to the paid column after it arrives in your account.
- Update your checking and savings balances.
- Adjust your sinking funds as needed until your budget is balanced.
Paper & Pencil Budgeting
If you don’t own a computer, you can follow the same steps above by setting up your monthly spreadsheet on grid paper in a notebook. (Keep a page for each month in the same notebook so you have a record of the entire year all in one place.) For your fixed and sinking funds, just get some envelopes and write the name of each category on the outside. When cash comes in, load your envelopes and you’re ready to go! Some people use the envelope system to help them manage their variable expenses, such as auto gas, and do everything else on the computer. You decide what works best for you.Managing Credit
Credit cards have their pros and cons. They are great for convenience, air miles, and other rewards; however, for those who do not pay their entire balance every month, they can be a nightmare! If you find that you are unable to pay off your entire credit card balance every month, destroy your credit cards and commit to using debit only. If you believe you can manage credit, keep the following tips in mind:
- Keep only one credit card that will give you airlines miles and other rewards. (If you travel a lot, having a card like this will save you a lot of money as long as you use it well.)
- To maximize your rewards, use the card to pay every possible expense; but only if there is money already in the checking account to pay it in full every month.
- In your household budgeting software be sure to categorize each transaction for your credit card using software, just as you do for your other accounts.
- The secret to paying it in full every month is to keep the balance listed on your monthly spreadsheet as an expense.
The Flip Side
Sometimes, no matter how good you are at household budgeting, you may run into moments, or even whole seasons of life, where there just isn’t enough income coming in to pay the bills. Believe, me—we’ve been there numerous times as we raised our five children. If you're in one of those seasons now, don't panic! I Corinthians 10:13 says, "No temptation has overtaken you that is not common to man. God is faithful, and he will not let you be tempted beyond your ability, but with the temptation he will also provide the way of escape, that you may be able to endure it." So, when you find yourself being tempted to panic about lack of finances--take a deep breath, take it to your loving heavenly Father in prayer, then watch for his direction and provision. You may find that he answers your prayer in a different way than you were expecting--but it's always good, because He is always good!
Managing finances as a couple
When you were single, you alone decided what you would do with your money; but now it’s the two of you—so it’s going to take coming into agreement. Obviously, there are no rules on this, only guiding principles. God’s desire is that we come into agreement on the things that really matter. It’s all about love. As a couple we progressively learn how to lay down our lives for one another. The mechanics of this are going to be different in each household. Here’s what we do: I manage all of our accounts and generate reports to review with Meg each week because I know that’s what she prefers. At that point we decide together whether we will move forward with any major purchases or not.
Recommended Course: Financial Peace University
This course was a financial life-changer for us as we raised our five children. To this day, we have no consumer debt, no student loans, and no car loans--just a small mortgage that we are paying quickly paying down. There are a total of 7 steps. Steps 1-3 are outlined above. Steps 4 through 7 are about planning for retirement, college funds, paying off your mortgage, and wealth building.
Recommended Book: Financial Peace Revisited
Purchase this book if you are unable to attend the course. It could be one of the most valuable purchases you'll ever make. All 7 “baby steps” are listed in chapter 21 for quick reference, then you’ll find some financial management forms in the back of the book.
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