Putting Together Your Financial Plan

Putting Together Your Financial Plan

This article is a step-by-step process for creating an annual financial plan. It is better known as the dreaded and boring budget. It will fit 90% of us. If you are in the other 10%, your situation requires either a more sophisticated approach due to your wealth or you need to speak to a professional about your options for restructuring your debts. For the rest of us, I encourage you to practice the following steps.

Steps Towards Financial Health:

Step 1. Recognize that all you have actually belongs to the Lord. Psalm 24.1 says, “The earth is the Lord’s, and everything in it.” (NLT)

All that we have belongs to God. All of our material possessions, job, family, shelter, abilities, and future belong to God. He has entrusted us to be professional managers of all these blessings. Our future opportunities are linked to how well we manage what he has given to us today.

Step 2. Design a plan and work the plan. Proverbs 16.3 says, “Commit your work to the Lord, and your plans will be established.” (ESV)

It is not too hard to put a financial plan together but it is hard work to stick with it. Success comes by remembering we work the plan for the benefit of all those who count on us and to bring honor to God for all he has provided for us.

Step 3. Embrace key biblical principles for managing money. Before we start crunching the numbers, we must agree on what success looks like. Below is a list of the “3 Major Wins” we want to see as part of our plan.

• a. We will spend less than we earn.
• b. We will become generous people.
• c. We will sacrifice luxury in order to save.

Step 4. Crunch the numbers. Create your own computer spreadsheet or write down your numbers on a pad of paper or purchase a simple program to help you do the following:

• a. List your monthly INCOME (write down only what you truly expect to receive and not what you hope to receive – remember, hope is not a strategy):
• b. List your monthly GIVING to your church and/or other charities.
• c. List your monthly SAVING budget.
• d. List your monthly FIXED expenses. Write down your fixed expenses (the bills that come every month). If the monthly amount changes, write down the average. Below is an example of fixed expenses:
  - Rent/Mortgage (including taxes, insurance, and HOA dues for mortgages)
  - Utilities (natural gas, electric, water, phone)
  - Auto insurance
  - Health insurance
  - Life Insurance
• e. List your monthly LIVING expenses. All of the expenses below may or may not fit your situation but are typical living expenses:
  - Gasoline for car(s)
  - Groceries and household items
  - Grooming
  - Medication
  - Annual auto tags and license (divide by 12)
• f. List your monthly DISCRETIONARY expenses. These are also fixed expenses but may not be necessities.
  - Auto payment(s)
  - Cable/Satellite
  - Other memberships (health clubs, subscriptions, sports teams, etc.)
  - Entertainment
  - Vacation
  - Clothing and cleaners
  - Tolls
  - Furniture and decor
• g. List PERIODIC expenses. These are expenses that will occur but sometimes difficult to plan for. Do your best here to estimate the annual probability and divide by 12 to come up with the monthly number.
  - Auto maintenance
  - Home maintenance
• h. Subtract your giving, saving, and all expenses from your monthly income. This is your discretionary income.

Step 5. Make adjustments. What does the bottom-line number reveal? Do you have discretionary income or do you have a deficit? If you have discretionary income, I encourage you to put it toward debt. If you have no debt, pray about what you should give away and how much you should invest or save. You might want to think in terms of short-term goals and long-term goals.

Many of us will end up in the deficit category. If this is your situation, remember the “3 Major Wins” of a successful financial plan:

• 1. We will spend less than we earn.
• 2. We will become generous people.
• 3. We will sacrifice luxury in order to save.

In order to transform your plan into a winning plan, you will have to consider and carry out one or both of the following:

1. How can you increase your income without sacrificing your family?

2. Get rid of what your financial plan says you cannot afford (selling your car, downsizing the size of your home, canceling your cable, memberships, etc)

Remember, the goal is to live within your means so that you control money instead of money controlling you. In the long run, a simple life is the better life.

Step 6. Work the plan. It takes time and discipline but after awhile, you will see your labor pay large dividends.

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