The #1 cause of divorce in America is conflict over finances. In my marriage of almost 28 years, my wife and I have had a handful of knock down drag out fights and several of those have been in and around the area of finance (the rest around my selfishness, but we will save that for another post). Money reveals things that are in our hearts and the mouth then speaks that which is in our hearts. A recent Gallup poll says that only 1 in 3 families actually has a budget in play. That means that two-thirds of the families out there are just winging it. I don’t think it coincidental that 70% of Americans are living paycheck to paycheck. And I don’t think it coincidental that marriages are struggling. We have to get this area under control. The future of our families is at stake.
In our world of financial coaching, we have the privilege to sit with families and help them move from winging it to having a plan. And we get a front row seat to watching families move from stress to freedom. From isolation to togetherness. From me to we. Now that doesn’t happen overnight but if we can begin to think strategically about how to maximize our resources (whether meager or overflowing) we will move from stress to freedom. I am not saying that you won’t live paycheck to paycheck because the reality is that many families have challenges in the area of generating income. But, I am saying that with a plan you begin to make progress in achieving your financial goals. It takes vision and discipline, but you CAN make progress.
What does a plan look like you say? We use the word budget, financial plan and spending plans interchangeably. But a good financial plan brings a family onto the same page. You would never run a company or a sport team or a civic organization without a plan and yet we run our family finances without a plan all the time and our families are suffering as a result. Here are some other characteristics of a good financial plan:
- A Good Plan identifies where the family is going to spend the money they make. Below we have given some percentages to guide you into developing a holistic spending plan.
- A Good Plan identifies what a family is going to give away. Generosity is a very important way to combat the consumptive lifestyles that many of us live. It truly is better to give than to receive.
- A Good Plan identifies what the family is going to save (short term, mid term and long term). The wise man will have resources to draw from when times get tight and attend to the needs of his family tomorrow as well as today.
- A Good Plan freezes and eliminates debt from the budget. The borrower is the lender’s slave and debt must be managed in order to get ahead.
- A Good Plan makes sure that the family has the right protections in place (insurance, will, etc). The people and things you manage need to be protected. Insurance, accounting and estate planning can make sure that your assets are protected in the event that you experience hardship.
- A Good Plan challenges the family to be a manager of the Lord’s resources that He has entrusted instead of the owner. The earth is the Lord’s and all that it contains. How you view ownership of your stuff is critical.
We are going to be speaking to each of these topics in subsequent posts. But for this post let me share with you some Spending Plan Guidelines. The percentages below are calculated on net spendable income which we have described in the next paragraph.
Calculating Net Spendable Income- Net spendable income is basically gross income minus taxes, giving and childcare related expenses. Taxes are determined by the IRS. We recommend that you work closely with your accountant to make sure you are withholding the right amount of taxes. Childcare includes schooling, daycare expenses, and child support. Not included in childcare are food, clothes and day to day expenses (these will be included in the spending plan). Generosity that is shown in area of giving includes giving to community needs, charitable giving as well as giving to Kingdom causes. We recommend that a follower of Jesus Christ give a portion of their income to the Lord’s work (church, para-church, missions and other Christ-centered non-profits). Although we do concede that the New Testament does not talk directly talk about continuing the Old Testament principle of the tithe, we do think that the New Testament principle is one of good-hearted generous giving (ex. 2 Co. 9:6-7) and we would recommend that Kingdom giving begin at the level of the tithe (which means a tenth). This is not based upon a rule but on a relationship with Jesus Christ and is a goal to work towards. After net spendable income is calculated then use the category percentages below to finish your spending plan.
SPENDING PLAN CATEGORY Recommended Maximum %
Groceries/Meals Out 15%
**Savings Minimum 5%
** Saving is one category that the % recommends a minimum versus a maximum
Use these guidelines to evaluate your spending. Are there areas that are out of whack and putting pressure on the rest of your financial system? For example, if you are spend 37% of your net spendable income on housing you have to make a 7% adjustment in the rest of your spending plan. Note these are just recommendations not rules. Your situation may dictate that you spend more money in one area than we have suggested. Just make sure to make the adjustment to the other categories.
The wonderful life we hope for financially may be a little closer than you think. But you need a plan!!!