Money and finances are a primary theme in our lives and our management of them have a significant impact on our lives. While money is often viewed as a worldly necessity, it is also a key factor in our spiritual journey as God provides us with resources to operate His Kingdom on earth. The cornerstone of this financial relationship is tithing.
How to Manage Your Finances / Budget the Right Way
Young adults and older adults alike often find themselves facing a challenging new reality when they realize they simply don’t know how to effectively manage their finances. This realization may arise when financial difficulties surface. Or, it may come up when you’re preparing to make a new big purchase, such as the purchase of a home or paying for tuition.
Often times, people suddenly realize that the education they received didn’t prepare them for managing their finances. The lack of understanding surrounding how they use their money can become a great cause of stress and concern.
Fortunately, it’s never too late to learn how to properly manage your finances. And there’s good reason to do so. When you plan how you will spend and save in accordance to the amount of income you have, you’re able to live a more financially comfortable life—regardless of how much money you make.
Solid Finance Management Relies on Budgeting
When it comes to getting your finances in order, budgeting is the key to success. Budgeting provides clarity about your financial situation—and you need this clarity in order to properly manage your finances.
There are two things you must do before you begin budgeting: understand your income, and understand your expenses.
Understanding your income is usually simpler than understanding your expenses—but it’s still crucial to the process of budgeting. You need a clear figure that represents your monthly income in order to get your finances under control.
Understanding your monthly expenses might require some more work. Many people don’t have a clear view of how much they spend every month, especially if they don’t budget. This is often the cause for financial trouble, since not knowing how much you spend every month can easily lead to overspending.
To easily understand your monthly expenses, keep track of your expenses—all of them—for one month. At the end of the month, take all of your bills (medical, utilities, groceries, restaurants, etc.) and your bank statements, and add up all your expenses. Remember, you’ll want to track expenses you paid for by cash and by credit card in order to generate an accurate picture of how much money you spend every month. You’ll find more on calculating your monthly expenses below.
Now that you know how much money you spend and what your income is, you can do a quick exercise to get a general idea of where you stand and what work you need to do: subtract your monthly expenses from your income. If the result is a negative number, this indicates that you’re spending more than you make, and you need to reduce your spending and expenses. If the result is a positive number, that means you spend less than you make, which is great! You can use this insight to increase your savings or your debt payments.
How to Budget
Everyone should have a budget—regardless of how much money they make. With a budget, you know you’re managing your money well and moving closer to realizing your financial goals.
Budgeting takes into consideration your financial plans—such as paying off debts, saving for retirement, or growing an emergency fund—and helps ensure that the way you use your money supports these plans.
Use these steps to create a budget:
Step 1: List your monthly expenses.
When calculating your monthly expenses, be sure to include:
· Housing costs such as your rent or mortgage payments, including insurance.
· Debt such as your student loans, auto loans, and the minimum monthly payments you make for your credit cards.
· Other monthly costs such as utilities, child care and health insurance premiums. This category should include any fixed monthly cost that you pay. While your grocery spending might vary slightly from month to month, you’ll also want to include a general amount for your food shopping here.
· Savings. To help you reach your financial goals, you should factor a monthly amount that is put aside for things like investments and emergencies.
Step 2: Calculate your spending allowance.
Take the total calculated in Step 1 and subtract it from your income. The resulting number indicates your spending allowance—or how much money you have every month that you can spend freely.
Step 3: Spend wisely.
Spending wisely means not spending blindly. Now that you’ve calculated how much spending money you have every month, you know how much money you have for “extras” like dining out, entertainment and fuel. This knowledge is the first step; the second, crucial step is putting this knowledge into practice and not overspending. Keep track of your spending by using an app, regularly checking in on your credit card statement if you’re using a credit card, or opting for a cash-only approach that limits your monthly spending on extras.
Conclusion
Understanding your money and managing it the right way requires time and commitment, but doing so can offer great peace of mind. As you begin to explore ways to treat your money responsibly, consider that there are numerous resources available for free online, as well as free mobile apps that can make budgeting easier. Remember, you can always ask for help—especially if your “income minus expenses” calculation resulted in a negative number, indicating that you need to slash your spending. The clarity you’ll be afforded from creating a budget and sticking to it will help turn any financial situation into a more positive one.
ADDITIONAL RESOURCES:
Just A Dime by Mike Moore
