Formula of Five: Money Management

July 1, 2014

by Peter Amsterdam

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"May He give you the desire of your heart and make all your plans succeed.”[1]

A pastor once said, “Living right financially is not complicated; it may be difficult, but it is not complicated.” It’s difficult because living right financially is more than simply learning financial strategy and management techniques when it comes to handling finances; living right financially has spiritual components as well. It’s important to have a godly view of money and to use it in the correct way, for the glory of God.

The Bible verse, “The love of money is the root of all evil,” has often been misconstrued to imply that money is the root of all evil.[2] In fact, it says that the love of money is the root of all evil, and that is certainly true. There is genuine danger if undue importance or a sense of security is attributed to money. As many people have discovered through personal experience, financial security can be fleeting; true, lasting security is only found in the Lord.

Nonetheless, we need money in order to live, to care for our families, to do our work for the Lord, and to give to others. We all want to contribute to the well-being of our loved ones, the good of our community, and the spread of the Gospel. All of these things benefit from money, thus the topic of finances is an important one, relevant to each of our daily lives.

I am neither a financial consultant nor an expert; however, most experts in this field agree on a handful of points that are key to good money management. If you are looking for a formula to help you wisely manage your finances, I recommend these five points as a starting place.

When the subject of money comes up, or you hear terms like “financial stability” or “savings,” you might groan, especially if you feel overwhelmed by the prospect of improving your financial situation. Perhaps you’re struggling financially right now. Perhaps you’re in debt. Perhaps you don’t see how you’re ever going to be able to save, or at the rate you want to, due to your current circumstances. Before going further, I want to encourage you with two empowering thoughts.

The first is: With God’s help, nothing is impossible.

The second is: Any God-ordained goal can be reached … one small step at a time.

So if you have a long way to go to reach your financial goals, if you are struggling with debt, or if you feel discouraged or face anxiety or even despair when it comes to personal money matters, remember this: God’s power can make your “impossible” possible, finances included. If you seek the Lord, commit your plans to Him, and break your goals down into small steps and take action, God will empower you to make the needed changes in your financial situation.

Through that lens, let’s look at these five practical cornerstone points to personal finance.

Number 1. Have a budget and stick to it.

A must-do when it comes to managing your money is a) having a budget, and b) sticking to your budget. That last part is the tough part, but it’s also a key to balance and progress in your finances.

Your budget represents the plan for how you will spend your money. As Dave Ramsey says, “A budget is people telling their money where to go instead of wondering where it went.” We’ve probably all had the experience of looking back over a month and wondering, “Where did that money go?” We all want to avoid that.

1 Corinthians 4:2 says, “Moreover, it is required of stewards that they be found trustworthy.” As diligent stewards of the money that God has entrusted to us, whether it’s a little or a lot, we need to have a plan in place for our financial spending and saving. That’s where a budget comes in.

Life is full of expenses, but the majority are regular expenses that we know are coming, whether weekly, monthly, quarterly, or yearly. Every regular or semi-regular expense should be accounted for in your budget. Of course, sometimes bona fide emergencies come up that there’s no way to prepare for, which can cause you to spend beyond your budget. We’ll talk about that more in point four.

When creating a budget, here are a few tips:

  • Identify your true income and budget all of it. Work with the income you can consistently count on. Don’t include one-time gifts or year-end bonuses or Christmas income as part of your regular income. Budget beginning with your basic living expenses, other vital payments, then budget any remaining funds to pay off debt, and save for emergencies and other long-term needs.
  • Be realistic in calculating expenses. It doesn’t help to try to minimize genuine expenses that cannot actually be trimmed down. If you underbudget for food or gas because you’re hoping to save or would like to spend less in those categories, but it’s not realistic to actually spend less since you have to drive to work or to your mission projects and you are already as frugal as you can possibly be with your food shopping, you’ll end up spending more than is noted on your budget anyway. That will bring stress and it works against the purpose of a budget. It’s helpful to keep notes of all your expenses for a month or so, so that you get a realistic idea of what your true expenses are.
  • Look carefully at each budget category; adjust as needed. If your budget is bigger than your monthly income, realistically the only way you’re going to balance your budget is by getting more income or adjusting your spending habits. Take a look at your budget monthly to keep it current and to assess what changes or adjustments need to be made.
  • Keep records in a way that works for you. There are free budgeting programs online that can help you keep track of your finances and expenditures.[3] Some people prefer to use the “envelope system” of keeping each budget in an envelope; this makes it clear when a certain budget has been spent for the month. The system that works for you is the best system for you, whether that’s a spreadsheet program, a piece of paper on your fridge, or a handy notebook.

As the saying goes, if you aim at nothing, you’ll hit it every time.[4] You have to map out your budget ahead of time, determine and write out your financial goals, and note steps to take toward your goals before you can hope to attain them. And most important, you have to work to live within your budget.

Number 2. Spend less than you make (live below your means).

The way to avoid debt is fairly straightforward: don’t spend more than you make. The key to saving money is also basic: live below your means; spend less than you make. This has been termed “the fundamental rule of finance,” and it’s the only way that you will have sufficient finances to cover your expenses and be able to save.

Again, the importance of budgeting is underscored here. You have to monitor your income and outgo to ensure that you are living within your means. If you consistently spend more than you earn, it’s very likely that you will encounter financial hardship.

There are many things that can trip people up when it comes to living within their means. Some points to bear in mind are:

  • Live frugally. Being willing to sacrifice today can result in benefits tomorrow, especially when it comes to saving.
  • Know the difference between luxuries and necessities. Needs and wants are two different things, and most successful savers limit purchases that fall into the “want” category. They have a long-term vision. They choose to save and build toward financial stability over having temporal wants, nice-to-haves, and luxuries.
  • Consider your habits and routines. Many people have one or more costly habits. It might be a daily latte, a favorite weekly snack, or meals out. Analyze all of your habits and routines to see where you can cut back in order to stay within your means or to free up money to put toward savings.
    • Avoid impulse buying; learn self-control. When a potential unplanned-for purchase comes up, wait a few days to think about whether you really need the item or not. Make plans ahead of time to protect yourself from spur-of-the-moment spending. “Intentional spenders give a lot of thought to how they spend, where to spend, and how much to spend before leaving home.”[5] A good friend of mine told me that his brother, a successful CPA, had what he called the “three-day rule.” For any major purchases he would wait three days before making his decision. That gave time to let his emotions subside and allowed reason to come into play so he could be sure the purchase was the best option. Pretty wise, I thought.
    • Derive your joy and contentment from God and relationships, not from things. It’shuman nature to want the latest and greatest new things, but as the Beatles sang, “Money can’t buy me love.” Nor can money buy health, peace, friendship, or contentment. Focus on the true riches in life, such as God’s love and care, your family and loved ones, and His purpose for your life.
    • Pay with cash. Using cash can help you to trim back your expenses. Research has shown that it’s easier for people to spend when making purchases with a credit card. People think twice when they’re handing over actual cash, so if you’re trying to tighten up financially, consider using cash.
    • Visualize reaching your goals. If you’re working toward building an emergency fund, saving for a specific need, or even if you are saving toward a family vacation, each time you’re faced with a possible purchase or financial decision, keep your specific financial goal in mind. If your purchase is not going to help you to reach your goal, ask yourself if you can do without.
    • Enjoy the simple, free things in life. There are so many things to enjoy in life that don’t cost a dollar, a euro, a yen, or a rupee. Explore and enjoy the simple things, and see how meaningful and enriching some of these truly “priceless” activities or shared moments can be.

In today’s materialistic world, we’re bombarded with goods and services pitched to us as if they were vital. Pressure is high to buy, acquire, consume, and accumulate possessions. We would be wise to remind ourselves of this one-liner from Jesus, in which He addresses materialism: “And he said to them, ‘’s life does not consist in the abundance of his possessions.’”[6]

Number 3. Avoid debt. Pay off debts.

The best debt prevention is to live within your means, but if you currently have debt, don’t despair. Sometimes situations outside our control and beyond our best efforts can land us in debt: a series of emergencies, an accident, a serious illness in the family, the death of a family member, a business that fails, loss of employment, natural disaster, a failing national economy or catastrophic event. No matter how difficult the current situation is or how long it takes, you can trust that God is able to help you to get out of debt.

Sticking to a detailed budget is key to being, or becoming, debt-free. I like this quote from Dave Ramsey: “You wouldn’t build a house without a blueprint, so why do you spend your income without a blueprint?”[7]

Paying off debts, whether small or large, requires a plan, high commitment, and sacrifice. And depending on the amount of debt you owe, you may need to get fairly aggressive with your approach. If your goal is to save money toward your future, becoming debt-free becomes of paramount importance, as many types of debt come with high interest rates. You want to eliminate high-interest debt as quickly as possible. It will be very difficult, if not impossible, for you to strengthen your financial position and put money into savings if you have outstanding debts to pay off. Not to mention the sense of relief and freedom you will have when you are debt-free.

One of the qualities that come into play when your goal is to eliminate debt, or to save money, is self-discipline. “Self-discipline involves acting according to what you think instead of how you feel in the moment. Often it involves sacrificing the pleasure and thrill of the moment (often called delayed gratification) for what matters most in life. Therefore it is self-discipline that drives you to stick to your commitments when the going gets tough, so to speak. If you struggle with self-discipline, the good news is that it can be developed.”[8]

As a footnote, if you are in debt, especially significant debt, while these general tips will help strengthen your overall financial approach, I recommend that you consult a book or program that addresses specific strategies for getting out of debt.[9] Or seek out a mentor or a consultant from your bank who is knowledgeable in financial matters to help and guide you.

Number 4. Save. Build an emergency fund.

Proverbs 13:11 wisely states:

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”

Saving is important. Even if you have a well-crafted budget and are living within your means, there are important, even vital, reasons to save. You probably noticed those encouraging words in the verse from Proverbs about saving—“little by little.” Any amount you can save is worthwhile, and it is worthwhile to start saving at the earliest opportunity. Successful savers list discipline, frugality, sacrifice, planning, perseverance, and hard work as key traits to saving and strengthening one’s financial position.[10]

A notable point on the topic of saving is creating an emergency fund. Emergencies happen to everyone, and there’s no way to plan for them or to know when they’re going to hit.

An emergency is a financial event outside of your control that threatens to throw your normal monthly budget completely out of whack. An emergency fund is a store of money that you have available to help you handle unexpected and unavoidable events, such as having an unexpected drop in your income, missing work due to illness, or even losing your job, large medical expenses, essential home repairs, serious car trouble, an unexpected pregnancy, the death of a loved one, and so on.[11]

Experts recommend that you work toward having an emergency fund that would cover three to six months of your basic living expenses. This wouldn’t necessarily cover three to six months of your full budget, but rather the minimum that you can get by on without going into debt.

To start building an emergency fund, consider adding an “emergency fund” entry to your monthly budget, if possible. Even if you can only put a small amount aside each month, it will gradually build. Remember the “little by little” approach spoken of in Proverbs. In order to maintain an emergency fund you have to abide by the words “unexpected” and “unavoidable.” An emergency fund is not to be used for anything that is not a true emergency. You want this rainy-day fund to be there when it actually does rain hard, when you really do need it. That’s the value of the emergency fund.

There are other topics fundamental to saving that I’m not addressing here, such as investments. There are many articles and books available for study on the topic of investment and other financial matters, which I encourage you to study. The points I’m addressing here represent some of the basics, foundational points for a solid financial base that you can then build upon.

Number 5. Give to God and others.

Giving to God and others is one of the spiritual laws to living a healthy and blessed financial life. If you’re struggling financially right now, or trying to save to buy a house, build a retirement fund, or anything else, it might seem counterintuitive to commit to giving 10% of your income to God through tithing, as well as gifts to those in need or charitable contributions above your monthly tithe. It’s natural to think, “I need that money! I can’t possibly afford to give up 10% of my income.”

It is a step of faith to commit to giving to God monthly through your tithes and offerings, but it is a step that God asks of us who believe in Him, who want to live our lives according to His spiritual principles. Tithe is a monthly budget category like any other essential expense; it’s our commitment to God which He has promised to bless. And those of us who have committed to live by this godly cornerstone principle have found it to be tried and true, a wise financial investment that we can’t afford to overlook.

Here are a few passages of Scripture that highlight the value of giving to God:

One gives freely, yet grows all the richer.[12]

Whoever sows bountifully will also reap bountifully.[13]

Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver.[14]

Give, and it will be given to you. … For with the measure you use it will be measured back to you.[15]

As Christians, we are responsible to use our finances in ways that glorify God. When you tithe, you are manifesting your obedience and faith by giving first to God. This is referred to as “firstfruits” in the Bible. Proverbs 3:9 says:

Honor the Lord with your wealth and with the firstfruits of all your produce.”

Sir John Templeton was one of the greatest investors of the 20th century, so he knew a thing or two about money and business. Here’s what he said:

I have observed 100,000 families over my years of investment counseling. I always saw greater prosperity and happiness among those families who tithed than among those who didn’t.”[16]

Tithing is a tangible demonstration that God takes priority in life, including financially, whether your pocketbook is doing well or poorly. There is also the matter of God’s blessings, which I have personally experienced in my life time and time again, as have countless other tithing Christians. But tithing isn’t a get-rich-quick scheme. It is a personal commitment between you and God that invites His blessing into your life, blessings which often come gradually yet undeniably. I encourage you to try tithing for a year and see if your finances aren’t better off by the end of your first year of tithing.

So, to review the five points in brief:

  1. Have a budget and stick to it.
  2. Spend less than you make.
  3. Avoid debt. Pay off debts.
  4. Save. Build an emergency fund.
  5. Give to God and others.

Most all of us have faced, or will face, times when we are in financial need. As Christians, we are blessed to be able to bring our needs, worries, and concerns to God. He wants us to rely on Him in every area of our lives, including for our financial needs. Yes, we have to do our part. And part of “doing our part” is bringing our financial needs to Him in prayer. We show our dependence on God by praying for finances, by claiming and asking Him to abundantly supply, by being specific in prayer. As His children, we know that He loves us. He cares for us, and He has promised to provide for us. That gives us great peace.

One of my favorite verses when it comes to finances is Matthew 6:33: “But seek first the kingdom of God and his righteousness, and all these things will be added to you.”

In closing, I want to recount a true story about an old gentleman. He lived in Texas in the early part of the 20th century, and grew wealthy from oil. He gave large sums to construct educational facilities and educate young Christians. He gave a great deal of money to his church and even sent his pastor to Europe to preach to the soldiers during the First World War. Then, in the stock market crash of 1929, the man lost his fortune.

One day, a friend who saw how humbly he was living—and remembered how wealthy he had once been—asked, “When you think about all the money you gave away, do you ever wish you had it back?” He didn’t hesitate. “Friend,” he said, “The only thing I have left is what I gave away.”[17]

As one of God’s children, it’s wonderful to know that everything that you have given to God throughout the years you will still have—forever, with interest. There could be no greater investment!

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[1] Psalm 20:4 NIV.

[2] 1 Timothy 6:10.

[3] Mint is one highly regarded online financial tracking and budgeting program, but there are many others.

[4] Zig Ziglar.

[5] Francine Huff, “How Do I Avoid the Urge to Spend?” Get Rich Slowly, September 9, 2010.

[6] Luke 12:15.

[7] See Luke 14:28 NKJV.

[8] Peter Clemens, “How to Build Self-Discipline,” Pick the Brain, July 29, 2008.

[9] If you are struggling with debt, there are books available that go into detail on how to get out of debt. Dave Ramsey has good counsel on this subject, to name just one source.

[10] Thomas J. Stanley, Ph.D., William D. Danko, Ph.D., The Millionaire Next Door (Longstreet Press: 1996).

[11] Richard Barrington, “Why and How Do I Need to Save for Emergencies?” Get Rich Slowly, September 9, 2010.

[12] Proverbs 11:24a.

[13] 2 Corinthians 9:6b.

[14] 2 Corinthians 9:7.

[15] Luke 6:38.

[17] Joe McKeever, “Lots of reasons to tithe (and a few reasons not to),” Baptist Press, July 11, 2003.