There is a story about Archbishop Fulton Sheen I enjoy sharing that makes a point about the importance of planning.
He was in Philadelphia to give a talk and had to get from the hotel to the convention center. He didn’t have directions and ended up getting lost. He came across some boys playing street ball and asked if they could provide directions to the convention center. They asked him what he was going to be doing there. He said, “I’m going to give a talk on how to get to heaven. Would you like to come?” The boys’ response? “We don’t think so. If you don’t know how to get to the convention center, what makes you think you know your way to heaven?”
|Make sure the budgeting system you pick works for you in order
to closely track your giving, saving and spending. Shutterstock
That’s classic Archbishop Sheen, and we can all get a laugh from his story, but it’s a good reminder that if you want to reach your goals in life, including your financial goals, you need a plan.
Our Lord tells us as much: “Which of you wishing to construct a tower does not first sit down and calculate the cost to see if there is enough for its completion? Otherwise, after laying the foundation and finding himself unable to finish the work the onlookers should laugh at him and say ‘This one began to build but did not have the resources to finish’” (Lk 14:28-30).
The archbishop got lost on a relatively short walk. Our financial lives are much more complex, yet too often we choose to “wing it.” The result? We don’t save, we incur unproductive debt and we fail to prioritize the use of our resources based on God’s design for our lives.
What’s the solution? An effective budget is the tool that will help you reach your financial goals. Think of it as your “financial GPS.”
Here are important attributes of an effective budgeting system:
The system works for you
There are many types of budgeting systems, from envelopes to software programs with an annual fee. I use Quicken and highly recommend it, but whatever system you choose, the most important attribute is that it works for you. It doesn’t do you any good to have the latest and greatest program at your fingertips if you don’t use it.
The importance of seeing the big picture
It’s critical that your budget system allows you to see the big picture. My personal preference is to use an annual budget (no need to break down to monthly) with year-to-date tracking of income and expenses. Income and expense transactions should be assigned to sub-account categories that are automatically rolled into summary level categories.
A good budget system will make it easy for you to see if your budget is balanced. I also like a system that helps you review spending priorities by listing amounts spent in core categories as a percentage of gross income.
Recording more complex transactions
When recording paychecks, I recommend recording gross income, then showing all deductions such as taxes, health insurance and employee 401(k) contributions as expenses. Credit card purchases should be coded to the appropriate expense account in the month purchased, not to debt repayment, which is used when making additional payments as part of a debt repayment plan. Finally, “big box store” purchases should be split between appropriate categories. You wouldn’t want the cost of a new TV to end up in groceries.
Build giving and saving into your budget
You might have heard the axiom “pay yourself first.” That’s not quite right. As Christians, we are called to pay the Lord first (Prv 3:9).
However, once we have done that, we should pay ourselves next by setting aside the savings needed for various “reserve funds.”
For most, reserve funds will include allowances for retirement, college education, replacement car, home improvement, children’s weddings and other future expenses. Have these pre-determined amounts direct-deposited into a brokerage account and expense them in your budget to the appropriate account as the money is set aside. Your current expenses then need to be met by the remaining funds.
Putting your financial lives on such a system takes a while to get used to. While at first you may feel constrained, over time, you’ll see it leads to financial freedom.
God love you!
Phil Lenahan is president of Veritas Financial Ministries (www.VeritasFinancialMinistries.com) and author of “7 Steps to Becoming Financially Free” (OSV, $19.95). Submit questions for columns to firstname.lastname@example.org.