Budget Basics (Part 1): Before the Mechanics

My Story

I have shared before that I used to think budgeting was taking a scratch piece of paper or the back of an envelope and seeing how many bills I could pay out of my upcoming check and whether everything else could wait until my next check. Sometimes I might have to save a certain amount to add it to the next check to in order to cover everything. Other than that, anything left over was left over- free and clear (or so I thought). If I was able to finagle things to make it work out, I thought I was being a responsible adult.

What’s A Budget?

A budget is basically a plan for your money. Formally, though, it is defined as: 

an estimate, often itemize, of expected income and expenses for a given period in the future; a plan of operation based on such an estimate; an itemized allotment of funds, time, etc., for a given period; the total sum of money set aside or needed for a purpose.

Misconceptions About Budgeting

A budget binds you up from doing the things you want to do. It actually frees you up by shows you how much you have to work with.

If you make a lot of money, you don’t need a budget. Everyone needs a budget; millionaires and CFOs of billion-dollar companies recognize the need for a budget.

If you don’t make a lot of money, you can’t budget. It’s just as important to have a plan for smaller amounts of money, to know where to funnel any income, and to go through the exercise of figuring out how much your deficit is and how to eliminate it. 

You have to be good at math to budget. At most, you need to know how to add and subtract. Spreadsheets and apps can even do the math for you.

It take a lot of time and work to budget. It does take time and work- especially at the beginning. But it also takes time and work to fix stuff when you don’t work on a plan. You’re more susceptible to overlook something and  more likely to stay stuck because you can’t see where you’re money’s going.

 

BEFORE THE MECHANICS

 Allocation (10-10-30-50)

Before you start budgeting, there are a few things you have to do. One of which is to settle on your allocation goal. I have been using Dr. Lynn Richardson’s recommendation of the 10-10-30-50. That is 10% for tithing, 10% savings, 30% for incidental spending, and 50% for bills.

Whatever allocation you chose to go with, depending on where you are with your income/ spending ratios, it may be necessary for you to build up towards your goal. Your bills may be too high, you may have a lot consumer debt (credit cards and personal loans). You may not have been consistently saving and giving, so may need to make decisions there. 

Determining Your Big Goal

The second thing you need to do is determine what your goals are.  Look at your long-term

goal(s) and then work your way backwards to your most immediate goals to help you make that happen. That means you have your overarching goal and then you have mini goals along the way.

Is your goal debt freedom? Are you 10-15 years (or less) away from retirement, but until now, never assessed whether you have the proper elements in place?  Is your goal to retire early and serve in some volunteer role, start your own business, or to travel and/or do missions? Is is to set your children/grandchildren up with an education fund? Is it to leave a legacy for your loved ones, your church, or an organization you care about? What desires has God put on your heart?

SMART Goals

Lots of people dream of… hope for… wish for…, but never set a create a good goal- a SMART goal. 

SMART goals are specific, measurable, attainable, relevant, and time bound. 

One day, I’m going to get out of debt is not a SMART goal.

I will pay off all $90,000 in consumer debt by December 31, 2023, could be, if it is relevant to your end goal and attainable. You may have to (and should have to) stretch for it, and that has the makings of a SMART goal. It is certainly specific, measurable, and time bound.  

Figuring out Your Mini Goals

Big goals require a plan. Now, it’s time to work backwards to determine what smaller goals you’ll have to knock out to realize the big goal. Sidebar:  don’t forget to acknowledge Who is really in control. Sometimes God has plans for us that we haven’t even imagined. So, move forward in faith and wisdom and course correct as needed.

Your big goal may require you to pay off a certain amount of debt by a certain date. You may have to pull back on a certain amount of spending by a certain date; or give yourself a reasonable allowance (identify the amount) based on your current situation.  You may need to get an emergency fund in place to cover unexpected expenses: determine how much, to cover what period, and when can you have it in place.

Your mini goals will change as you progress on your journey. You can decide to get help at any time. After years of trying it on my own, I had to get help with creating a basic budget and I needed a community to plug into everyday to help keep me motivated over that first year or so. 

Don’t feel bad if you have to do the same. One, we aren’t born knowing this stuff, it has to be taught. Two, we will never be an expert in all spaces (budgeting, life insurance, saving and investing, estate planning, etc.) The more wealth and assets you have, you’ll need the expertise of others. So, it depends on how the Lord leads you. He has people along every point of the economic spectrum.

Conclusion

Come back to read Part 2. Continue to learn and apply. Stay prayerful and chose those things most fitting for your situation. Recognize when you need help (education, consultations, and/or peer support.) You will grow as you go, but there’s no reason you have to do this on your own.

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Definition (Budget) by Dictionary.com 7/17/2021