Wednesday, January 19, 2011

Budget Overhaul

We normally stick to a pretty tight budget. To help us make it on one income, we recently joined Gleaner's again when we moved into our new place. One of the requirements when a couple rejoins is that they are required to take a Good Sense budgeting class. The program is based on biblical principles, but if that's not your thing, you can still use the steps to overhaul your budget. Here are some of the basic steps ....

First, we must admit that our culture's view on money and possessions is contrary to what the Lord wants for our lives. Our money is God's. He simply gives it to us so that we can bless others. We need to be responsible with every decision we make, even if it is an *insignificant* purchase in our eyes.

Then, we look at the five areas when it comes to finances. A wise spending plan will help us do well in all of these areas.

1. Earning: Serve the Lord in your work. Be diligent, faithful, and grateful for what He has given you through your job. Then calculate how much you (and/or your partner) earn per month in Net (take-home) pay when starting your budget.

2. Giving: God wants us to generously give! This has been a difficult one for us, since we live on such a tight budget. One thing that helped me is that during our first session, the speaker told us not to get hung up on the 10% tithe at this point. Since most of the people in the class were in tough situations, the goal is to get to where we CAN tithe, and even give beyond that. But that is the eventual goal, not the short-term one. Just start with what you CAN give. For us, this is $40 a month. $20 goes toward a missionary couple and $20 goes toward our church. I know it's not a lot yet, but God will still take that money and use it. Above all, don't get bogged down by guilt!

3. Saving: This is money we keep, not money we give up! Compounding interest works for us if we set money aside each month. First, we need to focus on emergency savings. This should be equal to 3-6 months of basic living expenses, such as housing, food, and transportation. The second type of savings s for replacement. Think of larger purchases that are upcoming (such as a car, a roof, an appliance, etc) and save for them over time instead of putting them on a credit card at the time. The third type of savings is long-term savings for retirement. In all these areas, start with what you CAN do right now. The amount will increase as debts get paid off or as your income increases.

4. Debt: Try the debt snowball! List your debts in order from smallest to largest. Make minimum payments on all the debts except the smallest one. Put as much extra into that payment as you possibly can. As soon as you pay off the smallest debt, roll that payment on top of the minimum payment for the next debt. Do the same thing for the next debt when the second one is paid off. Your payment will keep snowballing until all of your debts are paid off. Do not take on any new debt! Instead, allow interest to work for you. If putting extra money toward paying off debt means eating rice and beans and cutting out movies, going out, and gifts, then so be it. Being debt free is worth it :). We've cut back all expenses that we can. Gifts are down to $15/month, plus the gift cards I earn from Swagbucks. Our entertainment is Netflix at the $10/month plan. This allows for streaming and one mailed disk at a time. I have cut out the data plan on my phone. We use cloth diapers on the two younger kids (which I actually love, for the record. I think they're convenient and adorable). We're going to get creative for dates and family time, including tent camping for vacations.

5. Spending: Make a plan and stick to it. For all variable expenses, consider using an envelope system with cash. We have envelopes for the following: groceries, household, gas, oil/maintenance, gifts, and medical/dental/prescription. As debt is paid off, we will try to add envelopes for things like clothing, vacation, hobbies, etc. Right now, we're bare bones as far as budget goes. And we're still extremely blessed! We really don't need anything beyond what we have now. Be thrifty! If you need something, God provides a way.

Those are just some of the basics of budgeting that we've learned in our class. I'm really excited to put this into practice. If nothing in our budget changes, we'll have all our debt (including student loans) paid off within just under four years! In actuality, it should be even sooner than that. Our tax return is going to likely pay off our first two debts, leaving only the student loans for us to pay. My hope is to earn a bit through becoming a doula. I will likely only do two births a month or so, but any little bit puts us that much closer to being out of debt and saving for the future. And that much closer to being where God wants us to be as a family. I hope you'll be just as excited as I am!


Amanda said...

I saw your comment on myfunfrugalfunlife and see we have similar interest, look forward to reading your blog.

Johnlyn ~ Frugality and Homemaking said...

Followed you from myfrugalfunlife as well...

I just have to tell you that since we started tithing we've seen so many more blessings, including a significant pay raise.

In fact, one day I was crying out to God asking how we were going to pay the $40 bill (whatever it was). A check came in the mail for $4000 that day. Totally and completely unexpectedly.

I'm not saying that you should tithe right now, but I felt like I needed to give you that testimony. Our budget at that time didn't work on paper. At all. But God provided everything we needed and quite a few things we wanted.

May God continue to bless you on your journey!!!