So first things first – you need to define your current position. This is fairly easy to accomplish, and gives you your first point of reference. If you don't know where you're at, you will have no idea how to get to where you want to be - living financially free! If you like a cookie cutter approach, one way to get started is by using the basic "quickie budget". If you like something a little more personal and customized, follow the quickie budget format and lay out all your expense categories, the dates that bills are due, and how much they typically run. Personally, we always start with our tithe first before anything else, because we believe that God owns it ALL...100% of our provision comes from Him and belongs to Him. He's only asked us for 10%, so we give it joyfully, knowing that His promise is that the remaining 90% will be blessed. After your giving, you want to make sure you're covering your necessities first, including housing, food, transportation, and clothing. After that, go through your other expenses, listing them in order of priority from the most important to the more discretionary. Finally, you'll want to create a separate list of all unsecured debts, including creditor, amount owed, minimum payment and date due. Total up the minimum payments, and add this total as a line item on your budget.
When you first create a budget, the idea is to first get down on paper what you're actually spending in each of the expense categories. However, in order to be an effective budget and not just a listing of what you're spending, you need to evaluate each category to ascertain if your spending is reasonable and realistic given your income and situation. Some categories you may need to increase. Others may need to decrease. When it's all said and done, the goal is to have your income minus your expenses equal zero.
That said, when you've completed the budget exercise, total up your monthly expenses, and then subtract from your monthly income. If the result is positive, great work! You're off to a good start. A positive number means you have either extra cash to throw at your debts or to save/invest. We'll get to both of those options in a later post. If, however, the result is negative, you either have a cash flow problem or a spending problem! Reevaluate your expenses and trim where you can until the resulting number is zero. If you trim down to the absolute necessities and are still getting a negative number, you may need to consider some other options to bring that amount positive, such as selling some things, getting a second job, or moving to a less expensive home.
Getting started on a budget is probably the hardest part of getting financially free. It's often very difficult for people to face the reality of their situation. It's difficult to reign in a lifestyle of overspending your income, and will require sacrifice. But I assure you, it will pay off in the long run!
Email us your questions on this process, and we'll try to post answers later this week. And be sure to come back on Friday for the Road to Financial Freedom Part 3 - GETTING CURRENT.
