If you want to improve your golf game, enhance your musical talents, or become a better cook, there’s no substitute for experienced teachers. The same applies to personal money management. You can learn a lot from those who have already achieved expertise in budgeting and reaching financial goals.
For this article, we asked SMI readers who regularly post in our online Member Forum for their top tips and best practices for creating a workable and effective money management plan. We’ll share their sage advice below, but first, consider these two foundational guidelines.
You need to bring a positive attitude to the budgeting process.
Reject the idea that a budget is a financial straitjacket meant to restrict your freedom. Instead, think of a budget as a financial roadmap. It shows you where you are, helps you identify where you want to go, and enables you to lay out a path to get there.A budget — or money management plan, if you prefer to call it that — furnishes signposts and boundary markers for your financial journey, helping you avoid obstacles that would slow you down and steer clear of routes that lead away from your desired destination.
SMI member Jim G. and his wife had to overcome their early tendency to view a budget as a form of “punishment.” Looking back, the Ohio couple is grateful for the good fruit that years of budgeting (and steady investing) have yielded in their lives. Discovering how to practice effective money management “literally saved our marriage,” Jim told us.
Embrace a stewardship perspective on why you budget.
For Christian disciples, the why behind the how of money management is crucial. The purpose of budgeting is not merely to make ends meet each month or to reach future financial goals, as important as those are. Instead, think of a budget as a “stewardship tool” that helps you prudently and faithfully manage the material wealth God provides.Your budget serves as a regular reminder that your material resources ultimately belong to the Lord. They have been entrusted to you only for a season. Your task is to manage those resources — whether a little or a lot — to the best of your ability. As SMI member Jim G. says, “Our foundation is that everything we earn and have is not ours, but God’s.”
Keep it simple, but make it effective
So, how do you get started with a budget? Several SMI members say they began the old-fashioned way: a pencil-and-paper approach. “I started on paper, tracking spending with an accounting sheet,” says SMI Member Michael M. in Missouri. Multiple members told us that despite today’s profusion of personal-finance software and apps, a handwritten approach remains an effective way to get started.
Keeping an “expense diary” in which you record all your expenditures, even minor ones, will give you a clear view of your current spending patterns. The information you gather during this start-up period will likely help you 1) trim spending in some areas and 2) create a realistic budget going forward.
Once you have a solid understanding of where your money is going, it’s time to allocate your income to spending categories. In other words, you decide in advance where your money will go, rather than simply tracking where it went.
For example, you may determine that you need “X” amount of your monthly take-home pay for housing, “Y” for transportation, and “Z” for food. Of course, it’s critical that the target amounts be realistic. A budget that allocates only $50 a month for groceries is unworkable.
Your expense diary and SMI’s Recommended Cash Flow Guidelines can help you determine reasonable amounts, but bear in mind that your total allocations — including giving and savings — must not exceed 100% of your income!
Create as many budget categories as you need (utilities, subscriptions, entertainment, gifts, etc.), but it’s better not to get overly detailed with subcategories (anniversary gifts, Christmas gifts, graduation gifts). Too much detail will make it harder to keep up with your system.
Michael M. knows the downside of getting too detailed, both from experience and observation. He says he and his wife “had too many categories” early on, making their expense tracking too cumbersome. In his subsequent work as a volunteer budget coach with a financial ministry, Michael has seen the same “too much of a good thing” issue with other people’s budgets. “‘Perfect’ becomes ‘the enemy of the good’ when there are too many categories in a spending plan,” he says.
SMI Member Henry D. in Georgia concurs. “Don’t make [your system] so difficult that you give up.” He says a budget must be “simple enough” to implement yet “complicated enough” to foster sound spending decisions.
Attaining that happy medium will involve a process of trial and error. Money management apps and software (when you’re ready to move in that direction) can help strike a balance between “too detailed” and “not detailed enough.” Platforms such as the FaithFi app, YNAB, and spreadsheet-based Tiller, offer helpful planning tools and relatively simple automated tracking via a smartphone or web browser.
Additionally, most budgeting apps and software can generate graphs and tables that help you quickly see where you may need to adjust your budget allocations or spending patterns.
SMI Member Jim McG. in New York says he and his wife have used budgeting software for many years (including YNAB and Quicken). However, they’ve employed a low-tech approach for cash spending: the envelope system. With this tried-and-true method, a monthly cash amount is divided among several envelopes, such as a “groceries” envelope, an “entertainment” envelope, and a “miscellaneous” envelope.
By using envelopes for cash spending, Jim and his wife can easily see how much they have left in each category each month. “The envelope system…shows us a clear picture of where the money is going,” he says.
Creating your own system
Learning from seasoned budgeters is wise. However, the management system you ultimately adopt won’t be exactly like anyone else’s. A budget is personal. There is no one-size-fits-all approach. Best practices and time-tested precepts must be adapted to your particular financial situation and way of thinking.
If you’re married, bear in mind that creating a workable budget should be a joint effort. “Make sure your partner is fully on board,” advises SMI Member George T. in Georgia.
To be sure, making joint financial decisions is not always be easy. However, working together creates opportunities to listen to and address each other’s priorities and concerns, helping deepen the marriage relationship. SMI Member Michael M. in Missouri offers this reminder: “As Christians, the biblical standard of two becoming one should not exclude finances.”
