The Fundamentals of Budgeting

It’s clear that over the last few years very few individuals or families followed the concept of a monthly budget. Recent studies continue to show that the majority of Americans don’t even have a budget. And even among those that do set a budget, few actually follow it. However, one of the positive effects of this current economic crisis is that budgeting is coming back into vogue.

Spending more money than you earn is certainly becoming less accepted behavior in today’s society. New credit card offers no longer arrive in your mail on a daily basis. The lack of easy credit is forcing both corporate America and individual consumers to relearn the proper habits of financial responsibility. However, the Bible has always set forth the principles of budgeting. “Be thou diligent to know the state of thy flocks, and look well to thy herds. For riches are not for ever: and doth the crown endure to every generation?” Proverbs 27:23-24.

So just how does an individual go about setting up a budget?

The very first thing you should do is sit down and list out all of your monthly expenses. Next, you need to compare these expenses against your income. Then you can begin to layout a monthly budget by expense category to help you better manage your finances.

Tithes & Offerings

At the very top of any budget you prepare should be a category for tithes and offerings. All that we have came from the Lord and so He deserves to be paid first and not just with anything that happens to be left over. “Thou shalt not delay to offer the first of thy ripe fruits” Exodus 22:29.

At a minimum, you should be giving 10% of your income to the Lord, but this truly is a minimum. As your income increases so should your level of giving. I’m not just talking about the total amount increasing, but it should increase as a percentage of your income as well. You may be giving 10% when you’re making $30,000, but you should be giving much more than 10% when you’re making $100,000.

Savings & Retirement

It’s important to get into the habit of setting aside a portion of your income for savings. In this recessionary environment, many individuals are bemoaning the fact that they have so little set aside in savings.

While you should certainly strive to save as much as you can, a good rule of thumb is to try and save 10% of your income. These savings goals should strive to provide 1) at least six months income in case of a job loss or other economic catastrophe, 2) an emergency fund for those unplanned expenses, and 3) money for vacations or other fun items.

In addition to a regular savings pattern, you should also be contributing towards a retirement fund. Many employers offer 401k plans that provide company matching of your contributions. You should always try to contribute the maximum amount to the plan that your company will match. After all this is basically free money and it would be foolish to not take advantage of it.

Housing

Undoubtedly the biggest single expense in your budget will be for your home. It is also a fixed monthly amount with little you can do to change that (outside of buying a cheaper house or possibly refinancing to a lower interest rate). So it’s very important that you when you initially buy a home, you buy one that you know you can afford. Your monthly house payments (including property taxes and insurance) should not exceed 30% of your income and a good target is 25% of your gross income.

Transportation

The other major expense item in your budget is your car payment. Outside of a house, a car is the only other item you should ever have to go in debt to purchase. While some say you could spend up to 20% of you net income on a car, I would strongly recommend keeping this number below 10%.

Utilities

Energy bills, water bills, phone bills, etc. they all add up. While many of these costs are beyond your control, there are steps you can take to reduce these expenses. A programmable thermostat can provide significant savings (especially if you are gone during the day). Do you really need both a home phone and a cell phone? Just switching to a cheaper plan can provide some savings each month…and every little bit helps.

Food

Grocery costs can vary greatly from one family to another. However, it’s generally the one area of your budget that you have the most control over. Many people are surprised to find out how much they spend each month just by going out to eat or ordering pizza every week. Creating a good budget doesn’t mean you have start eating hot dogs every night either. However, maybe instead of going out to eat a steak dinner and spending $50 or more, buy some nice steaks for $10 and eat at home. You still get to treat yourself to something a little special without completely blowing through your grocery budget.

Also, don’t forget coupons as a great way to save a few extra dollars each month. Spending a few minutes perusing the Sunday paper or visiting online can end up saving you several dollars. If you’re making a purchase online a great website to check is www.RetailMeNot.com. They often provide coupon codes that can save you 10-20% off your purchase price.

Other Expenses

Clothes, magazine subscriptions, Netflix, cable tv, Starbucks, etc. these miscellaneous expenses can really add up. It’s not necessarily wrong to spend money on these items, but you have to make sure you only spend what you can afford. Carefully review how much you spend on these items each month – a good rule of thumb is that these expenses shouldn’t be more than 5-7% of your total income.

Of course these are not hard and fast rules by any means, but simply guides you can use to help you in constructing your budget. No two budgets will be identical. As your income increases you should be able to spend less as a percentage of your income on your monthly expenses and contribute a greater percentage towards your charitable giving and savings.