Although half of 2023 is almost over, It’s always a great time to think about how to improve your financial situation. While goals vary from person to person, most people would like more financial peace of mind and a stronger sense of control over their finances.
Below are three ways to achieve both.
Plan to succeed
The Bible says, “The plans of the diligent lead to profit as surely as haste leads to poverty” (Proverbs 21:5).
That points us toward the single most powerful tool anyone can use to manage money well—a cash flow plan, otherwise (are far less popular!) known as a budget. A cash flow plan enables you to consciously decide how to allocate your income across all of the outgo categories in a way that enables you to live generously, save and invest adequately, and spend with a margin.
You may have to take this on faith, but a cash flow plan is not limiting; it’s freeing. Once you have a viable plan set up, it’s liberating to know how much you can spend on groceries, clothing, entertainment and all the rest, knowing that in staying within those parameters your financial life will be in order.
Three key steps are involved in using a cash flow plan:
- Planning
- Tracking and
- Reviewing
Draft a plan with the help of the Cash Flow Plan form and Recommended Cash Flow Guidelines found here. Then track your cash flow. This is the part most people aren’t crazy about, at least at first. But once you do it for a while, it’ll become a very useful habit. And last, review how well your actual cash flow is matching up to your plan. If you’re having a hard time in a certain category, either you set the planned amount unrealistically or there’s room to be more intentional in how you’re managing that category.
If using a cash flow plan is new to you, it’ll probably take a few months to get it running smoothly, so be patient, and stay with it! Soon enough, you’ll wonder how you ever lived without this incredibly useful tool.
Build strength
The Bible says, “The wise man saves for the future, but the foolish man spends whatever he gets” (Proverbs 21:20).
Having money in reserve will add greatly to your peace of mind. Everyone has unexpected expenses pop up, usually at the most inconvenient times. That’s what an emergency fund is for.
It’s important to keep savings separate from checking (mingled money leaks!), so if you don’t have a separate savings account, now’s the time to open one. Then set up an automatic monthly transfer from your checking account to your savings account to begin building savings. Even a small amount of money saved on a regular basis will be helpful.
Set yourself free
The Bible says, “…the borrower is servant to the lender” (Proverbs 22:7).
If you have any debt other than a reasonable mortgage (one that requires no more than 25% of your monthly gross income for the combination of your mortgage, property taxes, and homeowners insurance), make this the year you begin getting out of debt.
Enter all of your debts in this calculator, listing them from lowest- to highest-balance. On all “revolving” debts, such as credit card balances you carry from month to month, fix your payments at least on today’s minimum required payment (If the required minimum payment goes down in the future, keep paying the amount required this month). That simple step will greatly speed up the payoff of those debts.
Then run some what-if scenarios, entering different added amounts you could put toward your debts and see how much more quickly you’ll be out of debt if you add another $10 or $20 or $100 per month. That may motivate you to find the money within your cash flow plan. Put the added amount toward your lowest-balance debt. Once that one is paid off, roll the full amount you had been paying on it over to your next lowest-balance debt, and keep going.
Some people reading this probably have already taken one or two of these steps. Others haven’t taken any of them. Wherever you’re at, if you manage your household finances with a cash flow plan, keep some money in reserve, and carry no debt other than a reasonable mortgage, you will be in really good financial shape.
Matt Bell is the author of Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management. He speaks at churches and conferences throughout the country and writes the MattAboutMoney blog.
This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.
