Personal Money Management

In any financial program,
planning is essential. Everyone employs some form of money management in their personal finances. The key is to use one that actually works --- that actually makes life easier and helps you reach your goals.

That’s where planning comes in. It’s no secret that where there is no plan, chaos will ensue. Sooner or later. What happens is that, if there’s no bill-paying or saving plan, when the paycheck arrives, it feels like a little windfall, and the reaction is to spend it all. The bills that aren’t due right away get ignored, and the money is gone when they come due. Keep this up?


You need a plan!

However, creating a plan isn’t enough. The finest plan in the world will prove useless if there’s no corresponding change in attitude toward money, and if the plan isn’t actually implemented. Maybe that sounds like a no-brainer, but you’d be surprised at how many well-intentioned people drop the ball right there.

The best personal and family money management program is well-thought out and organized, but is also flexible. The plan should guide you, not constrict you to a set of rules that you won’t be able to live with. Allow for recreation and personal enjoyment from time to time to provide “a little leaven in the lump”. It’s a serious undertaking, but it’s not about ceasing to enjoy life!

Plan to live within what you currently have --- don’t assume a future increase into your basic money management plan. If God sends you an increase --- wonderful! But oftentimes we must learn to live on less than we’d like because there’s so much to learn from that experience. And the wisdom of experience is wealth of a different (but just as important) kind!

Some things you’re going to have to work on:

successful money management takes patience. That’s right. It takes time to get the system running smoothly. Hang in there. Don’t give up.

• you’ll have to say ‘no’ much more often than you’d like. Hang in there. Don’t give up.

• you’ll need to keep a positive attitude. Others will try to sabotage your plans. Don’t let them. Don’t give up.

don’t make quick decisions regarding your finances. Weigh the facts. Pray.

don’t get sucked into “get-rich-quick”. It’s so tempting when it sounds so attainable and you’re looking for a leg up in this process. Stay away. Don’t give up.

successful money management takes patience. Yes, I’m repeating myself. Hang in there. Don’t give up.

Use a Written Plan for Your
Short-range and Long-range Goals

Any money management program includes short-range and long-range goals. A written plan works the best by far. It serves as a yardstick to measure your progress by reminding you of your objective in order to stay on track.

The personal or family budget is one such written plan. It shows you where your money is going versus how much is coming, with the aim of the two working and fitting together well. It's the pivotal segment of your money management plan, for without it, the rest of your plan will fall apart.

Short-term goals include what’s needed now. The bills must be paid. The grocery shopping must be done. You also must stop using credit cards now, and begin an emergency fund. Establishing a tithe should be part of your short-range goals, and built right into your family budget plan.

Long-range financial goals should include personal objectives (like retirement), a plan for surplus, and a plan for after death. Your attitude about accumulated wealth should be that it serves as provision, not as protection, and that it is for sharing, not hoarding.

Set a maximum goal. A minimum goal is flimsy, at best. A maximum goal is much more powerful because it gives you a specific “stopping” point, freeing you to give from any surplus without any self-imposed restrictions. This is freedom!

Establish a plan for the surplus. Determine what you’ll give to your church or to a specific charity, what you’ll use to help family members, and how much of it you intend to invest. Know this ahead of time so that you don’t end up wasting it on trifles. When God allows you to have more than you need, it is for a reason. Spend wisely and give generously.

Work with your spouse on your money management plan. He or she is a huge asset to you, and free! Communication, commitment, and compromise are crucial components to make your plan a success. (How was that for alliteration?) Mutually commit to your financial goals.

Evaluate your progress annually. Update your budget to reflect changes in expenses, like an increase to your insurance premium or freed-up money from a paid-off obligation. If your budget is well-in-hand, focus attention on saving for the future.

The 50% - 30% - 20% ratio

Whether you’re still building an Emergency Fund, saving for college, or saving to invest, there’s a handy rule-of-thumb to aim for.

Scott Brown from Investment U® came up with what he calls the Financial Fitness Ratio. This ratio was created to help you calculate and plan your way to financial freedom. It’s a bit lofty and undetailed in comparison to setting up a budget to fit your income, then systematically paying off debt, etc. But I like the simplicity of the idea, and how it gives you a specified target to shoot for in your financial goals.

Dr. Brown’s ratio is a simplified approach to analyzing and organizing your money, splitting it into just three categories: Needs, Wants, and Savings.

Needs are the basic requirements for living: food, shelter, clothes, etc. Studies have shown that people are more likely to go bankrupt if their needs cost more than 50% of their take-home pay.

Wants are those things that improve our standard of living, that make life more comfortable or more fun. The Financial Fitness Ratio calls for 30% or less of your take-home pay for this category.

Savings, in this ratio, takes the place of the “Desires” category you typically hear about, which includes the luxuries of affluence. However, put to better use, this pot of money will quickly propel you toward your financial goals and dreams. Financial experts have shown that people are much more likely to become poor when they save less than 10% of their net pay. Dr. Brown’s point here: if you’re not saving at least 20% of your net pay, you’re spending too much on wants, needs, or both.

I like this simplified approach to a family money management plan. However, it does not include a Giving component, and would be discouraging for those who struggle to make ends meet. It also does not identify spending leaks. But it serves as great food for thought, and one day I’d like to incorporate this approach into a more specific budgeting plan.

So let’s begin.


Each component of your financial program will require education, persistence, and patience. Here they are in a nutshell:

budget your expenses to fit within your income. Your budget is a crucial factor in managing your money and reaching your goals. Setting one up may sound overwhelming, but a step-by-step approach will get you there. It’s worth it. (See section on Budgeting.)

eliminate all consumer debt. A secure financial future can only be attained if you have no debts to service. Even the wealthy can fall hard because of this trap. The elimination of debt is of highest importance in the quest for financial freedom. (See section on Debt Elimination.)

set up an Emergency Fund. At first, it can be small, just to handle unexpected things that come up. Eventually, your emergency fund will hold 3 to 6 months’ worth of basic living expenses. (See section on Your Emergency Fund.)

invest for the future. Provision for retirement and for your family is prudent. These are your long-term goals. (See section on Investing.)

give to others. Generosity keeps us from becoming self-absorbed and reminds us of what we were put here for. (See section on Generosity)


How To Save Money -- There are countless ways to cut expenses in order to save money, but it's all for nothing if you go at it from the wrong perspective or attitude.

How To Spend Money -- How we spend money determines how we save money. It is also the key to achieving other critical life goals and attaining a sense of fulfillment.

How To Make Money -- Making money must be by honest means and can be accomplished by maximizing your current income.

How To Lose Money -- We all concern ourselves with making and spending money, but we also need to pay attention to how to lose money so that we can understand the ways to avoid it.

Congratulations on taking the proper management
of your financial resources seriously.
You’re on your way, Faithful Steward!

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Where to go next:
Debt Elimination
Budgeting Categories
Budget Busters
Money Management for Kids