Simple steps toward financial margin (ninth in a series)

1) Make a budget 2) Establish an emergency fund 3) Pay off debt

Make a Budget: One of the best defenses against marginless finances and one of the best ways to ensure that we can give generously to God’s work is simply to have a budget. In fact, I don't know how people manage their money and have funds to give without having a budget. Having a plan for where your money is going before you even get it and knowing where you are spending your income allows you to establish margin from the get go. If giving/tithing is a priority for us, then rather than waiting to see if there is anything left at the end to give, we ought to make “Giving” a line item in our budget (perhaps THE line item) and adjust our "want-to" spending around it. Diane and I have determined a percentage that we want to give, and so we adjust our giving percentage-wise to the amount of income that comes in.

We use two tools to help us budget. One is a simple excel sheet on which we list every conceivable area of spending. There are line items for personal spending money for me and Diane, money set aside each month towards Christmas presents, vacation, and car repairs, money for clothes for our kids and more. We do a "zero-balance budget", which means that we have a place to put every dollar that is coming in, even if that place is "extra funds."

The other is an online program called mVelopes (www.mvelopes.com). The way that mVelopes works is that it allows you to put money from your bank account into virtual “envelopes” so that you know where every dollar is going. So when you use your debit card at Food Lion, for example, mVelopes downloads that transaction from your bank account. Then you drag and drop that into your envelope for “grocery store” and it subtracts that amount from what you budgeted for the month.

This system enables you to budget for many different areas of life, it tracks every dollar that you spend, and it helps you know when to say when. For example, when you have used up all of your “eating out money”, your envelope is at $0 and you know that it’s time to pack your lunch for the rest of the month. For us, mVelopes has been nothing short of amazing, and I would highly recommend the free, 30-day trial you can get online.

An emergency fund helps with margin because if you know that you have $1,000 set aside for nothing but Murphy’s Law, it makes things like a busted radiator ($600 for my 1995 Honda Civic, I found out last month) be nothing more than a blip on the radar. It’s covered. Financial advisor Dave Ramsey http://www.daveramsey.com/ suggests that after paying all of your “have-to” bills (including minimum balances on credit cards), putting all extra money towards building a $1,000 emergency fund that you DO NOT TOUCH is a necessity for margin. Having that margin allows for a measure of peace in times that could easily feel like crisis.

The Debt Snowball: Once that emergency fund is established, if you have non-house debt your extra money should go towards the principle of your lowest amount owed. Then when that debt is paid off, take its minimum payment and apply that, with any extra each month, to the principle of your next lowest debt, and so on. This is what Ramsey calls the “debt snowball.” Eliminating debt removes some of the “have-to” payments and allows us to give more and save more. It’s also wise to not incur further debt, so for example, don’t buy a more expensive car than you can afford to pay off immediately (or within a few months).

Now, let’s say you have your $1,000, you are putting all your extra money into your debt, and then an emergency happens and you dip into your fund. Focus next on replenishing your emergency fund, then back to debt.

Diane and I have been following this 3-step plan for a few years, and we have reduced our non-house debt by over $12,000, and have experienced a great deal of financial peace and have seen our ability and desire to give increase. While we don’t have tons of room for all the “extras” that we desire, we have found our way to having joy in the financial margins.