By Saman Al-Rawee
“No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.” (Matthew 6:24)
This is perhaps the most well-known bible verse about money, but did you know that in the bible, eleven out of thirty-nine of Jesus’ parables are about finances! I believe that there’s a reason that that’s the case—our money and finances can be a big stumbling block in our walk with God.
Back to that well-known verse—what is it trying to say? Many people read that verse and automatically think “I don’t serve money!” But the fact is that most of us are controlled by money and our finances more than we know. This often boils down to the fact that we do not have a clear picture of our finances, which makes it harder for us to make sound financial decisions, makes it easier to get in debt, and eventually establishes money’s power over us. So how do you get a clearer picture of your financial situation? It starts with creating a budget, which is a tool that helps you visualize your financial situation and enables you to make good decisions based on that visual.
Many people have negative connotations with the word “budget.” Some people may have anxieties over their true financial picture and would rather not see the concrete numbers, while others automatically think that it means they will have to cut back spending on things that they don’t want to cut back on. But a budget does not necessarily have to lead to this. What a budget can show you is that that you could be allocating more funds to something—more than you originally thought you could.
A budget is essentially a list of all your cash inflows (income) and your cash outflows (expenses). Your income minus your expenses is your net cash-flow. When people use the term “balanced budget,” it means that your income and your expenses equal each other. The goal is to at least have a balanced budget, and if possible a positive cash-flow budget.
An example of a basic budget with a positive net-cash flow. You’d want to save the remaining $440.
The following is a list of simple steps for creating a budget:
1. Track all of your expenses
You need to know exactly where your money goes each month. How many times have you looked at your bank account or credit card statement and thought, “Where did my money go? What could I have possibly spent it on?” I know I’ve been there before. That’s why it’s important to keep track of not only your big expenses like rent, but smaller ones like your daily coffee and even things like haircuts. So keep receipts or use your bank/credit card statements if you prefer plastic over cash!
2. Determine your income sources
Similar to expenses, it’s easy to identify those obvious sources of income (salary). But consider other possible sources such as interest on your savings account, investment income if you’ve bought a GIC or stocks, gifts, and government support (child benefits, disability, social assistance, etc.). If your income is irregular (you work part-time or only in the summer), add up your total income over 12 months and use a monthly average. But this means you will actually have to ration the income that you earn in the 4 months over summer to last you 12 months! Easier said than done…
3. Monitor your budget
Once you’ve created your budget, it’s easy to forget about it and continue to spend your money like you’ve always done. However, for the budget to really be useful you will need to monitor it and compare it against what you are actually spending. Tweak amounts that need tweaking, or add those little expenses that you forgot to include in your initial budget. Continue to do this until your spending and income are fairly close to what your budget says they should be.
Now that you have a budget that reflects your income and spending accurately, it’s time to analyze it. What does your financial situation look like? Are you consistently spending more than you make? Or are you consistently spending a lot less than you make?
The latter situation is a lot easier to deal with. You have a bunch of money left over at the end of each month that you now need to decide what to do with. There are lots of good options, like putting it into a savings account, investing it, or giving more of it away. Remember the thing about not serving money? One of the easiest ways to break money’s hold over you is to give it away cheerfully. You will be amazed at how freeing that is.
The former situation, spending more than you earn each month, involves a more concerted effort to address. There are two ways to help you balance your budget: earn more money or spend less money. To earn more money you can consider taking on a second job, asking for more hours, or ensuring you are taking advantage of any government assistance that you may be eligible for. Spending less involves analyzing your budget and seeing what areas you think you can cut back on or cut out completely.
This may seem like a tedious or stressful process, but it’s extremely important to ensure that you have your finances under control, or else they will control you.
Take your pick.