We’ve covered in the preceding modules our priorities for using money, and the most important outcome is that you would desire to conform to God’s ways. If you don’t really want to conform to His ways, having head knowledge won’t help you. You have to deeply long for coming into alignment with the ways of God and how He wants you to employ money. Money is just a resource – or better said, represents resources, and the question always before us is how would God like us to use the resources He has put into our hands. So we have looked at prioritizing principles. Unfortunately, even with a desire to conform, most people have trouble putting these priorities into practice.
Budgeting is a way of approaching our use of money in a planned manner. As we budget, we can actually ask whether our expenditures fit the theoretical priorities we have set. If we don’t budget, what usually happens is the next opportunity to spend money takes our attention and gets us off track.
The people of God have almost always budgeted. Tithing is budgeting. Setting aside is budgeting. The question is how much and in what categories.
I’d like to help you set up a simple but meaningful budget, and here is how we can begin – by thinking backwards. Please go get a sheet of blank paper and a pencil, and let’s create a simple, trial budget.
Step Number One is to put down the money that you actually can spend – or save, or give, during a given period. Of course, you can use any period of time, just as long as you have a pretty good idea of what money you earn or have at your disposal during that period. For some people, they get money sporadically. These are people that work on their own. Perhaps in the construction or real estate field, or perhaps they sell used cars. Their income can be HIGHLY variable, and sometimes non-existent. I’ll have more to say about this group later.
Most people are salaried – they get a bi-weekly paycheck. Usually some taxes and benefits already have been removed. For the sake of our initial exercise, I am going to suggest that you convert your salary into a monthly number, and if you can guess what your gross is (BEFORE taxes), use that number. Then take that number and multiply it by 12 months and you will have a rough guess of the money that you receive annually.
For this exercise, I like to think annually. One reason is that some expenditures only occur once or twice a year, and if you thought only about your monthly expenditures, you might miss them. So let’s make two columns on your sheet. On the first line in the first column write down the word “Income,” and if you have other sources of income other than salary (could be monetary gifts you are normally given, etc), write down on the next line “Other.” Then in the right hand column, but your best guess at your annual income in each category. If you have two lines, add them up and put the total in a third line titled “Total.”
Now we are going to work on expenditures. Put the word “Expenditures” on the next line as a heading for what will follow. I’d like to do this by using our priority categories we have already explored. As a reminder, the big headings are:
1. God (church)
2. Government (taxes)
3. Essential life support needs
5. Critical Family needs
6. Church ministries and direct work with prisoners, the Poor, the orphaned, etc.
7. Those who work for us
So the first major division of Expenditures falls under our top category: “God.” Put “God” in the left column, and then look at your total Income line, and pray for a good percentage to purpose to give annually toward the work of God. For many people, that number will be at least ten percent, but regardless of your percentage, multiple your chosen percentage times your income and write the answer in the second column. Some people may want to include additional lines under this category if they are part of multiple church families.
Next write down “Government.” Unfortunately, most people will need several lines under that broad heading (ugg). To take care of this section, I am going to highly recommend that you stop what you are doing, and go right now to your copy of last year’s tax return. Pull it out and open it to the appropriate section for what follows. The first sub heading under “Government” would be IRS taxes that must be paid to the Federal government. Your IRS taxes can vary depending on your income from zero to about 35%. Look at your return if you don’t know the answer, and if you think last year’s return was typical, you can check the percentage you actually paid (both on April 15 and during the year in the form of payroll deductions) by dividing your total IRS tax bill by the gross income you show.
You will have more line items under Government. For some people, the next subheading would be State taxes. In Tennessee, some interest and dividend income triggers a tax payment annually to the State. You probably can find this type of tax on last year’s return if it is applicable.
Then we have FICA taxes which actually cover two different government insurance programs: Social Security and Medicare. These taxes (at least at the time I am writing) currently run about 6 percent of salaried income. Once incomes exceed about $100,000, the Social Security component is no longer taxed. But we are just doing a trial budget, so figure around 6% of gross income for Social Security and Medicare. If you are an “Independent Contractor” or self-employed, you pay under a different methodology, and I will leave that calculation to your own devices.
If you own a home or other real estate, you also must pay Property taxes. These are typically collected by most mortgage companies in your mortgage payment, but if you own your home outright, you must pay normally both a city tax as well as a county tax. In Shelby County, Tennessee, this is broken down as about 4% for county taxes and about 3.5% for Memphis. For residential property, the tax rate is figured on 25% of the Assessor’s appraised value of the property.
Believe it or not, there are other taxes that we pay (retail sales tax, franchise and excise taxes on trusts, etc), but for now, let’s turn to the next section of priorities. But before we do, let me point out that these first two sections are actually determinable from just knowing your gross income. They are percentage based. Unfortunately, many people will find that once they have properly calculated their estimated tax bite in all categories, the percentage they are paying in tax may exceed 50% of their income. This reality makes it critical to make choices for Essential Life Support Needs that are wise and very thrifty since not much is left for the many areas over which we may have responsibility.
Essential Life Support Needs
You will remember that we had seven sub sections under this Essential Life Support category, so you will want to include at least one line item for each of the following. My suggestion is to break each one of these into multiple lines which can either be for a specific family member or a special subtype. For instance, Food can be divided into two categories: Food at Home and Food Out and Clothing can be divided into Husband, Wife and Children. Your task is to estimate how much you would like to spend on this overall category during a calendar year, but the easiest way to think about it is to break it into smaller line items and then total the whole group.
Food at Home
Shelter (annual rent or annual mortgage payments)
Health requirements Husband
Health Requirements Wife
Health Requirements Children
Essential needs of dependent parents
Telephone (you may need multiple line items here as well)
Transportation (you may need multiple line items here as well)
Now total your estimates for all of the line items under Essential Life Support Needs. Now this is the time I like to do a reality check, and things usually get tricky since thus far we have allowed for no entertainment, no vacation, no educational expenses, no special ministries, no household help, no video games, etc. If we take our top three priorities (God, Government and Essential Needs) and add them together and then subtract from our gross income, we will have a snap shot of how seriously we are off track with our finances. So do that reality check before we head to the next section.