A Practical Approach to Your Finances

A new year has arrived, and with it comes new resolutions to track your spending, spend less, save more and a host of other financial goals. The hard part for many is that the systems they adopt to try to achieve this are so complicated that they fail before they’ve even started. Simpler is almost always better, whether you’re trying to improve your diet or your budget.

Here are a few tips on how to take a practical approach to your finances.

1. Tithe

Dave Ramsey is famous for describing his get out of debt plan as God’s ways of handling money. He explained the commandment to tithe as God’s way of making you less selfish. If you donate 10% off the top to charity, you’re forced to admit it isn’t all yours and you have to by definition live on less than you make. If you’re less greedy and more of a giver, you don’t hoard money.

However, this doesn’t mean that you can’t save for long-term goals or have to give money to every broke relative and neighbor who asks. In fact, you’re morally obligated to refuse to enable bad behavior and take care of your household – including its long term needs.

2. Set Long-Term Goals

The Bible talks about the wise having choice stores of food and oil. They’ve saved up for emergencies. You should save up enough money to pay your bills if you were out of a job for several months. Automatically saving 10% or more by having it shifted to savings with each paycheck takes the temptation away to spend everything in the account and then send any remainder over to savings.

The book “Everyday Millionaires” reported that saving 15% or more in a retirement savings account every year for your working life would turn even a working class person into a millionaire, since they’d have more than a million in their tax advantaged retirement account. Set a goal for yourself to save at least 10% for retirement. You’re morally obligated to support yourself if you can, and no one wants to suffer both old age and poverty at the end of their lives.

3. Set Up a Simple Budget

Tracking every single cent you spend relative to several dozen categories is time-consuming. Like a diet where you try to find out how many calories are in every spoonful, people are prone to quitting out of frustration. This is why the best way to save is to set savings on automatic and living off the rest. Have the right amount of taxes withheld from your paycheck. Send at least 10% to your 401K or IRA, and certainly do whatever will maximize your employer match. Send 10% to the charities of your choice. Have 10% moved automatically to your long-term emergency fund. If that’s full, then start saving for long-term goals like kids’ college, a replacement car when the current one breaks down, trips you’d like to take and other big ticket items.

This gives you 70% of your after-tax income to live on. You should have a budget that accounts for the big expenses like rent payments or house payments, utilities, and insurance. After that, you can divvy up the rest between food, fun and other financial goals. To avoid the hassle of tracking every expense, try the envelope system. This means you’d have an envelope with your budgeted amount for clothing or eating out filled with cash. You only use the cash for that purpose, and when you’re out, you aren’t spending any more on that category this month.

4. Adjust Your Spending to Fit What’s Available

What do you do if you don’t have enough money to cover remaining expenses like groceries or paying down debt? You need to evaluate how much you’re spending relative to your income. Are you living in an apartment or house you can’t afford? You may need to move. If you don’t have any money left after making the car payment, maybe you should sell the car and shift to a cheaper used one. Another culprit is having too much taken out of your paycheck. Don’t pay for useless insurance policies like cancer insurance, whole life insurance or an overly generous auto-insurance policy. If you’re getting a tax refund each year, you should reduce your tax withholding. If you’re already putting 10% into your 401K or a chunk of money into a health savings account, you can cut back on saving for other goals.

Do track where your money is going per category. You may find that you’re spending way more on child care than is reasonable, though it is your choice as to whether or not you change childcare centers, stop paying for all the extra little activities or start swapping date night childcare with friends to save on sitters. If you’re spending as much eating out as on groceries, you may want to start brown bagging lunches, changing how you socialize with friends, or learn how to cook.

5. Make More Money

One way to close the budget gap is to make more money, assuming you’re in control of your spending. One tactic is taking a second job like delivering pizza or babysitting. Another approach is starting a new business. Be careful about how your business is categorized by financial institutions. Merchant Category Codes or MCC can impact your ability to process credit cards or debit cards. If your business is classified as high-risk, you can’t process payments at all unless they’re paying via cash, check, money orders or cryptocurrencies. This can hit you as a consumer, too. The MCC codes for businesses determine whether or not the transaction is allowed to go through, whether you get reward points on the purchase, and how much you can spend with the merchant.

6. Pay Off Debt

The Bible says as more about money than nearly any other moral concept, and it always equates debt with slavery, weakness and death. When you’re making these lifestyle changes, make debt payoff a priority. Instead of a complicated system based on interest rates or point systems, simply start by paying off the smallest debt. The thrill of the small victory helps keep you going as you roll over that debt payment into your next debt. The side benefit of paying off debts while you live on less is that you’ll be able to live on less if you lose your job or when you retire.

These approaches are as practical as they can get. Being wise with your finances goes a long way. The best thing is that it gives you a peace of mind.