The Planning Process

Having a plan is the most basic core principle that I try to teach. If you strip back all the practical application, all of the "theology of money," all stories or illustrations, I am basically saying to have a plan.

Tell your money where to go instead of wondering where it went.

Hopefully if you hear anything, you will hear this. Now, I am about to expand on logistical planning. Most people who know me will be surprised to hear me say this next statement but it is the truth and I don't really say it that often.

You can only plan so much.

I am serious.

There are 3 basic stages in personal finance planning:

1.) Short Term Planning
2.) Mid Range Planning
3.) Long Term

Long term planning is roughly anything over a year away. There are many things that we should be planning for that are a year away or over. An example of Long Term Planning is retirement. I think you should be planning from this and early on in fact. Another example is a new (to you) car. This will come up at some point, you might as well be prepared for it.

I also think there are things that come up within a year that you should plan for in advance; these are mid range planning items. Christmas, Birthdays, Vacations, Real Estate Taxes, etc. all fall under this. We know these things come up, we need to plan for them.

Next is short term planning. I do not want you to plan for monthly expenditures in advance. Each month is new. Each month things will change. For example my gas expense has now changed because it is football season and I go to all the Clemson games. This has increased my monthly gas expenditures a great deal, which effects my planning in other areas. Another example is you might know you need to get an oil change this next month, that changes your car maintenance category, which might change something else.

Let's say you had a friend who was about to play a game of chess. And let's say you are a chess expert and he came to you and ask for help. You would not give him step by step instructions on moves he should make. This is not a wise thing to do when playing chess because things change rapidly. The same is true with finances. You can have a basic goal/intent to take the queen or put the king in checkmate, but how you get there is a changing process.

It is a good thing to make goals and plans, but the details will be changing. It is important that we understand this so that we will not be frustrated with a process where change is inevitable.

Signs your financial System are Working

I wanted to offer up some encouragement to all who I have not had the pleasure of speaking with in person or through e-mail. I have heard really AWESOME things about people making commitments to handle their money wiser.

This allows them to be better stewards, better givers, better providers, and have actual freedom to do what God calls them to rather than be stuck in a position where they HAVE to earn a paycheck from a job they are not passionate about.

I wanted to list some signs that your financial system is working so that you may encouraged and continue what you are working towards:

1.) Paying car insurance quarterly or biannually without a hitch

2.) Giving e an offering to your local church not longer HURTS to write that check.

3.) Presents are a joy to buy for people.

4.) Getting to see monthly interest incurred from your 4.3%+ Interest Rate saving account. (If you do not have one of these, please sign up with ING Direct immediately.)

5.) No longer have stress when bills come in.

6.) You know that you have a plan financially if "life" happens.

7.) You are actually choosing to be at your job, rather than stuck at it.

And so many more! Having freedom with your finances is exactly what it sounds like. Freedom. It allows us to live life differently; I know too many people that are in bondage in their financial life which causes them to not be able to devote their lives to the calling they are called to because our money and hearts really are connected.

The Unexpected

In everything in life we must account for the unexpected. I would call it foolish to not do this. Most times when we have an emergency it is a major life changing event. However, when we have not set ourselves up for success financially to get through these types of events not only do we have a major LIFE crisis, but we also have a MONEY crisis.

This adds tons of unnecessary stress that could have been avoided. The reason why I seem to be harping on the need of an Emergency Fund a lot is for a couple reasons:

1.) It is the 1st step the I advise people to do. So if you wanted to ask me what your first step to financial freedom is I would advise to save up $1,000 (basic) emergency fund or $500 if your income is under $20,000.

2.) The other reason is because I see scripture advising us in this direction. Proverbs 21:20 "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."

It is literally foolish to devour all you have. So if you are living paycheck to paycheck and all your money comes in, then all your money goes out, scripture calls this foolish. This is why my first step is to break the chain and develop an emergency fund.

The Breakthrough Cont'd

If you did not read yesterdays post from Jim Collins' book "Good To Great" please check it out before you continue with this one.

In that illustration (known as the flywheel concept) you are using a ton of force and only moving it a little at a time however at some point the wheel begins to turn on its own and even goes faster with you doing little to no effort.

I think we all want to be there in our finances. I have stated as a goal of mine, I want my alternative income streams to be greater than my expenses. This to me is true financial freedom. How do I do this? First I MUST understand this concept because it changes strategy on what our plan is.

What would happen if you were pushing that flywheel and you got tired and took a break for just a second (or a month when it comes to personal finance). The momentum would be lost and we would be discouraged to have to start over. Not only that, we would not have as much energy as before. If that happens perpetually we would never get to be to the breakthrough point.

This "stopping factor" can come in many different shapes when it comes to personal finances. It could be that emergency that comes up that we didn't have an emergency fund in place to counteract so we could keep building momentum. It could be the realization that it is hard right now and we want it to be easier immediately, instead of looking to the breakthrough point. Or it might be that you are just focused on results right now and give up because you are not seeing any.

Just like with the flywheel when we start we will put in the most effort and get the least amount of results. But getting to the breakthrough point is worth it and in anything you do and this needs to kept in mind.

Practically for any goal you have with your finances this applies. If you are budgeting for the first time it will take the most effort and you will probably make the most mistakes or be the most frustrated than you ever will. It gets easier, I promise. After a little over a full year of actually living on a budget, I am able to accurately, efficiently, and effectively budget my money in a matter of minutes for the upcoming month.

All it takes is getting through the initial max effort min results stages and looking to the breakthrough point.

Is Christmas time here yet?

No, it is not...but it will be.

I love Christmas time; not only is it a cool time to remember Jesus but just to be completely honest I get really excited about getting presents (and giving). Don't get me wrong the Lord and Savior of all creation should be #1 on the list and He is, but that is everyday. On Christmas the only thing that changes is I get presents and I am okay with that.

I think Michael Scott said it best "Christmas is awesome. First of all, you get to spend time with people you love. Secondly, you can get drunk and no one can say anything. Third, you give presents. What's better than giving presents? And fourth, getting presents. So, four things. Not bad for one day. It's really the greatest day of all time."

It quite possibly could be the greatest day of all time, Michael. If you are like me, you like to go all out. And afterwards you end up feeling a lot of pain in your bank account right afterwards. I never want to go through that and do not want you to go through that ever again. The simple solution is this:

Christmas is 129 days away. Right now figure out how much you are going to spend on presents...it's really easy to do just try it. Then put it in your monthly budget and plan for it, in fact if you put it in an www.ingdirect.com account you could get 4.5% interest until you spend it.

Christmas is not an EMERGENCY. It comes the same time every year. Can you imagine how great it would be to get to enjoy all the great things that come with Christmas AND to not have buyers remorse!

"Above and Beyond" Cash Flow

At the risk of this post being "out there," I am going to talk about what I have termed "above and beyond" cash flow.

This is any money you have coming in that is unexpected. It is different than your alternative income stream where you are making money work for you without going into a "job" so to speak (that is a planned income stream). Above and Beyond Money is when you find $20 on the ground, when your annual tax return comes in, or when your Aunt gives you $50 for your birthday. It is irregular income that you know is coming someway, somehow, sometime; you just don't know how, from where, or when.

If you have a detailed cash flow plan and receive above and beyond money you know exactly where that money can be put to good use. If you do not have a plan there is a good chance that money will leave you quickly and this is never a good feeling.

A marketers job is to appeal to your senses and use our psychology against us. So if you suddenly have $1600 that you did not have a plan for, there is a good chance it will be gone and you will be left wondering where it went. I am not trying to tell you what to do with YOUR (cough, God's) money; but I am trying to tell you that whatever you spend it on, you need to do it on purpose.

I believe that if we receive Above and Beyond Money and there is no plan, then it is not going to be a financial help to us. I cannot stress the idea of a planning enough. I love talking about doing fun stuff with your money: investments, generosity, savings for cash purchases, etc. But you HAVE to have a foundation first and one of those foundational blocks is a PLAN.

Gut Check Time

Recently I have been thinking about my principles on personal finances because I am preparing to teach a two week Financial Class on October 21 and 28. (Click contact me if you want more information on this) These are 3 questions that I had to ask myself, that I encourage you to ask yourself to examine your financial health.

1.) Is there anything in my finances that if made public would discredit me?

If your financial records suddenly became public, is there anything you are doing that would make you embarrassed? You know what that is and chances are you need to cut it out of your life. This rings true especially if you are a Christ Follower. It may be your $400+ monthly eating out expense when you say you have a heart for the poor. Money is an indicator of our heart, the tough thing is that it is so easy to keep it private. I encourage you that if there is something in your financial life that if brought to light would be a negative representation of you, to cut it out.

However, this is just a symptom of a bigger issue. If you are not content in every situation in life you will always have these type issues being brought up. Cutting out something of your life is behavior modification and will probably be brought up again. Praying and working on being content because God has given you so much already is the solution. That is not an overnight thing, that takes perseverance and time.

2.) What am I doing right now that will make me be where I want to be financially a year from now?

I know a lot of us say, "we are going to save money when this changes" or perhaps we say, "once that thing goes away I will spend less." Whatever reason (cough, excuse) we might be telling ourselves, the better question is what am I actually doing? Am I making steps to be where I want to be?

One of my goals has always been making my money work for me so I wouldn't HAVE to (I would still WANT to because I love working at what I am passionate about; I would just do it for free now). I want my "alternative income stream" to be larger than my expenses. What I qualify as alternative income is anything that I don't go to a job for. This could be interest earned, dividends, rental income, or any type of income stream that doesn't require me to "go into work for." This is a lot longer than a goal than one that can be achieved a year from now. But I honestly have to ask myself, if this is a goal then what steps am I or have I taken towards it.

3.) Am I increasing in generosity?

It doesn't matter if you follow Christ or not, you have to be increasingly generous. I believe that it is truth that the love of money is a slippery slope that can ruin a persons life. In fact, it is cool that I am writing about this today because I just read 1 Timothy 6 this morning. (Fresh Bread)

1 Timothy 6:9 "People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction."

I believe that God created our hearts and through his divine word he is warning us about money. It is a blessing to have money and in that same chapter (1 Tim 6:17) scripture says that God richly provides us with everything for our enjoyment. Now, right before that is says do not put your hope in wealth but hope in God and they go together. What I am saying is, it is okay to enjoy blessings from God (after tithing, basic needs, and generosity of course) as long as you put your hope in God and not in wealth. I am not using that scripture as justification for being greedy so please don't hear me wrong.

But to get back on track, generosity is key to keeping our hearts in check so that we won't fall into ruin and destruction like 1 Timothy 6:9 talks about.

Those are 3 questions that you can ask yourself that will help examine if you are on track to being financially healthy.

Common Budget Planning Traps to Avoid

In order to ensure success in your cash flow plan I wanted to talk about 4 common traps or mistakes that people fall into which ultimately causes them to "get out of the game" with their finances.

I have been harping on "having a plan" for the past few weeks and those of you that have started making a plan I want to encourage you. Every month you are going to get better at planning. The first month is the hardest, I cannot urge you enough to continue this every month because it is so easy to give up.

Everybody that makes a Cash Flow Plan is not always successful to start. Some do have a natural gift at thinking through each detail and following their plan, but I would say most do not. 4 Common reasons why your Cash Flow Plan may not work:

1) Leaving Things Out

Each month is different. December is going to be much different than June. December has Christmas; June probably has a vacation. March might have a birthday; August your kids need new clothes for school. My point is actually think through your month. Plan it carefully. You have a specific number of money coming in, you have to tell it what to do. That includes mid and long term savings that you set aside each month such as: car, retirement, kids college, etc.

2) Over Complicating Your Plan

You do not NEED to put down $17.22 for toilet paper in a certain month. This is not only tedious and annoying, it is also unnecessary. As an example of what I do is actually lump in my toiletries and groceries together (I usually get them from the same store anyway).

3) Not Actually Doing It

Tell your money where to go instead of wondering where it went. Imagine if a coach did not have a plan for his team; there is a pretty good chance he would not be very successful (and probably fired).

4) Not Actually Living By It.

If that same coach made a plan, but then didn't care if his players actually did what he planned out, they would still not be very successful in this scenario either.

Cash Flow Planning helps avoid living on a crisis by crisis management system. It should not be a surprise when Christmas presents come up or when you need to buy clothes for the kids. These are not what I consider "emergencies." If you want to review my thoughts on emergencies (see Click Here and read the importance of an emergency fund.

Proverbs 21:5 - "The plans of the diligent lead to profit as surely as haste leads to poverty."