President Abraham Lincoln once said, “Give me six hours to chop down a tree, and I’ll spend the first hour sharpening the axe.” Obviously, Lincoln believed in planning and his skill at it no doubt helped save the Union. Are you a planner? Especially with your finances? Ron Blue joins Rob West today to discuss the power of planning.
Ron says there are four truths that Christians should use to guide their financial planning:
1. All of us have limited resources.
2. Consequently, more uses of money are available than money available.
3. Today's decisions determine destiny. (A dollar spent is gone forever and can never be used in the future for anything else.)
4. The longer term the perspective, the better potential for wise decisions.
Most of us are responders rather than planners. We respond to friends, advertising, and our emotions rather than planning our spending. Financial planning is allocating limited financial resources among unlimited alternatives.
BENEFITS OF FINANCIAL PLANNING
When we know for certain what financial resources we have and plan to use them to accomplish God-given goals and objectives, we live in peace and contentment from making order out of chaos. Our frustration in having to choose among overwhelming choices disappears. We are freed from the pressures of the short-term, self-gratifying society around us. We are free to be different.
THE PURPOSE OF FINANCIAL PLANNING
Obviously, the aim of financial planning is to accumulate resources. But that should never be an end in itself. They are accumulated solely for the reason of using them to accomplish some purpose, goal, or objective.
For example, you don't take a vacation or buy a car just to spend money but rather to provide something else such as recreation or transportation.
Ask yourself, “What am I really trying to accomplish?" This question helps to focus the decision on real objectives.
In the short-term, there are basically only five spending objectives; in the long-term, only six. Every spending decision or use of money accomplishes one of these eleven objectives.
5 SHORT-TERM OBJECTIVES OF PLANNING
These are the only short term objectIVES for all income coming into a household. It can be:
1. Given away
2. Spent to support a lifestyle
3. Used for the repayment of debt
4. Used to meet tax obligations
5. Saved (cash-flow margin)
Every spending decision, in the short-term, will fit into one of these five categories.
How your money is allocated among the five categories is determined by just two factors: the commitments you already have and your priorities.
Commitments would be things like housing, utilities, food, insurance, taxes and so on. Your priorities dictate the use of your remaining resources. Many people would state their priorities are giving and saving, but in reality, these uses wind up at the bottom of the priority ladder.
Ron says for many American Christians, lifestyle is their top priority, and second, because of their lifestyle, debt repayment. Taxes would be a third priority because they have no choice; fourth would be saving; and finally, giving.
LONG-TERM OBJECTIVES OF FINANCIAL PLANNING
There are six common long-term objectives to financial planning. These can only be accomplished if we’re living below our means and have our cash-flow margin. That means more money coming in than going out.
That allows us to grow our net worth, not for the sake of big numbers but for the purpose of meeting one of our long-term objectives. They are: 1. Financial independence
2. Providing for family needs, including, college and care for aging parents
3. Paying off debt
4. Major lifestyle changes
5. Major charitable giving
6. Owning your own business
If you can define and quantify these long-term objectives, then you’ll have answered the question: “How much is enough?” You know now what your "finish lines" are.
It’s much like a runner who runs the race until he breaks the tape. Very few runners continue after they’ve broken the tape. Yet in our financial lives, many of us never stop running because we don’t know where the finish line is. We’ve never quantified where we’re headed, and therefore we don’t know when we’ve arrived.
So we have a challenge: We need to determine where we’re going, both in the short-term and in the long-term.
THE FINANCIAL PLANNING PROCESS
The financial planning process has four steps. You need to:
1: Summarize your present situation.
2: Establish your financial goals and objectives.
3: Plan to increase your cash-flow margin.
4: Control your cash flow.
REMEMBER …
In closing. you need to remember three things:
First, there are no independent financial decisions. If you make a decision to use money in any one area, by definition, you have chosen not to use those same resources in the other areas.
Second, the longer term perspective you have, the better the possibility of making a good financial decision now.
And third is the lifetime nature of financial decisions. Whenever money is used, it’s gone forever and can never be used for anything in the future. Once I make a decision either to save or spend, I’ve determined, to some extent, my financial destiny and I’ve indicated what I believe to be most valuable.
On this program, Rob also answers listener questions:
How does a young adult establish and build credit for the first time?
Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to Questions@MoneyWise.org. Also, visit our website at MoneyWise.org where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab on our website or in our app.
