The Importance of Financial Margin

FaithFi: Faith & Finance | Jul 25, 2024

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Show Notes

Margin is one of those important things in life that we often take for granted … and that can lead to trouble.

Margin basically means “something extra.” A little extra time or even distance from the car in front of you. It’s critical, especially with your finances. I’ll talk about financial margin today.

Applying Margin to Personal Finances

When you think of "margin," you might associate it with the business term "profit margin." This concept is crucial in business, as it determines a company's profit after all expenses. Every step of bringing a product to market involves multiple entities—manufacturers, salespeople, transporters, and retailers—all needing to make a profit. The margin each entity needs can vary widely depending on the product, competition, market size, and sales volume.

For example, in business, margin in personal finances means having something left over after meeting all your obligations. This isn't just about money but also about time and energy. After fulfilling job duties, family commitments, household chores, and church obligations, it's essential to have time and energy left to recharge and spend with God.

Financial margin means having extra funds for unexpected expenses, like emergencies, medical bills, or helping others when God prompts you. Achieving this requires living on a budget or spending plan, which helps you decide in advance where your money will go.

The Four Uses of Money

There are only four things you can do with money:

Live on it.
Give it away.
Owe it to someone.
Grow it.

A budget helps you allocate your money into these four categories in advance, unlike balancing a checkbook, which only shows where your money went.

Creating a Budget for Financial Margin

Using a budget is critical to creating financial margin. It allows you to plan your spending and ensure you have money left over at the end of the month. If you have more month left than money, you'll need to make changes—either by increasing your income or reducing your expenses. The goal is to live on less than you make, avoiding debt and saving for the future.

The FaithFi app is an excellent tool for setting up your budget. It uses the envelope system and offers three ways to create a budget, making the process simple. By planning out your spending decisions, you can ensure you have financial margin.

Benefits of Financial Margin

You may also have more physical and emotional margin when you achieve financial margin. You'll sleep better, feel more relaxed, and be better able to use your spiritual gifts to serve God and help others.

Margin is essential in both business and personal finances. By living on a budget and creating financial margin, you'll be prepared for unexpected expenses and able to live a more balanced, fulfilling life. Remember, having margin isn't just about money—it's also about having time and energy to spend with God and your loved ones.

On Today’s Program, Rob Answers Listener Questions:

Are schools required to offer a Roth 401k option for their employees, or is it optional? I would like to know if I can put money into a Roth IRA since my employer only offers a traditional 401k.
How are the distributions from grandparent-owned 529 plans treated concerning financial aid? Is this changing soon? What annual gift limits can I give my adult children each year without affecting my taxes or theirs?
Where should I invest some of my savings to get a higher rate of return? As retired seniors, my wife and I want to take on only a few risks, but we wanted to know if there was a local financial advisor or CPA we could talk to about our options.
What should I do with some substantial savings I have set aside as an emergency fund? I’m getting a meager interest rate, less than 1%, on the savings. I wanted advice on whether I should keep them in savings or if there was a way to get a higher rate of return.
What should I do with my 401k as I approach retirement age? I will be turning 59 and a half soon and have a portable pension. Would putting it into a backdoor IRA make sense, or should I talk to a financial advisor to help me plan for retirement since I want to retire at age 62?
Would paying off the $500 left on my truck payment be okay since I have enough in my emergency fund?

Resources Mentioned:

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