I am not a financial guru. I am not independently wealthy. We do fine and are rich by the world’s standards, but not by North Fulton County in Georgia standards.
Approaching finances in a simpler way is one of the key pillars to having a more simple, focused family and being able to engage more deeply in faith and other areas. In my experience, having a clearer financial picture also has health benefits and personal growth benefits.
What is ‘Simple Finance’?
Simple finance has five basic tenets:
- Have a short budget
- Have as few bills going out as possible
- Save a percentage every month
- Give a percentage every month
- Use cash
Have A Short Budget
I’m guilty of Excel abuse. My budgets have had sections and subsections and sub-subsections. I’ve broken down clothing with a line item per child. I’ve broken down medical expenses into vision, dental, doctors’ visits, medications, and insurance.
The budget becomes so cumbersome that I have an emotional reaction against using it. I’ll set it, but then I won’t monitor my spending by it. There’s a master spreadsheet with each line item corresponding to additional worksheets. In some ways it’s a thing of beauty. In other ways, it’s a mess.
Simple finance keeps the budget short. The budget should be an easily used tool, not an overly complicated puzzle.
Have as Few Bills Going out as Possible
We recently paid off all of our credit card debt in one fell swoop. Immediately, the number of auto-drafts out of my checking account was cut in half.
The freedom from debt is powerful, but the reduction in the number of bills has some powerful benefits, too. There are less opportunities to miss a payment or stress about having money in the right place at the right time. It seems small, but it’s huge.
My next goal: pay life insurance once a year, and my auto insurance as soon as my bill comes for each 6-month renewal.
Save a Percentage Every Month
I love what North Point Community Church pastor Andy Stanley says about living off of a percentage of our income. We’ll either live off 100% or even more (i.e. debt driven living) or less than 100%.
It’s powerful to be able to select to live off an increasingly smaller percentage of your take home pay. Having a percentage committed to savings every month is one part of this process.
Simple finance is a commitment to taking a small percentage off the top, regardless of your situation, and putting it in savings. If you have to start at 1% or 1/2%, just start.
Give a Percentage Every Month
This is the other piece of the ‘Select the percentage you’ll live off’ equation.
I’m an old-schooler in this regard. I believe a 10% goal is a great goal to shoot for. This isn’t law. It’s a guide and a principle. There’ve been time periods that I’ve just had to commit to a smaller percentage, but the discipline, even during lean times, has been one area that has helped me keep my wits together.
It also is a huge step of faith: If you commit to give that 10%, then there’s trust that needs really will be taken care of.
The simpler and shorter the budget, the easier to use cash. Take a chunk out to manage the house and be done with it.
Again, the fewer the pieces of plastic, the easier and less complicated all the way down the line. Even debit cards can get out of control. Not that I’ve ever experienced this phenomenon.
**This is a huge point for us. We want to move in this direction, but it’s a struggle. Debit cards are so dang convenient!
In the end, though, why even worry about it? There are a few basic reasons why I think it’s important. I mentioned them earlier, but I’ll sum up here and let you go:
- Less Stress: The fewer moving parts around personal finances, the less stress you have. I think you can’t underestimate that. Obviously, if you acquire wealth and have a variety of investments or business ventures, things get complicated. Still, if there’s simplicity in personal finances, then there’s always a sense of security.
- Family Security: When there’s no debt and life can be lived on a smaller percentage of the income, then there’s a sense of security for spouses and children. A corollary is that fewer moving parts makes for fewer opportunities to make dumb accounting mistakes.
- Contribution: Less debt, more savings, and move giving allows a family to be more generous when opportunities arise.
- Freedom: A simpler approach to personal finances gives a sense of freedom. There are fewer entities (banks, credit card provides, others) who have a hand out for their piece of your pie. How freeing is it not to be a slave to a lender?
Thus ends my opinion regarding personal finance. It’s been informed by folks like Dave Ramsey and Adam Baker and Kevin Cross. And having in the past been deeply in debt and being currently out of credit card debt, I can testify that the weight lifted is huge.
Who do you listen to regarding your finances?
Do you try to play personal financial shell games or take a straight-forward approach?
What are some principles that have worked for you?
Bibliography & Resources
- Click on the names listed above for some website resources
- The Total Money Makeover: A Proven Plan for Financial Fitness
- The 12-Step Get-Out-of-Debt Program
- Mint – A great iphone and web application for money management
- Get Rich Slowly (Personal Finance Blog)