Sen$eworthy #2

by Pauline Blanton

Unfortunately, as we go through life, we will encounter trouble. I heard someone once say that we’re either in a problem, headed for a problem, or just coming out of a problem! Jesus never promised us a bed of roses (and even if He had, most roses have thorns)! In fact, He made it clear that trials and persecution would come. Sometimes problems and trials don’t involve money, but sometimes they do. Proverbs 22:3 says, “A prudent man sees danger and takes refuge, but the simple keep going and suffer for it.” How does this relate to problems involving money? The way a prudent man takes refuge in the area of finances is to put some of his money aside for the future and/or unexpected trouble. Conversely, the simple go ahead and spend it all and if it isn’t enough, they put the rest on credit! When the unexpected situation arises, he has nothing in reserve to draw from, and the only resort is to borrow even more, creating a negative compounding effect against his future.

Setting aside a portion of what we earn for savings and investing is prudent. Initially, these funds should be used to create an emergency reserve (only used to cover our basic needs in the absence of regular income; a new boat does not constitute an emergency!) The emergency reserve should be at least three months of living expenses, and depending on the situation, perhaps six months or maybe more. For example, if your income is seasonal, and you make 80% of your annual income in the summer, then a much larger emergency reserve is probably in order. Once your emergency fund is established, savings can be ear-marked for specific short and long term goals, such as vacations and retirement.

Another (often overlooked ) savings component needs to be the reserving of money toward non-monthly expenses, such as car repairs, annual or semi-annual bills like or i.e.such as insurance or taxes, and other bills that will inevitably occur but aren’t part of the weekly or monthly routine.

To get a sense of whether you are saving enough and adequately prepared for the non-routine but inevitable expenses, look back to see how much you have historically spent on things like car and home repair, how much are your insurance and taxes when divided by the number of months covered, etc. If you are inexperienced due to not having been on your own very long, look for a trusted advisor (perhaps a parent or other older, financially solvent mentor) to help you determine appropriate budgeting for these types of expenses.

Our second To Do: Use your calendar from To Do #1 to begin developing a monthly spending plan. Begin including non-routine, inevitable expenses, and also savings to form an emergency fund and/or short and long term goal funds (if emergency fund is already established). Categorize expenditures, such as Housing, Transportation, Groceries, Debts (if any), Savings, Entertainment, etc. Housing should include rent or house payment, utilities, property taxes, etc., Transportation should include car payments, oil/gas expenses, repairs, insurance, and Entertainment should include eating out, vacation reserves, etc. Design your plan to fit you, but be consistent over time. Revisions will be necessary as you focus more carefully on where your money is going and the needs and goals of your household. Since savings is one of your “expense” categories, all income should be designated so that total income equals total “expenses”. Our focus next time will be on the most important category of all…can you guess what it is?