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Sound Mind Investing

The Single Most Powerful Personal Finance Tool

By Matt Bell
for Sound Mind Investing


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

If you had access to a tool that would give you a strong sense of control over your finances and help keep your financial stress low, wouldn’t you use it?

If you had access to a tool that would serve as a financial roadmap, showing you clearly how to live within your means, be generous, and save or invest for future goals, wouldn’t you use it?

And if you had access to a tool that would help create a sense of financial teamwork and trust in your marriage, wouldn’t you use it?

What is this magical tool? Why, of course, it’s the lowly, much maligned, much misunderstood budget – or, as I prefer, Cash Flow Plan.

What Wealthy People Know

When some people think of a budget, they think only certain types need one. People with lots of debt. People with a low income. The wealthy? No way, or so they think.

In fact, one of the most interesting findings from the classic book, “The Millionaire Next Door,” is that over half of all millionaire households use a budget to guide their finances.

As authors Thomas Stanley and Wiliam Danko explain, “Planning and controlling consumption are key factors underlying wealth accumulation…Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”

Succeeding to Plan is Planning to Succeed

Haven’t ever used a Cash Flow Plan? You could start today.

I walk through the four steps to setting up and using a Cash Flow Planin the Budget Quick Start Guide that’s available for free, so I’m not going to repeat them here. You’ll find our Recommended Spending Guidelines at the same link as well, which will help you develop your plan.

The Guidelines cover four different size households (1-, 2-, 3-, and 4-person households) and nine different incomes, ranging from $30,000 to $150,000. Just find the one that most closely resembles your circumstances.

You’ll see that these are ideal plans, meaning they assume no debt other than a reasonable mortgage (werecommend devoting no more than 25 percent of your household’s monthly gross income to the combination of your mortgage, property taxes, and homeowner’s insurance).

If you have other debts, you’ll have to adjust your spending in other categories to allow for the debt payments.

But, But, But…

Whenever someone comes to me with a financial dilemma – they’re deep in debt, can’t find any money to save, can’t stop fighting about money with their spouse – I always ask whether they’re using a Cash FlowPlan to guide their household’s finances. The vast majority of the time, the answer is no.

And the “no” is often accompanied by a quizzical look as if I didn’t understand the question. “But what I was really asking…”

I did understand. It’s just that I need more information. Objective, factual information.

To be sure, there’s a ton of emotional stuff involved in managing money – temperaments, moods, stressful circumstances, the emotional imagery used in advertising. We often get in trouble with money when emotion overrides logic.

A well-designed Cash Flow Plan gives us the logical, factual information we need to live within our means, be generous, save and invest, avoid debt, and spend smart. Assuming there’s enough income to meet basic needs, that’s true for every income level and household size.

And, while I don’t like to whack people over the head with the Bible or guilt them into action, as stewards of God’s resources, shouldn’t we be proactively, knowledgably managing His resources? A Cash Flow Plan is the essential tool for doing that.

Are You the Budget Type?

I firmly believe everyone would benefit from the use of a Cash Flow Plan. Rich or poor, young or old, single or married. Everyone.

It isn’t drudgery, and it isn’t something you go on like a diet. It’s simply the single most powerful tool available for successful money management. Why not start putting this tool to work in your life today?

 

 

 

Matt Bell is the Associate Editor of Sound Mind Investing, the best-selling investment newsletter written from a biblical perspective. SMI wants people to have more so they can provide well for their families and generously support God’s work.

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