Tithing and Budgeting

I had a great question come through the blog here as a comment. Josh said:

I always enjoy listening or reading your thoughts on tithing. That being said, have you ever considered teaching a sermon on budgeting or personal finance? Is it assumed that all Christians giving 10% or more of their income have a sense of how to budget their money? Or, does proper budgeting just happen once you take the 10% right off of the top? Thanks for your time and thoughts.

It’s hard to preach a message on budgeting because there really isn’t a passage in the Bible on the topic. There are principles in the Bible, but most of the financial principles in the Bible focus on ideas like generosity, saving, avoiding greed, and putting in a hard day’s work.
However, I would like to put down a few comments here to point you in the right direction when it comes to setting up a personal budget.
If you are looking for some resources on personal finance that I can recommend, try these:

• http://www.youneedabudget.com/ — This site sells budgeting software that works on the same principles as my own philosophy on budgeting. In fact, their “Four Step Method” is almost exactly what forms the foundation of my personal budget.
• Dave Ramsey’s Every Dollar system is also something that I can recommend. His entire approach to finances is worth a look as well, and if you are interested in taking his Financial Peace University, I’m qualified to teach it, so you can get some friends, tap me on the shoulder, and we will go through it whenever we can get enough people to make it worth our time.
• http://www.crown.org/ — This site is the home of Crown Financial Ministries and is the number one site for biblical teaching on finances. If you want to know what the Bible says about money, that is the main site you need to visit. They have a number of books and training programs, and I’m also qualified to teach their financial curriculum, so if you like that more than Dave Ramsey’s stuff and if you want to have a more challenging but more rewarding experience, tap me to do that one instead.

Budgeting Fundamentals

The main three rules of budgeting are these:

• Start with a clear understanding of your goals, needs, wants, and resources.
• Give every dollar a job when it comes in.
• Don’t let a dollar take a new job until after it quits its old job.

Clear Understanding

The way most budgets work is actually backward. You sit down with some type of budgeting software, you tell it how much money you make, it helps you set up some arbitrary set of categories, then during the month, you spend your money willy nilly and the budget software tracks your spending. At the end of the month, you look at your budget to find that nothing was right and kick yourself for “not staying on a budget.”
In that system you don’t pay attention to the purpose of any individual dollar until you spend it, or in the case we just considered, after you spent it! That’s backwards.
The problem is that you can’t give your dollars a job unless you know what jobs need to be done and how many dollars it will take to get that job done.
So we start with a plan of self-assessment.
Follow these steps (they will be time-consuming):

1. For one month, keep every single receipt from every single penny that you spend and every single penny you get. It’s not enough to know you spent $43.57 at Walmart. You need to keep the actual receipt. If you pay bills online, you need to print up your statement or your invoice. If you don’t get a paper pay stub, you will need to print that up too. Yes, you will kill a few trees, but we are going to be really thorough for one month. PUT ALL THIS PAPER IN A SHOEBOX OR FILE FOLDER.
2. At the end of the month, set aside 2 hours to sort all your expenses by date and to go through every single line item giving every single expense a category name (Groceries, Car Maintenance, Candy, Restaurant Lunch, Family Dinner Out). As you go, use a spreadsheet or just a pad of paper to keep track of your total spending by category. Why can’t you use a budgeting software? Well, because those things only work on the total number at the bottom of the receipts, and I want you to put some mental energy toward understanding how that bottom number came about. AT THIS POINT, IT’S OKAY TO HAVE 20-30 CATEGORIES.
3. At the end of the month, spend a few more minutes going through all of your income for the month. What did you get paid; what came out of your paycheck; what of the withholding was voluntary (retirement, insurance, that extra amount you withhold so you get a tax refund). TOTAL UP YOUR ENTIRE GROSS INCOME, YOUR TAX WITHHOLDINGS, AND YOUR VOLUNTARY WITHHOLDINGS.

When you have done all this, take some time to pray and ask God to help you understand what the numbers all mean for you. Ask Him to give you wisdom as you set up your budget, and then get a good night’s sleep.
The next day, ignore all the numbers, but look at all the categories and rank them in order of priority. Don’t rank them in terms of how important it is for you to pay the bill, but for how valuable that service is to you. For example, your cable bill might look like a necessity because the bill comes and you have to pay it, but put cable next to electricity, and it’s easy to see which one is more important to you and/or your family.
Once you know what your month spending actually was, and once you have thought through your personal priorities and family goals (e.g. how important is healthy eating to you), then you are ready to take the next step.

Giving Dollars a Job

Back in the days when dollars were physical objects that lived in your house, families would employ something called the “Envelope Method” of budgeting. That is, they would physically cloister their different dollars into different envelopes with labels on the envelope describing what those dollars were supposed to do.
That archaic notion was not only a very pragmatic way of budgeting, but it was also an incredibly liberating way to budget. Assuming you had done all the planning properly, when the dollars came in, you would put them in the proper budget, and then when a need came up, you would go to the proper envelope and the money would be right there waiting for you. If you had an envelope for entertainment and you wanted to see a movie, you only had to go to the entertainment envelope and see how much money was in there. If there was enough for a movie, you were free to spend that money with no guilt or worry that you were going to ruin something else in your budget. Every dollar having a job means that every dollar is free to do its job without fear that anything else will be affected.
How do you do it in today’s world with electronic money? Well, you have three options:

• Actually go back to using cash. Yes, you can still buy things with cash these days.
• Create multiple checking accounts and use each account like an envelope.
• Use some software to track “virtual envelopes” (the programs I recommended above do that) and make a commitment to actually use it.

If you are just getting started, you really need to adopt the cash method for at least a couple months. Use checks (not credit cards, you are trying to convince yourself that you are using real money) for bills, but use cash for everything else.
Whether you use real envelopes, accounts, or virtual envelopes, I’ll be using the word envelope from here on out.
To get started using an envelope system, you need to do the following steps:

• At the beginning of the month (many bills are monthly, so that’s why I recommend monthly budgets), look at all your categories and try to condense them into 10-15 main category envelopes. You can adjust the envelopes next month, so don’t fret so much about them. In my family, we have envelopes for things like utilities, education expenses, house expenses, and car expenses, but we don’t have envelopes for entertainment, eating out, groceries, or cleaning supplies. Instead, we have an envelope for Jeff and one for Jen. Jen is responsible for groceries, cleaning supplies, and miscellaneous household items. I am responsible for family entertainment, restaurant expenses, and electronics purchases. You want to have a small enough number of envelopes so that you can have them all in your head and so that when an expense arises, you know instantly which envelope holds the dollars for that expense.
• Write your envelope names in a single column down a piece of paper.
• At the top of the paper, put four blanks and label them: Income, Taxes, Tithe (you might have an envelope for donations, but if you have read my other blogs here, you know that the tithe is something that should come out of your hands at the earliest possible time), and Mine to Manage.
• On the Income line, write your MONTHLY GROSS INCOME. Note, if you get paid every other week, you will sometimes get three paychecks in a month, but most months you will only get two. In those cases, your monthly gross income is one paycheck times 26 paychecks in a year divided by 12 months. If you get paid a fluctuating amount each month, make a low-end ballpark estimate based on your average month’s gross income.
• On the Taxes line, write your MONTHLY TAX WITHHOLDING. See the previous bullet point to figure out your monthly amount if you get paid biweekly or have a fluctuating paycheck.
• On the Tithe line, PUT SOMETHING DOWN. If you have been following my blog, you know that the word tithe means tenth, so for my family, that would be 10% of my GROSS INCOME. But this is your budget and you need to put a number there that is in line with your own convictions and your own measure of faith in God. However, let me encourage you to make it a percentage that you keep consistent regardless of the changes in your income, and to decide on that percentage first before you do the rest of your budget. Also, let me further encourage you to go ahead an put a 10% number in that line. Just do it, and prayerfully ask God to help you figure out the rest of the budget.
• Now, take your GROSS MONTHLY INCOME and subtract your MONTHLY TAXES and your MONTHLY TITHE, and fill in the MINE TO MANAGE line. That line is the amount that I’m convinced God wants you to manage well… that line is the line reflecting the amount of money that God is giving to you to use however you wish, and that line is the line that if you use it well, I’m convinced God will be more likely to trust you with more in the future.
• Finally, work diligently to fill out the rest of your envelope lines. This is where you actually have to decide if you need to spend $120 each month on cable or $200 each month on your cell phone. This is where you actually have to decide if you should still be living on your own or if you should get a roommate. This is where you have to decide if you should continue to pay your car loan or sell it off and get a junky used one for a few years.

If you have made it this far through the process, you actually have a pretty good budget in place, but it is still only imaginary. What you need to do now is to take the money you actually have and assign every dollar you own to a specific envelope. Each envelope, like a different account will get money put into it, and you need to know the total amount in each envelope.
Then, for the rest of the month, when you get a paycheck, you need to actually give away the tithe and then make deposits into all your envelopes. This is when you tell an individual dollar what its job is going to be.

Make Dollars do their Jobs

Finally, for the rest of the month, whenever you want to use any money for any reason whatsoever, you need to first check the envelope to see if money is in there. If there is money in the envelope, you can use it for it’s purpose. If there is no money in that envelope, well, you don’t have any dollars that know how to do the job you want to get done. You either need to take a dollar off its current job to reassign it, or you need to wait until some new dollars come in.
You can use any method you want to keep track of all this, but the bottom line principle remains the same no matter what system you use to track it. Here it is in a nutshell. You decide what you will use your money for before you spend it, and you set up a system so that you never need to make a spur-of-the-moment decision again. The decisions are made when you plan and not when you spend.

 That’s it!

Let me know how it works for you!