5 Pillars of Christian Financial Planning
You need to budget — most financial experts would say — and save money, pay off debt, and invest in order to be successful with your finances. Managing your finances involves balancing a lot of moving parts. How do you make it all work?
Money has a unique way of controlling our thoughts, relationships, and our lives. Keeping money in the right perspective can be helpful for anyone, especially for those of us who are Christian.
Understanding that God Owns It All
God owns it all - this statement isn’t always well received, but if you’re Christian, scripture clearly reminds us… "The earth is the Lord’s and the fullness thereof," wrote King David in Psalm 24:1-2, "the world and those who dwell therein, for he has founded it upon the seas and established it upon the rivers."
As creator and ruler of heaven and earth, God owns everything.
Every spending decision is a spiritual decision. Ask yourself if your purchasing aligns with your values and what God would have you do with your money. Afterall, we are simply managers of His resources. To be intentional with our money, often means budgeting for future goals and expenses, as well as present needs.
Understanding that we are merely stewards of these resources and that God owns it all, can help us reorder our spending decisions, and challenge the amount of power that money has over us. Since we are not God — not sovereign, omnipotent, or omniscient — we don't know the future. We can only trust God to guide and sustain us - not the amount of money in our bank account.
With that in mind, let's explore five principles of Christian financial planning. These financial principles come from the bible and can work regardless of your beliefs.
Principle #1 — Spend Less Than You Earn
(Proverbs 21:20)
Christian financial advisors, along with most other financial advisors, encourage their clients to spend less than they earn. One of the oldest tools to help you do this is a budget. Advisors often encourage clients to have a budget (or a “spending plan,” as we like to call it) for several reasons, including:
If you don’t know how you are currently spending your money, it can be hard to plan for the future. In order to identify where you want to make a change you need to first know where it’s all going. Not to mention, the largest expense in retirement is living expenses; planning for retirement without knowing how much you need to live can be nearly impossible.
Sometimes people who don't live on a budget can find themselves in debt without realizing it. Spending less means that you are able to avoid debt and take care of your other financial responsibilities first.
Online tools, apps, or even a yellow pad can make it easier to track your spending habits. This way you're not caught by surprise at the end of the month when your bills arrive.
Using cash rather than credit cards, checks, or online payments can actually help you spend less. People often spend more money when using plastic; someone could buy $50 worth of groceries but still feel like they haven't spent anything because there's no receipt, money exchange, or money taken out of an account. Having a budget may help you identify certain areas where using cash is a good idea.
It also helps to practice living within one's means and not carrying high levels of debt from one month to the next. It’s a good idea to develop a spending plan based on income and expenses (and creating categories for where money should be allocated). The number of categories or complexity is up to you. It should be a spending plan that is meaningful for you and how you spend your money. Developing a budget may seem daunting initially but sticking with it over time will help develop good habits that will benefit you in the long run.
Spending decisions are spiritual decisions. When you build your spending plan, spend time in prayer. Ask Him to give you wisdom about how to handle your finances throughout the month.
Before making any major purchases, prayerfully consider whether those purchases fit into God's plan for you and your family.
As you build your spending plan, don’t forget about savings. Commit to putting a percentage of all new income into savings as soon as possible. Having savings set aside will provide peace of mind when emergencies arise or you want/need something unexpected. You'll never regret your choice if you save up for a purchase instead of buying something on credit just to have it right now.
Getting more bang for your buck is simply smart economics — whether it applies to food, clothes, cars, homes, or vacations. Spending wisely can create lasting abundance while taking care of both current and future expenses.
Principle #2 — Avoid the Burden of Debt
(Proverbs 22:7)
"The wicked borrow and do not repay, but the righteous give generously." (Psalm 37:21)
Approximately 77% of American households carry debt with the average debt per adult standing at $58,604. Student loans, auto loans, credit cards, and mortgages account for the majority of this debt.
Debt and the accompanying interest, penalties, and fees can quickly become a heavy burden to bear. Debt and its resultant burdens can not only be detrimental to the physical, emotional, social, spiritual, and mental health of an individual or family but can also force you into bankruptcy due to non-payment.
Taking on debt means making an assumption about the future - the assumption that you will be able to repay.
Debt can be a very dangerous thing if you find yourself unable to pay. If you're tempted not to make that month’s payment - don't give in! You won't be doing your future self any favors. Revisit your budget and figure out where else you can cut back. If you are in a repayment phase, realize that it may be difficult at first, but make sure you keep up with the process until those debts are paid off. Then work on keeping them from coming back again.
The best way to avoid debt is to adopt a pay-yourself-first mentality when budgeting your finances. Save for your goals in advance; if you know you’re going to need a car in 2 years start saving now. If you budget for your needs such as gas and groceries before paying anything else then you will not likely be strapped for cash.
Principle #3 — Build Financial Reserves and Liquidity
(Proverbs 6:6-8)
This principle supports saving for the future with a focus on liquidity and preventing financial hardships by building a rainy day fund. The Bible says in Proverbs 21:20, "There is treasure to be desired and oil in the dwelling of the wise; but a foolish man squanders his wealth."
A good rule of thumb is to keep 3-6 months of living expenses in a savings or money market account. These are funds that you may quickly access if the washing machine breaks or you unexpectedly lose your job. For more long-term future expenses, consider investing 10-15% of your household income into retirement accounts. If you have children, you might consider creating and funding educational savings accounts.
We should save and invest so that if, and when, unexpected things happen, we are prepared — not so that we can be greedy or presume upon the future. The Bible says in I Timothy 6:17-19, "Command those who are rich in this present world not to be haughty, nor to trust in uncertain riches but in the living God, who gives us richly all things to enjoy. They are to do good, to be rich in good works, generous, and ready to share, thus storing up treasure for themselves as a good foundation for the future, so that they may take hold of that which is truly life." In Ecclesiastes 11:2 we are reminded of the importance of diversifying. Consider investing in way that reflects humility and across multiple asset types, companies, and countries.
Principle #4 — Give Generously
Give generously. There is a difference between tithing, which often means giving a percentage of our income to the church and being generous with how we use our money.
Are we holding too tightly to our money, when there are kingdom purposes or needs directly in front of us? Are we in a position to be generous towards those who are close to us? How do our friends and family see us using our money?
Giving to mission-driven charities is a powerful way to make a difference in the world. Choose an organization that helps solve a problem you feel strongly about. Ask God to open your eyes and heart to a current need or charity. Research an organization's impact and stewardship reports. Then consider giving to the causes you believe in.
We may never stop trying to grow financially, but we should also realize that many people live on far less than we do. The U.S. Census Bureau estimates that 37 million Americans live in poverty, and around the world, one out of every ten people lives on less than $1.90 per day. As people of faith, we are called to use our resources to make a difference for people who are struggling or may have less then us.
Don't forget you can be generous with yourself as well. You are, after all, a person with a mind, spirit, and physical body that all need attention. Work hard and rest well so that you are healthy both physically and spiritually. What would happen if you didn't take time off? How would it affect your relationships? Would you lose sight of the fact that there's more to life than what you do every day?
Principle #5 — Think and Plan Long-Term
(Proverbs 16:9)
To be successful with your money you’ll likely want to look past what's happening today. At Cooke Wealth Management, we often say you can't make wise financial decisions in a vacuum. What you choose to do with your money now will likely impact the future.
So instead, look at the life you want now and well into the future, recognize that it won't always be easy or straightforward (God may even choose to modify your desires at some point). Then determine and act on a plan that can help get you there.
The Bible provides ample guidance on how Christians should approach their finances:
Trust in the Lord with all your heart.
Lean not on your own understanding.
In all your ways acknowledge Him.
He will direct your paths. (Proverbs 3:5-6)
People with a lifetime commitment to Christ have the responsibility to be intentional with their money, but they also have the blessing of confidence in God's plan. While we need to give God the freedom to modify our own plans, it’s still a good idea to focus on short-term and long-term spending, savings, and investing. Keeping biblical stewardship in mind, it makes sense to focus on investments that will support you into retirement, but also beyond, enabling you to leave more behind for your spouse, descendants, and/or the kingdom of God.
It has been said, “if you aim at nothing you will hit it every time.” Take the time to plan for your future. If you would like to talk with a Christian wealth management professional about how you can provide for yourself, and your family give us a call today. We'd love to set up an appointment with you and discover how we can help.