The text has been reprinted with his permission.
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Key Principles
Money is Life Energy – Money is one form of resource that we have available to help us meet our needs. It represents “Life Energy”.
Money represents one of a number of resources – Time, physical work, possessions, skills, and talents represent other resources. Work and School are examples of ways to transform resources from one type to another. The resources we have are the means we are given to take care of our stewardship and we will be held accountable for how well we use them to that effect.
Think for yourself, question “necessary” expenses, avoid “keeping up with the Jones's” – Our society emphasizes consumerism and our role as consumers of the product of industry. We are taught to want more. This is the reason that the model year concept for cars was invented. Anyone else see a problem with this?
We do need things in order to have a happy and productive life. For instance, I wrote my notes on a computer. I photocopied my handouts to create copies for everyone. I researched some of this information on the internet and I drove to church. These activities all required things.
However, there comes a point where things become a burden. The cost of owning an item includes acquisition, maintenance, and disposal, not just acquisition. These costs add up. Items also draw away time and other resources. If they are not worth these resources, they are a burden and should be avoided.
Guidance
Pay Tithing – This is the NUMBER ONE thing I would emphasize. Pay an honest tithe, whatever this means to you (Malachi 3:10). Pay a generous fast offering.
That said, “To pay tithes and offerings while ignoring the balance of Heavenly Father’s advice concerning sound judgment in family finances will probably cause the windows of heaven to stick a little bit.” - Robert L. Simpson May 1982
Counsel with your spouse and older children – Make managing your finances a family affair. Your spouse should be an EQUAL partner. Proposals can be worked out individually but decisions should be made together or not at all. Without spousal support YOU WILL FAIL. Older children should be involved so that they can learn the skills themselves. They might also be able to give valuable insight.
Avoid Debt – There are acceptable forms of debt. Mortgages, Student Loans, and other loans to cover vital needs in times of crisis are all acceptable. However, care should be taken to avoid excesses and to pay down or eliminate even these types of debt as soon as possible. Pay off the most costly debts first. Use a debt reduction calendar if necessary.
Manage your money – Track your expenses, take control of your spending, budget you funds as appropriate to meet your needs without over extending yourself. Set up savings goals and track them. Use methods that work for you. Change them over time as things change and you gain experience.
Build a Reserve – Save up enough money to cover your expenses for AT LEAST 6 months. Due to recent challenges in the economy, many are suggesting that these reserves be increased to at least 8 months, if not 12 months.
Pay yourself for anticipated large expenses – We own our own car. We don't have a car loan on it. However, we still have a car payment. Why? Eventually the car will wear out and need to be replaced. By paying ourselves a car payment now, we will have the money to replace the car with an equivalent or better vehicle without going into debt when that time comes.
Implementation
Reconcile with the past
The first step is to determine where your money is going or where it has gone. There are a number of aspects to this, do what works for you.
Expense Calendar – Create a table with several columns. Each column is an expense category. Every row is either an individual expense or a time period, depending on what works best for you. In the appropriate cell in the table, record the cost amounts for the expense or the time period in question. For instance, if I were to buy $80 groceries on a particular date, I might make a row for the expenditure and put the “$80” in the column for groceries.
Expense notebook – carry in your pocket a notebook and pen. When you spend money, record the date, amount, location, category of the expense and any other information you might feel you need. At the end of the month, lay out each of these expenses into categories and see where your money is going.
Credit Cards – buy everything on your credit card (buy only what you have real money for). Use your credit card statement as record of expenses. Pay it off every month.
Know where you want to go
After you have an idea of where you are, think about where you want to go. Following the advice of the General Authorities is a good start:
Pay off your debt – Recognize what debt is costing you and if the costs exceed what you are getting from other investments, work to reduce it. Use of a debt reduction calendar is a good start for determining how you can do this. Set goals for how much you will pay off and when. Target your most expensive debts first.
Build up a 6-12 month reserve – The general authorities recommend a number of protective measures. For instance, a one year supply of food. This is in the same vein. The idea is to provide a means to weather the hardships of job loss, transition or other economic hardship.
Look towards other goals – Other objectives are worth considering, including home ownership or upgrade, education and vehicle replacement. Look at your family needs and estimate what they will cost to achieve.
Determine how you will get there
“Those who have little, if they are good at managing, must be counted among the rich” - Socrates
Now that you know what you are spending, where it is going and where you want to be, you need to determine how to get there. You need to make conscious decisions to act. You must decide where YOU want your money to actually go. You have a couple of alternatives.
Earn more than you spend – Whatever methods you end up using, aim to have a surplus. You will need to have a surplus to work towards where you want to be. There are several ways to create a surplus, many of them are not exclusively financial. For instance, learning to take care of your personal vehicle can help you reduce or eliminate the amount of money you might pay to professional mechanics.
Use a Budget – This is the simplest way forward. The concept is that you determine how much money you have to deal with, then you divide it into different categories of where you want it to go. The total sum of these categories should be the same or less than your available income. At the end of the budget period, you see how well you did by recording your actual expenses. You then adjust your next budget as needed. Any money left over goes to savings.
Provident Living has an example budget that you can use as a starting point. If you are interested in this approach, and it is a good one to start with, download the budget worksheet and see how well it fits your own. Then, build your own with categories appropriate to your needs and goals.
The Envelope Method – Use different envelopes for different budgetary categories. At the beginning of each period, place your budgetary amount into each envelope. When the money is gone, so is your spending in that category.
Virtual Accounts – Use a ledger for each budget category, creating an account. Money not spend during one period is available for the next. This way, you can track deposits towards larger items. For instance, you may pay your home owner's insurance once a year. If this is say, $360/yr, you could budget $30 a month and track it in a ledger.
Example
In the beginning
Nothing at all – When we were married, I had $12k in a bank account to pay for school and Sandra had $12k in student loans. We had no budget and didn't know where our money was going, only that proceeds from our jobs were exceeded by our expenses. At the same time, our diet consisted primarily of $0.25 boxes of Mac & Cheese. Something had to change.
Paper and Pencil
Expense Calendar – My boss, Chad Rucker, took time to council with me on the subject. He introduced me to the Expense Calendar. We used it to find out where the money was going.
Virtual Accounts – We attempted to budget using a worksheet similar to the one provided on provident living. It didn't work. We felt that we were not seeing any reward for doing well in any particular category. It was as if when we managed to stay below expense in one category, we rewarded that effort by budgeting less of it during the next category. Virtual Accounts helped us solve this problem. The concept is that when we put money in a virtual account and DON'T spend it, the money is available next cycle for use in the same category. Over time, if the expense builds up an excess in the category's virtual account, we reduce the amount going in and still feel rewarded.
Other than budgetary categories, virtual accounts exist to hold funds that are obligated. This includes things like money to pay the credit card bill.
Expense Ledgers – Using ledgers allowed us to track expenses in each virtual account, thus making it easier to show where the money is going an analyze our overall cash flow.
The Computer Age
Spreadsheets – By moving to spreadsheets, we take advantage of the computer's math capabilities to reduce the amount of work needed. Each sheet becomes a ledger. One sheet is used to summarize the information and automatically check the calculations against real account balances.
GNUcash – By creating ledgers for each of the bank accounts and then sub accounts for each of the virtual accounts in the physical accounts, it was even easier to keep the balances of the virtual accounts consistent with reality.
Helper Accounts – By adding an “adjustment” account to each of the physical accounts, money could physically reside in one account but be credited in another. This allowed for better tracking of the true balance of virtual accounts. Ever so often, the balance of all “adjustment” accounts need to be added up as a check against errors. The total of all adjustment accounts must equate to zero.
Other Principles
Luxuries can be necessities – Some things that may seem to be luxuries on the surface can actually be great for your health, sanity and well being. Don't judge something as a needless luxury or be too spend thrifty. Be frugal. Have modest and affordable release valves so that the stresses involved in being financially disciplined don't cause you to make big mistakes here and there. I speak from experience.
Be Happy about paying taxes, sad if you get a refund – A refund means you gave the government an interest free loan.
Don't “create” needless deductions – Take advantage of all deductions and credits you have, but don't go out of your way to create new deductions. This is like paying someone $10 to get $1 in return. Don't do it (or if you really want the same effect, I'll give you the same deal.)
Additional Resources
These are some additional resources that might help in developing your solution.
Non Church Resources:
Your Money or Your Life
Suzie Orman
Church Resources
Provident Living Website
One for the Money: Guide to Family Finance by Marvin J. Ashton
“Happily Living within Our Means” - January 2008 Ensign
“Personal and Family Financial Preparedness” - May 1979 Ensign
“Let Him do it with Simplicity” - Nov 2008 Ensign – Discusses some of the basic needs that we have.
“A Lasting Marriage” - May 1982 Ensign – Robert L. Simpson
“Catching the Vision of Self Reliance” May 1986 Ensign
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