Dr. Bill Kirkemo, Financial Literacy Advisor at the NTS CPL, recently spoke on campus about how to avoid debt. Below is the first in a series of three blogs addressing this thorny issue.


Have a Realistic Budget  

Ministerial debt is often a significant burden on the minister. Whether it is school loan debt, credit card debt, or consumer debt, many Americans feel like debt is simply a way of life and have little realistic hope of ever completely getting out of debt. However, we are often overwhelmed with the “Big Picture” to such an extent we become paralyzed to act. This is especially true when it comes to finances. While the “Big Picture” of total debt may seem overwhelming, the truth is we always have to take small steps to begin getting rid of big problems. Here are three “small” but essential steps you can take to start getting rid of debt.

Step #1: Have a realistic budget. Why and how do you develop a personal budget? As for the “why,” having a personal budget is the key to planning for how you will be a good steward of the financial resources God has entrusted to you.

As for the “how,” you need to have the correct raw data from which to work. Starting with income, you need to gather together all the sources of money coming into your life. These include pay stubs and bank statements that show your account balances and any interest income you are earning. Factor in any tax refunds you may get on a regular basis, bonuses at work, side jobs you may have.

Second, move to expenses. Now, this can be the very depressing part, for your list of expenses will always be much longer than your list of income. Another challenge is that while your income is fairly regular on either a monthly or bi-weekly basis, your expenses are usually daily. A distortion can grow here, when you spend money daily but only get money in every other week. The daily expenses will always seem smaller and more insignificant than that big paycheck you get. However, those daily dribble expenses can really add up.

When you are gathering your expenses, in order to make this the most realistic budget you can, you need to track your actual expenses for a month. It may sound like a pain and trivial, but keep a notebook with you each day and write down every expense you have. A lot of budgets look good on paper but are not realistic because they only handle the bills that come in the mail or the big expenses. Many people do not have a “daily snack” line in the budget, even though they buy a coffee each day and an afternoon snack at the vending machine. Again, these “daily dribbles” can really add up!

So, to the best of your ability, come up with a realistic figure for your monthly income. And to the best of your ability, from this 30 day record of actual expenses as well as factoring in periodic and annual expenses, create a realistic and actual figure for your monthly expenses.

Now, take these monthly figures, multiply them all by 12 and come up with an annual budget. Once you have this worksheet completed, you have accomplished a task few Americans have. And you have one of the key tools that will help you be responsible with the gifts God has entrusted to you. Depending on which study you look at, the numbers will vary, but according to one I found half of the Americans polled were spending more than they were making. Of these, 36% are dipping into savings for the difference, 22% are putting the difference on their credit cards, and 8% are borrowing money in other ways (friends, family, payday loans). And only half of households surveyed had a written budget. (Rasmussen for Country Financial, May 2012)

It will take time, effort, and energy, but the first step to getting rid of debt in your life is to have a realistic budget. However, if you will take this small step it will help you greatly with the big step of getting rid of your debt once and for all and gaining financial freedom.