Where to Begin - Net Worth and Income Statement
To start learning about your current financial state, complete a Personal Net Worth Statement. Like a balance sheet for a business, this will help you compare what you own (your assets) to what you owe (your liabilities) to establish your net worth. Put another way; if you were to sell all that you have to pay off all that you owe, would there be money left over.
Next, you'll want to look at where your money comes from and where it to goes. Think of the Income Statement as a snapshot of your plan. Gather all receipts and bills for the month (including taxes, premiums, and savings that are automatically taken from your paycheck), rather than just using your net income. You want to give yourself a clear picture of where your money is going. In this way you can determine if you are spending more than or less than what you are making.
The Net Worth and Income Statements should be reviewed every year at the same time.
How to Improve - Budgeting
Learning to control spending, working on spending less on non-essentials, and understanding your priorities are the main ways a budget will help you steward your income.
How to successfully use a monthly budget:
Debt & Credit
- At the beginning of the month, agree on the amount to be spent.
- Record amounts actually spent for each item through the month.
- At the end of the month, subtract the amount actually spent from the amount budgeted; the goal is that the combined total equal zero (meaning that if you overspend in one area, you should underspend in another area to compensate).
- Keep in mind that one person can be responsible for completing the budget figures – as long as the other person is aware of the budget and exceptions are discussed.
- Hint: You may be surprised by how much you were spending on eating out or how much they are paying annually on interest on credit cards. All those things can add up! These are areas are easy to improve on.
Part of being a good steward of God's gifts means using credit wisely and having a plan for reducing debt. Divide your debt into two categories: good and bad. Good debt helps you achieve better net worth (backed by assets, such as a home, or providing other financial benefits such as the interest being tax deductible). Bad debt (uncollateralized or unsubstantiated, such as unnecessary loans or credit cards) do not provide benefits to your net worth. Pay off this debt as quickly and reasonably as possible.