Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. (1 Tim. 6:17-18)

Tuesday, July 26, 2011

Relax in a place...(Part 2)

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Relax In A Place... Let's Review

In my last post, Relax in a place...(Part 1), we looked at this phrase used by Dave Ramsey on his radio show and Financial Peace University. When you have your "financial stuff together," there is definitely a sense of relaxed peace that descends into your life!

In my first post, I wrote on three immediate areas of being able to relax in your finances, areas such as making purchases and paying bills, giving back to God, and planning for emergencies and future purchases. In this post, we will look at the five step process that we need to go through in order to get us closer to be able to relax in our financial life.

The Process of Relaxation

In order to get to the place where you can chill about money, you need to go through a process. First, you need to assess where you're currently at, financially. How much money do you have in the bank? How much debt do you have? Are you behind on any of your bills? Before you can move on to the next steps, you need to have an accurate picture of where you're at exactly with your money.

Second, you need to establish a regular, monthly budget. I know the term "budget" scares a lot of people, but all it is, is a spending plan for your money for the time period of one month. Through a detailed spending plan, you're going to make your money work harder and last longer by assigning a name to every dollar - names like "giving," "savings," "groceries," and "cable." When you actually sit down and go through this process, then you are able to discover areas in which you can scale back or eliminate completely. For some of these categories, I would seriously consider going to the cash envelope system, especially in the areas where you may have a tendency to overspend, like groceries, eating out, entertainment, and clothing.

Third, once you have established your monthly spending plan, then you need to squeeze every available extra dollar out of that budget, and set it aside for a baby emergency fund. Ideally, your beginning emergency fund needs to be $1,000. This is a good starter fund to help cover financial emergencies such as car breakdowns or other unexpected household repairs.

Fourth, once you have $1,000 in the bank for emergencies, then you need to work your debt snowball. The debt snowball is simply listing all your debts smallest to largest. Then, using your monthly cash flow plan, you squeeze every available dollar into your debt snowball and start paying off all your debt as quickly as possible. Obviously, this is a longer-term, multiple-month plan that you will have to consider as you work on your cash flow plan each month.

Fifth, once you pay off all your debts, then you want to consider saving for a more substantial emergency fund. Dave Ramsey recommends 3-6 months worth of family expenses in cash savings. So, for example, if it takes your household around $3,000/month in expenses to survive, then you should put away between $9,000-$18,000 in a good money market account.

What A Great Place To Be!

If you can follow these steps, I guarantee that you will be able to relax in a place financially that you have never known before. You can focus on more important matters such as your family, your church, your calling, and your ministry when you're not worried about how to pay the bills each month. In my book, that's a great place to be.

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