Even with proper education and study, there may be times in our lives when we have difficulty determining the next step for our financial future. We can become confused if our savings, investments, and debt repayment seem to be going in different directions and it feels like we’re trying to do everything all at once, and not gaining much ground in any given area.
Using the Compass Money Map is a great way to know which steps to take next and to focus on one priority at a time. (The Money Map can be downloaded from the Compass Catholic website by clicking here: Money Map.)
This week I am focusing on Destination One to make sure we are attentive to the basics of financial stewardship, which are: instituting an emergency fund, establishing a spending plan and giving. These are the three goals within Destination One, and I will write about each one in order of priority.
The first step in Destination One is establishing an Emergency Fund. We suggest $1,000.00 as the primary goal for an Emergency Fund, because this is typically enough money to cover unexpected expenses. It is imperative that an Emergency Fund be established as a first priority in order to avoid falling back into a dependence upon credit cards.
The second step is to establish a spending plan (budget). In order to establish a spending plan, it important to write down the predictable expenses that are paid month in and month out, and it is also critical to track the variable expenses that crop up, especially if those variable expenses include eating out, randomly catching a movie, or traveling for special occasions.
Oftentimes, these variable expenses catch us off guard and have the potential of throwing our monthly spending plan into a tail-spin. Tracking the random expenses can help us have a better understanding of how we are spending our money each month and possibly even help us curtail unnecessary expenses if we need to look at ways of scaling back.
When considering your variable expenses, it is also important to take into consideration those bills that come due quarterly or yearly, as forgetting those will put your spending plan into a tail-spin. The best way to plan for those is to figure out what they are, add up the total amount due for the year and divide by twelve to determine what you need to save monthly so you can cover these yearly or quarterly payments when they are due.
After developing a working spending plan, if there is money that has not been assigned a specific category, it might be tempting to assign that money to debt repayment. But you only want to focus on aggressive debt payment after your $1,000.00 emergency fund is established.
Although it’s third, the most important step in Destination One is our giving. The Bible refers to tithing, which is defined as the first ten percent of our earnings, or “first fruits.” While ten percent might be a lofty goal, the important thing is getting started. If you are not contributing to your parish on a regular basis, start now, no matter how little you can afford to give. As you get control of your spending and more money becomes available, the giving percentage can be increased.
If you are typical, you probably have several areas on the map that are in progress (i.e. paying on a mortgage, paying off credit card debt and contributing to a retirement account). I have seen differing opinions on the topic of saving for retirement vs. paying down debts. If you have a 401K plan at work and your employer matches the money you save, you need to take advantage of the ‘free’ money. And if you have a home, and are paying a mortgage, but you don’t have an emergency fund, you still have to pay the mortgage while also building an emergency fund.
It is important to use the Money Map to develop a plan that works for you and your family. This will help you stay on track as it will give you confidence that you’re on the right path. And it helps you see where you can be if you stay diligent to the goals you have outlined for yourself. For this reason, it is imperative to find the earliest destination on the Money Map that has not been completed and use it as the starting point on your journey to True Financial Freedom.
As you move through the points on the Money Map, we pray that your financial picture will start to come into focus. Whenever things start to feel jumbled or blurry, refer back to the Money Map and take a look at the goals within each destination. Pray for God to provide insight and guidance through any confusion to help get you back on track.
“The Lord says, ‘I will teach you the way you should go; I will instruct you and advise you.’” ~Psalm 32:8