When we decide to use our money according to applicable scriptural principles, we soon see the need for planning and review. Notice some advice from the book of Proverbs:

"Be diligent to know the state of your flocks, and attend to your herds; for riches are not forever, nor does a crown endure to all generations. When the hay is removed, and the tender grass shows itself, and the herbs of the mountains are gathered in, the lambs will provide your clothing, and the goats the price of a field; you shall have enough goats' milk for your food, for the food of your household, and the nourishment of your maidservants" (Proverbs 27:23-27).

This passage shows why we need a financial plan—a budget—for our household. Notice that several timeless principles spring from this passage.

First, we need diligence to successfully implement any financial plan. In the example above, those with livestock are advised to carefully monitor the state and condition of their animals. If an animal becomes ill, it needs special care. Insufficient food or water for livestock requires immediate attention. A farmer with herds must look after his animals if they are to survive and the household is to prosper.

How does this apply to those of us who aren't farmers or ranchers? The fundamental lesson is that we cannot expect financial success by simply devising a plan and then blissfully ignoring the factors that affect it. Instead, we must know where, how and why we spend our money and what is happening with our assets. If we ignore this principle of diligently monitoring our finances, we will find ourselves making poor decisions and spending money we don't have.

This passage also outlines the needs of a household and how they must be met throughout the year—hay and herbs harvested at the proper time, property purchases made where and when appropriate, clothing provided as needed and a steady supply of food made available.

Planning is another key to successful money management. From the book of Proverbs we glean the need for foresight. Two verses tell us, "A prudent person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences" (Proverbs 22:3; Proverbs 27:12, New Living Translation).

Such principles demonstrate the value of making and following a budget. Budgeting allows us to systematically allocate resources to meet our current and future needs.

When we accept God's instructions to tithe and provide for others, we automatically take steps in the process of budgeting. We calculate what comes to us as an increase and set aside percentages of that increase for God's work, suitable offerings, helping the needy and caring for our families.

Now let's tighten our focus and apply these budgeting principles to our households.

Figuring your net worth

Where and how do we begin to formulate a workable financial strategy for our families? Following are some practical steps to consider.

The first step in designing a personal spending plan—a budget—is to determine your net worth. In other words, find out your overall financial condition. Begin with a list of your assets—possessions (and their fair market value) that you own and could sell.

Then make a list of your debts—the amounts you owe to creditors (banks, mortgage companies, stores, credit cards and the like).

Subtract your total indebtedness (the total of your debt list) from your assets (the total monetary value of your asset list) and you have your net worth—a summary of your financial condition.

If the combination of your assets and debts is a positive number, you have a positive net worth. If it is a negative number, you are in debt. If you have a significant amount of debt, regardless of your net worth, you need to prepare and follow a budget that will help you improve your financial picture.

Analyze your monthly cash flow

After determining your overall financial condition, the next step is to analyze your monthly cash flow. This will show you which direction you are headed—whether you are accumulating money, holding steady or going further into debt. You can do this by examining your monthly income and expenses.

If you have money left over at the end of the month after paying all your expenses (including housing, food, clothing, utilities, transportation, insurance, taxes and recreation), your net worth is increasing, and you should have money to save or invest. If you are not meeting your expenses, you need to make adjustments so you can pay your bills. If you are in dire need of major adjustments, carefully read the rest of this chapter and Avoiding Financial Black Holes for ways to cut expenses.

No matter your financial direction, diligent periodic examination of your expenses is important to successfully managing your money. Following are some things to consider about some typical expenses.

Education

One of the first issues to consider in a financial plan is education. Although obtaining a college degree or certification in a particular trade costs money, this expense is almost always one of the best investments we can make. On average, people with higher education and marketable job skills consistently earn more money.

Proverbs 4:5-7 tells us: "Get wisdom! Get understanding! Do not forget, nor turn away from the words of my mouth. Do not forsake her, and she will preserve you; love her, and she will keep you. Wisdom is the principal thing; therefore get wisdom. And in all your getting, get understanding." Gaining additional education is one of the best financial investments we can take.

Proverbs 24:27 similarly advises: "Prepare your outside work, make it fit for yourself in the field; and afterward build your house." In other words, prepare yourself with the resources to make a living—through education and job training—before settling in and making yourself comfortable with material possessions.

In seeking an education, one must also consider the costs. Sadly, many college graduates end up with a mountain of debt in addition to their diplomas when they complete their degrees. Applying to multiple institutions and comparing the annual costs after factoring in grants, scholarships and other forms of free aid will help in making a wise financial decision.

Usually it is less expensive to take undergraduate courses at a community college (assuming course work is transferrable) before finishing up a degree at a larger institution. Local colleges can also be cheaper than ones farther away, especially if a young person can stay at home and commute to classes. Some industrious students have even worked full-time jobs during the day and taken classes at night, paying for them as they go. Such strategies can help a person obtain an education without being saddled with debilitating debt.

Managing debt

Going into debt is generally not a good idea. "The borrower is servant to the lender" (Proverbs 22:7). The difficulty with debt is that, in addition to paying back the principal (the amount borrowed), we also have to pay interest on the outstanding balance.

Over the course of a typical 30-year loan for a house, for example, the borrower pays more than double the purchase price of the house, with the additional money going to pay the interest on the loan. Skyrocketing costs of new cars and multiyear loans create a similar problem with automobile loans. The more we can avoid borrowing money, the better off we'll be in the long run.

On the other hand, sometimes it may be necessary to borrow money. For example, most people will likely need to borrow money to purchase a house. Even when we borrow money for this reason, it is good to be sure we have sufficient extra funds for emergencies within our budget before proceeding. Emergencies and unexpected expenses always arise. Be cautious before committing yourself to any debt. Debts we cannot immediately repay have a way of compounding our financial problems.

Buying a house

In addition to costs associated with buying a house, such as a down payment (often 10 or 20 percent of the purchase price) and mortgage fees, you should also consider maintenance costs and taxes.

If you choose to sell your house, you often have to pay fees to a selling agent that can range up to 7 percent of the selling price. Because of these costs, buying a house and living in it for a short time before selling it again may be a chancy financial decision.

Other factors you should consider when purchasing a house are the local market (whether houses in your area are gaining or losing value), the location (those in desirable areas usually resell better) and whether the house will serve your needs as well as the needs of a future buyer.

If one is going to purchase a house, one way to lessen the cost is to begin by renting an inexpensive apartment and saving as much money as possible each month in order to accumulate a large down payment. Then when obtaining a loan for the amount that will need to be financed in purchasing the house, get a 15- or 20-year loan instead of the typical 30-year loan. This will pay off the loan much faster and generally save thousands of dollars in interest.

Transportation

Owning an automobile is a wonderful convenience, but it can consume a large portion of any household or personal budget. Considering the costs of fuel, insurance, repairs and car payments, if you cannot purchase a vehicle outright, automobile expenses can quickly add up to a significant amount. Because of these costs, using public transportation (buses, trains, etc.) may be a better choice. Although not as convenient, this option is generally less expensive.

If we need a car because public transportation is not available or for other valid reasons, we should be sure we are able to pay for all the costs involved with owning a vehicle, including insurance.

Many countries require drivers to carry some form of automobile insurance. God expects His followers to obey the laws of the land (Romans 13:1-7) and to love their fellow man by covering the cost of accidents or injuries they may cause (Matthew 22:37-39; Exodus 21:18-19). Lack of insurance may leave you vulnerable to a huge financial liability should you be involved in an accident.

One way some financial advisers are now encouraging people to save money on the purchase of automobiles is to only buy vehicles outright with money one has saved. In other words, don't take out a loan on a vehicle.

If you must have a car and can only afford a used one, buy the best one you can afford from a reputable party with money you've saved and, each month thereafter, save the money you would have spent on monthly car payments in a new car fund. Over time, and possibly after going through this process several times, you'll be able to buy a newer, better vehicle without having thrown away money paying interest. And at this point you should be able to stay in a nice vehicle by continuing to save for the next one.

Clothing

Everyone must have clothes, yet this area also provides opportunities for thrift. A planned wardrobe vs. impulsive buying is much easier on clothing budgets. Purchasing good-quality, but traditionally styled, clothing will often be the most economical approach in the long run.

Because such clothing will last and remain in style for a long time, it is less expensive than clothing of poorer quality or fashions that match the latest fad but quickly go out of style.

When trying to minimize the cost of clothing, some financially savvy people have found bargains at resale shops, garage sales, estate sales and even stores whose proceeds go to charity. The keys here are to buy only what one needs, items that properly fit and ones that are of good quality. Clothing is only a bargain if the buyer appreciates and wears the item.

Food and preparing for shortages

The cost of food is a significant portion of a household budget. In general, purchasing basic commodities in bulk and preparing meals at home is cheaper than buying highly processed items and eating out at restaurants. Some families find having a garden and purchasing fruits and vegetables in bulk when they are in season to also be helpful in stretching their food budget.

Growing some of your own food and having extra on hand can also be helpful in times of crisis. In a world experiencing random disasters ranging from floods and earthquakes to power outages and terrorist attacks, having available in our homes at least a week's supply of food and water (if not considerably more) is a good idea even when no immediate threat is apparent. The U.S. government's Federal Emergency Management Agency (FEMA) lists practical advice and contents for a family emergency supplies kit at www.ready.gov/build-a-kit. Residents of other countries can find similar recommendations at Web sites managed by their governments.

It would be wise to be prepared in at least such a basic way for emergency situations. As already mentioned, Proverbs tells us that prudent people take precautions in the face of possible danger (Proverbs 22:3; Proverbs 27:12). And certainly dangerous times are ahead for the entire world, as indicated by many Bible prophecies.

Of course, while we need to do our part to prepare, we must also remember that the Bible emphasizes looking to God for our physical needs as we seek His Kingdom. Indeed, we are directly told that if we pursue His Kingdom and way of life first, then He will provide for our physical needs (Matthew 6:33).

Insurance

Another important way of being prepared for major problems and expenses that could potentially befall us is through insurance.

Many types of insurance are available today—life, home, automobile and health. Such insurance may be costly but can prove to be well worth it if disaster does strike—and it typically affords a certain peace of mind in the meantime.

Concerning life insurance, the time of greatest need for this coverage is when a family has small children. As children leave the home and are able to provide for themselves, the need for life insurance lessens.

With the potential for property destruction from storms, fire, vandalism and the like, home insurance is especially important if we do not have funds to repair or replace damage. If we have a property mortgage, lenders generally require insurance to safeguard their investment.

In this day of mounting costs for medical services, health insurance is also vital. Although premiums can be expensive, trying to pay astronomical bills that can arise from a single accident or illness can be devastating if we do not have insurance. Many have some life and health insurance as part of employment benefits, but this may not be enough.

Since a wide variety of insurance is available and needs differ, we have to consider our individual circumstances in making decisions about the kinds and levels of coverage we need.

One important type of "insurance" all of us should have is personal savings as part of a wise strategy of allocating our income. Let's give further consideration to this.

Planning, emergency funds and savings

After paying tithes and necessary living expenses, we need to decide what to do with the remainder of our money.

While financial counselors each have slightly different recommendations, well-known financial adviser Dave Ramsey teaches that people can obtain financial peace through a sequence of actions he refers to as "seven baby steps" to financial success. These steps are:

1) Build a $1,000 emergency fund.
2) Pay off all debt except one's home mortgage.
3) Finish saving an emergency fund that will cover three to six months of expenses.
4) Invest 15 percent of household income for retirement.
5) Save money for your children to attend college.
6) Pay off your home mortgage.
7) Build wealth through investing, and give like you never have before.

Ramsey advises that only when each step is fully done should a person go on to the next step.

Although saving money for an emergency fund is often considered a luxury or afterthought, this practice should be included in every household budget. The reason is simple: Unexpected expenses will always arise. When we have savings to cushion the blow, the effects of these surprises are not as devastating. From this perspective, saving is simply delayed spending.

Wise financial stewards will build up an emergency fund to tide them over temporary financial difficulties. One never knows when emergencies such as expensive car repairs, medical emergencies, the loss of a job or an economic downturn will occur, so it pays to be prepared in advance.

Just as the biblical patriarch Joseph advised Pharaoh to save up grain in ancient Egypt during seven years of plenteous harvest so the nation could survive seven years of shortage that would follow (Genesis 41:28-36), we need to prepare in advance for the financial storms that are sure to arise at some point in our lives.

With the uncertainties of today's economic problems, another well-known financial adviser, Suze Orman, recommends building an emergency fund covering not just three to six, but eight months of expenses. Of course, this may vary up or down a bit depending on individual circumstances—for example, how secure the business one is employed in seems to be or whether both spouses in a home are working or are able to work.

As for whether it's better to save funds for retirement or build a college fund for one's children, Ramsey, Orman and other advisers recommend that people should set aside adequate funds for their own future before that of their children—otherwise they will saddle their children with taking care of them, ultimately burdening them when they were trying to help them.

When one begins saving for retirement, he or she will want to take advantage of employer matching on retirement saving if such a plan exists. If an employer matches 100 percent of your contributions or 50 percent or even only 25 percent, be sure to save the maximum amount that is matched in the plan since this is free money.

If one doesn't like the investment choices within the plan, he or she can just stick with the basic savings account since this still represents a massive return on one's investment, assuming the investment is early in one's life and is done consistently during the earning years. Additionally, depending on one's country, favorable tax treatment is often given to monies set aside for retirement.

Beyond the matched amount, there are often better retirement account options to be found outside those offered through employers. Be sure to do your own research, as seemingly small differences now in fees and return rates can add up to huge differences over the course of decades of saving and compound interest.

Of course, emergencies and retirement are not the only reasons for saving money. Homes, cars, expensive personal items, education and leaving an inheritance, to give just a few examples, all require setting money aside on a regular basis. Self-discipline is one of the most important characteristics necessary for accumulating and maintaining wealth.

Be aware that marketing techniques try to focus your mind on the opposite. They encourage you to buy now and pay later and convey a "you deserve it today" mentality and approach to life. Having the self-discipline to save, and then to know when it's appropriate to buy, is one of the most important principles for successfully building up financial reserves.

In the next chapter, we'll consider how husbands and wives can work together in applying some of these basic concepts.