Turning Your Financial Life Upside Down

By John D. Schultz

Last month, my church had a several part series on finance. It really got me thinking about how I manage my finances. I thought I’d share a bit of my experience, and some changes I’ve made to my life. Maybe they can help you. Or, maybe I need some guidance. Either way, let me know in the comments.

First off, I’ve always known this, and mostly agreed that where we spend our money is where our heart is. Admittedly, I’ve not always been proud of where my heart was, but when I honestly review my life, the saying has held true. My pastor brought up five areas where we spend money, and ranked them according to how we typically use our financial resources.

Spend
Debt Repayment
Pay Taxes
Save
Give

Interestingly enough, most of my life this has been how I use my resources. I first look to spend, then to pay debt, then my taxes, then maybe save, and then I give my leftovers (if there’s such a thing) to those in need. Surprisingly, I’ve gotten through life with this method, and am financially okay, but by no means am I sitting on a pile of cash. Also interesting to me was that three of the five areas on the list are about me (spend, debt, and save), one is about us (taxes), and one is about others (giving).

As I listened to the message that morning, I was struck with how the order is exactly opposite the way it should be prioritized. If I had to write the formula for financial success it would look different. At the end of the message, my pastor provided the same conclusion, and flipped the list.

Give
Save
Pay Taxes
Debt Repayment
Spend

I’ve been working on living my life this way for the current year, and I’m starting to notice some differences: I’m giving away at least 10% of my income each month to an assortment of non-profits; my retirement account has a balance that is steadily growing (in fact, it’s the first time that I’ve diligently set aside income to invest); I’ve got money set aside for taxes come tax season (as you may know, my primary source of income is typically reported to me on 1099s – which can be scary – while you’re probably getting a refund, I’m paying in over $3,000 this year); my debts are going down very steadily; and I’ve actually got money left over that I’m able to spend and even save more.

During the message, my pastor brought up an interesting point about living a life with this restructured look at finances. Our federal government allows us a tax deduction for giving and saving. So in effect, by making giving and saving a priority, I’m actually lowering my tax liability, which in turn frees up more money for debt repayment, spending, giving and saving. It’s a wonderful circle when it’s followed in the “flipped” order.

The first few months of this change were pretty difficult. However, it’s getting easier. I’ve taken a few steps to get on track, and make sure I’m sticking to my plan.

1. I listed all my necessary expenses for each month.
1. Debt
2. Utilities
3. Rent
4. Gas
5. Food
2. I figured those expenses needed to equal 70% of my income, and the remaining 30% should go to giving, saving and taxing (10% to each). So, I divided my necessary expenses by 0.7 and reached an income number that I needed to meet every month.
3. I opened a savings account at a different bank from where I normally bank, and deposit 10% of every check I receive that don’t have taxes withheld into that account for payment of my taxes. The accounts are actually linked electronically, so it’s really easy. Plus, it’s one of these online banks with a pretty decent interest rate. A double win for me.
4. I opened an IRA with a brokerage that enables me to directly transfer funds from my regular checking account. So each time I deposit a check in my regular checking account, I transfer 10% of the total to my IRA. I’m only allowed to make $5,000 per year in contributions to my IRA without penalty. But, that doesn’t happen until I exceed $50k in annual income, and when that happens, I’ll open a separate investment account that is not an IRA and continue to make contributions.
5. I identified several non-profit organizations which are important to me and that I want to support. Every time I get a check, I write them a check equal to 10%. I’ve also identified several friends that do various fund-raisers for causes they choose to support, and I’ve made a conscious effort to also support them above and beyond the 10%. So far this has been fantastic on so many levels.

Now, you’ll notice I didn’t calculate any funds for incidentals. Well, I took a step of faith, and felt that the incidentals would work themselves out if I stuck to this new plan. And, I’m happy to report that they have worked out – because my income has exceeded my budgeted income levels. Interestingly, when my income exceeds my budgeted goals, the amount that I save and give back increases. It’s a crazy win, win!

I wish I could say that this has been an easy transition for me. I can’t. In fact, it’s been a bit stressful at times. But, I know it’s the right thing to do, and I can already feel and more importantly see a difference in my long-term financial outlook.

See Also:

This article was first published at http://johndschultz.com/ Thanks John for allowing us to reprint it here.

Related Posts