There are 44 million student loan borrowers in the U.S. who have an average loan balance of $37,000. This equates to about $1.2 trillion in student loan debt. The average American carries a credit card balance of $16,424, which is up 10% from only 5 years ago. 57% of Americans have less than $1,000 in their savings account.
For being the richest nation in the world, why are so many Americans unable to manage their finances?
According to an article in Forbes magazine, money and possessions are mentioned over 800 times in the Bible, and nowhere in scripture is debt viewed in a favorable light. While I use Biblical wisdom to back up some of these principles, you don’t need to be a believer to have a practical plan to tackle debt and build wealth. If you are struggling to get ahead on your bills or even on where to start on your financial journey, here are a few tips to get you on the path to financial literacy, with a long-term goal of financial freedom.
Start a Budget
There’s an old saying that, “The journey of 1,000 miles starts with a single step.” I like to say, “The journey to financial freedom starts with a single budget.” While there are some amazing digital budgeting tools out there, it’s important to crawl before you walk. Start off by doing your budget the old fashioned way — with pencil and paper.
There’s power in writing your budget. Habakkuk 2:2 says, “Write the vision and make it plain on tablets, so that he may run who reads it.” If you want to run towards your financial destiny, write it down, as there is power in putting your budget, vision and goals in writing.
Now that you’ve got your pencil and paper, you’ll need to figure out how much money you make each month (your income) as well as how much money you spend each month (your expenses). If your income is larger than your expenses, you’re off to a good start! Next, figure out your fixed expenses, like your mortgage, car payment, cable/internet, etc. and start allocating money out of your income towards those expenses. Once you have your fixed expenses accounted for, start plugging money in for your variable expenses. These are things like groceries, restaurants, gasoline, heating/electric, shopping, etc.
At the end of the day, your budget should equal “$0”. You know that old saying, “The Devil’s in the details?” This applies here. Every dollar in your budget should have a home. If you don’t tell your money exactly where to go, you’ll constantly be wondering where it went!
If you need some pointers on what line items you should put in your budget, click here.
I have to interject here and talk about the importance of tithing. If you’re not a Christian, tithing probably doesn’t make sense. And even if you are a Christian, wrapping your head around tithing can be hard to do. I’ve been tithing consistently since 2015. During the past 3 years, I got laid off from a job, quit a job, moved across the country to get a new job and then moved back to where I came from to take another job. Moving is a huge expense, and not great for your budget — but that’s another story for another day.
When I lost my full-time job, I tithed, based on 10% of my income — when I got a new job with a bigger salary, I adjusted again and made sure that I was still giving God 10%. Mathematically, tithing doesn’t make sense. But faith isn’t something that can be quantified. Tithing requires giving in faith first. It means you are putting God first, even if you can’t see the big picture, and even if it doesn’t make sense on paper.
Jerry Savelle says, “Tithing isn’t a debt you owe — it’s a seed you sow.” God doesn’t need your money — but you sure do need His blessings! God could’ve picked any amount to tithe. He could’ve picked 5%, He could’ve picked 50% — He picked 10%, and “tithe” literally means “tenth”. Tithing is saying to God not only that you put Him first in your life, but that you trust Him to take care of everything else in your life. I highly recommend reading The Blessed Life to learn more.
I’m now to the point where my tithe is automatic. I don’t think about it. It’s not my money, anyways, it’s God. Deuteronomy 8:18 says, “Remember the LORD your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today.” Without Him, I have nothing.
Ok, back to budgeting. You’re not going to get it right the first month, probably not the second month, and maybe not even the third month. But it will get easier and you’ll start to hit little milestones each month. They key is to not give up. You’re only going to walk 1,000 miles if you keep taking steps, Likewise you’re only going to reach your financial goals by continually doing a budget.
Set Realistic Financial Goals for Yourself
Luke 14:28 says, “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?” Now that you know exactly how much money is coming in and out of your house each month, you can start setting up some financial goals for yourself. I like to use the S.M.A.R.T. method to set achievable goals. Start building that tower. Have wise goals, too. Proverbs has a lot of wisdom about money — like not trying to wear yourself out to get rich but at the same time not being lazy about your money. Outside of wisdom, it’s important to ask yourself this:
Are my goals aligning with God’s will for my life? Also, are they actually achievable? You may have a goal of saving up $500,000. Totally do-able. But what’s your realistic time frame? If you’re only making $60,000 a year, it’s really not feasibly to say that you’re going to be able to save that much in 2 years’ time. Again, having accurate expectations will make your goals that much more attainable.
So, what are some good goals to set?
Most experts agree that your first financial goal should be to start an $1,000 emergency fund. Having that money will not only give you peace of mind (knowing you won’t have to go into debt if your car breaks down, you have an unexpected medical expense or you lose your job) but it will also give you sense of accomplishment because you hit your first financial goal. Saving up $1,000 is a big deal! You should be pretty proud of yourself.
Your next goal should be to pay off all of your debt. I’ll touch on this in the next step.
Also, in Step 2, it’s important to dream and visualize what you want your financial future to really look like. Being debt free is a great goal. Buying your dream home is a great goal. Giving to ministries and charity is a great goal. Paying for your kid’s college tuition is a great goal. Retiring early is a great goal. Think about what’s important to your life, and write down your financial goals. Will they happen overnight? No, but be consistent and adjust them as needed and you will see results.
Get out of Debt
There are only 2 ways to get out of debt. Make more, or spend less. Now that your budget is in place and your goals are set, it’s time to get serious about gaining financial freedom. “The rich rule over the poor, and the borrower is slave to the lender.” The devil wants you in bondage just as much as your credit card company — and last time I checked, being a slave was the exact opposite of being free!
So where do you start? You need to add up anything and everything you owe to anyone. This includes all of your credit card debt, student loans, car loan, back taxes, money you owe friends/family, etc. Once you have it added all up, stare it in the face. To me, adding up debt is kind of like going to the doctor. The worst part about the entire visit is stepping on the dreaded scale. “Have I gained weight? Have I lost weight? Is the doctor going to tell me I need to go on a diet?” But stepping on scale, much like adding up your debt, forces you to set a baseline. “I’m currently here, and I need to be here.” It may be painful, but now you can put together actionable steps to where you want to go.
There are mixed theories on how aggressively you should pay off debt, whether or not you should continue to save outside of your emergency fund, and so on. Personally, I believe in the power of compound interest. There is long-term opportunity in investing money each year, especially while you’re young, while still paying off your debt. Also, if you’ve never heard of the Rule of 72 I’d highly recommend looking into it. There are also a lot of success stories from people who paid off all of their debt and then started an aggressive savings/investing plan. At the end of the day, you need to find a plan that works for you.
Here are some things you can do to start chipping away at your debt:
1. Sell Your Stuff
In the book of Kings, a woman’s husband dies, and now his creditors are coming to take their sons away as slaves to pay off his debt. All she has is a small jar of olive oil — but God does the impossible because she was willing to do what was possible. If you don’t think there’s money to be made in the possessions you already own, think again.
2. Donate Your Stuff
There’s a good chance you have too much stuff anyway. Try checking out The Minimalists for ideas on what you can potentially get rid of. In the wise words of Elsa, “let it go.” While this won’t necessarily make you any money on the front end, if you donate items to Goodwill or the Salvation Army, or another charity of your choice, it’s a tax write-off at the end of the year.
3. Get Another Job
Yep, you heard me. One of the best ways in increase your income in the short-term is to start trading your dollars for hours. Pick up a part-time gig. Looks on Craigslist, reach out to friends who may have odd jobs, and get creative with finding ways to make money. Another idea? If you’ve been at your current job for a while and have a good performance record, ask for a raise.
4. Go on a Spending Fast
Sounds crazy, doesn’t it? What if you only spent money on the essentials, and poured the rest into paying off debt and savings. Anna Newell Jones tried it and cut out $24,000 in debt in a year. What can you live on? What is a luxury that you can get rid of. Have you practiced the art of Delayed Gratification?
I know it’s hard to give things up — cable, internet, Netflix, Starbucks, going out to eat, shopping… but Deuteronomy 30:3 says, “Then the Lord your God will restore your fortunes and have compassion on you and gather you again from all the nations where he scattered you.” Everything that you give up, God will restore.
Budgeting is hard at first. Changing your habits is hard a first. But it will not go unnoticed. Your bank account will thank you, and so will your future self. You’ll feel like you are gaining control of your life again. It’s tempting to give up, especially when the mountain of debt looks so tall. When you’re feeling discouraged, remember this: “But as for you, be strong and do not give up, for your work will be rewarded.” 2 Chronicles 15:7.
You don’t need to be a Christian to follow this, but if you are, it’s nice to know that there’s some God-backed advice to get you out of debt and set sound financial goals for your future. I know first-hand how daunting and complicated becoming financially savvy can be, so I hope these tips were helpful.
Once you have all of your debt paid off there are more goals to tackle, but this is a great place to start. We’ll visit what to do once you have all of your debt paid off in the next article. Keep on rockin’ your finances, friends!
MJ Berst is the founder of www.rockstarberst.com which teaches people how to be an everyday rockstar. She loves God, teaching others on financial responsibility, her cat Rufio and Sunday brunch. Follow her on Instagram @rockstarberst or on Facebook.