3 Lanes: Assessing Our Financial State

The Importance of Assessment

A major key to stewarding God’s resources wisely is knowing how we’re doing financially. Since stewardship is a journey rather than a destination, knowing where we stand helps us determine the path to continued growth in this area of discipleship. Additionally, a solid understanding of our financial state helps us to pursue financial freedom.

Our overall financial state is a product of several factors – not just a single number. We can quantify some factors objectively and put numbers to them; others are more subjective. Obviously, the best way to assess the objective factors is to have data, such as a spending record, to inform our assessment.

In previous articles, we’ve identified three major financial states, or lanes, that we all fall into and the key goals in each lane. Briefly, these are:

1. Lane 1: Stability – key goal is stabilizing cash flow
2. Lane 2: Clarity – key goal is progressing in net worth
3. Lane 3: Legacy – key goal is leveraging resources for God’s glory

There isn’t a clear cut-off between the lanes; each one is part of a continuum and we’re all on that spectrum at one point or another. Understanding where we are on the continuum helps us to set and pursue financial priorities and goals. An assessment tool can help build that understanding.

As we look to assess where we stand financially, we’ll consider questions around three primary components of financial freedom: cash flow, net worth, and generosity.

Back to top

Assessing Our Finances

In addition to these three primary components, stewardship also encompasses how we feel about our financial state. While our emotions aren’t the primary factor in determining what lane we’re in, they do reveal truth about our heart for stewardship. For example, we may have more than enough saved up for retirement, but if we feel anxious about it, this may be because we’re trusting in money more than in God for our security.

With that in mind, here are some categories and questions to consider when assessing our financial state.

Overall Financial State

• How do you feel when you think about finances? Worried? Confident? Grateful? While feelings aren’t always a completely accurate gauge of where we stand, they’re often a good place to start.
• How stable are your finances? Again, this is a very high-level question (we’ll get to the details shortly). Generally, do you run into trouble on a regular basis? Or can you meet all your financial obligations without much concern?
• Is your financial state improving overall? (Again, we’ll get to the details later.) When you compare how you’re doing today to a year ago, or 5 years ago, are you in a better place?
• Are you able to pursue your major goals from a financial standpoint? In other words, do your finances support your priorities?

Cash Flow

As we get to a more detailed level, we’ll raise both subjective and objective questions to help assess each area. For the objective questions, keeping a spending record is the best way to provide data to inform our answers. If you aren’t keeping a spending record, gather the last few months of bank statements and credit card statements to provide an approximation of the data you need.

Cash flow compares your monthly income to your monthly expenses. If your income exceeds your expenses, you have positive cash flow; if expenses exceed income, you have negative cash flow. For purposes of this exercise, think of everything you do with money (including giving, saving, spending, and retiring debt) as part of “expenses” – because they all impact cash flow.

Cash flow is the best indicator of how we’re doing financially right at the moment. The goal is a neutral cash flow – that is, the total of our giving, saving, spending, and debt reduction equals our income. A positive cash flow seems, well, positive – but it can be an indication that we have income that we’re not managing well. A negative cash flow is unsustainable over a period of time and is an indicator of financial trouble.

Monthly Bills

• How worried are you about your ability to pay your bills each month?
• Do you regularly pay your bills on time or are you sometimes (or often) late?
• Do you have to shuffle bills around in some months to make sure there is enough money to pay them?

Financial state

• How does your income compare to your spending on a monthly basis? (If you don’t have a spending record, compare paycheck stubs to bank/credit card statements).
• Are your credit card balances going up or down over time?
• Are your bank balances going up or down over time?

Stability

• How would a $1000 unexpected expense impact you? Would you be able to absorb it, or would it need to go on a credit card?
• How close are you to being maxed out on your credit cards?
• Do you rely on balance transfers to new accounts in order to stay afloat?
• Do you have an emergency savings fund? (Technically, savings is part of net worth; but an emergency savings fund helps protect cash flow.)

Net Worth

While cash flow is the best point-in-time indicator of our financial status, net worth is the best longer-term indicator. Net worth (which is not our worth in God’s sight!) is a comparison of assets (what you own) to liabilities (what you owe). For example, if your house is worth $300,000 and you owe $250,000 on it, then that’s a positive contribution of $50,000 to your net worth.

Technically, net worth includes all of our assets; but practically for the purpose of assessing our financial state, it’s composed primarily of savings and investments (including our house) and any major assets that could reasonably be sold easily.

Overall Net Worth

• How do you feel about your net worth? Is it going up over time?
• Are you worried about retirement? Confident? Somewhere between?
• How does your net worth compare to recommendations based on your age and income? (You might need to see a trusted financial planner to get these recommendations.)

Savings

• How do you feel about your savings? Are you setting enough aside for retirement and for shorter-term goals?
• Could you replace an appliance if needed without going into debt? A car?
• What would happen if you were to be laid off for a month? 3 months? 6 months?

Debt

• How worried are you about your level of credit card debt?
• How close to your credit limit are you (across all your cards)?
• Is interest on debt keeping you from reaching important financial goals?
• Are you leveraging efficient debt (such as an education loan or a mortgage) to accomplish a major financial goal? What is the impact on your overall financial situation?

Generosity

In the secular world, cash flow and net worth are the only two major considerations for financial success. But for believers, generosity is an important part of our financial stewardship. Incorporating generosity into our financial assessment recognizes this importance.

• How do you feel about your giving?
• What percentage of your income do you give? (Do you know?)
• Do you give systematically, occasionally, or rarely?

Back to top

Analyzing Our Stewardship

An assessment around the key areas of cash flow, net worth, and generosity can give us a good idea of where we stand financially and how we’re stewarding God’s resources. But the assessment itself isn’t the goal. Here are a few final considerations and key points to keep in mind:

Data is your friend

Any assessment is only as good as the data that informs it. An accurate, categorized spending record serves as the best starting point for a financial assessment.

After that, a balanced spending plan is the next step. A spending record will tell you what’s happening at a detailed level, but it won’t by itself tell you if your finances are working. For that, you need a spending plan that you can track to. Comparing your actual expenses to your planned expenses is the best way to determine if you’re on track month to month.

And of course, your spending plan should reflect your priorities and non-negotiables. It’s possible to be meeting your plan but not making progress toward your goals because the plan doesn’t reflect what’s really important to you.

Without these key data points, your assessment will reflect subjective feelings and estimates but lack precision. However, as we mentioned above, you can approximate these important data points using the records you do have.

The path forward is the point

Assessing our finances is not about judgment or beating ourselves up about where we are. At the other end of the continuum, it’s also not about providing a basis for pride in our stewardship.

Instead, a financial assessment like this should point us to the path forward. Are we in an unstable place financially? Then stabilizing our cash flow and creating a manageable monthly cycle is our top priority. Are we making ends meet but not really thriving financially? Then our priority is adjusting our spending and income to contribute more to net worth. Are we doing well but not really making an impact for God? Then pursuing meaningful opportunities for generosity should be our focus.

The Assessment is a guideline

A financial evaluation like the 3 Lanes Assessment is not a set of rules and hard cut-offs. It’s a guideline to help us gauge our financial state and our stewardship. Not all the indicators will point to the same Lane. For example, we may have significant credit card debt (a Lane 1 characteristic) but be making good progress on retiring that debt (and thus improving our net worth – a Lane 2 characteristic).

Stewardship is the goal

At the end of the day, the key question is, “Am I stewarding the resources in my possession for God’s glory?” The numbers by themselves don’t give the whole picture, but they do provide the needed starting point. Ultimately, the question of our stewardship must be answered prayerfully before God.

Stewardship can (and should) happen in any Lane! Regardless of the Lane we’re in, improving our cash flow, growing our savings and reducing inefficient consumer debt, and cultivating a heart of generosity puts us on the path of stewardship. And as we’ve said before, stewardship is a journey, not a destination.

So start with an assessment. Understand where you are and identify the path forward based on that evaluation. And then prayerfully take the next steps down the road to financial freedom and Biblical stewardship!

Back to top

Assess your financial state and start the journey toward financial freedom…

Check out the FreedUp app!