Stewardship Path: Clarity

In our previous blog entry, we outlined three stewardship scenarios – general financial situations that tend to summarize where most people are financially. While these scenarios paint with a broad brush, they’re a good overall representation of the range of financial conditions. These scenarios are:

• Under water – in financial crisis
• Treading water – making ends meet but not making a lot of progress
• Swimming – in good shape financially but maybe still not really free.

Stewardship principles – like God’s ownership and his call to us to be faithful with what he provides – span across these scenarios. But the outworking of those principles can be different in each situation. This calls for wisdom – wisdom that God will give in answer to prayer (James 1:5).

In this article, we’ll cover the second of the three scenarios.

Treading Water financially looks like staying afloat but not making any progress. The situation isn’t dire – if you’re treading water, you’re making ends meet, paying your bills on time, and keeping up with credit card payments. But you probably don’t have much in the way of savings, and you’re not making significant headway on paying off those credit cards. Your giving may be sporadic rather than intentional.

While the problem for people who are under water is primarily cash flow, the point of emphasis for those who are treading water is net worth. It’s likely that you’re cash flow neutral or maybe even slightly positive; but your spending isn’t building your net worth. Most of your credit card payments are going toward interest, not principle, so your debt load isn’t changing significantly.

If you’re treading water, you need clarity. Because the situation isn’t dire, the danger isn’t always obvious. But one significant unexpected expense can change treading water to drowning. Additionally, you may lack intentionality in your stewardship of finances, and – whether or not you realize it – this is affecting your overall discipleship.

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You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” But 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.

Deuteronomy 8:17-18

Every good and perfect gift is from above, coming down from the Father of the heavenly lights, who does not change like shifting shadows.

James 1:17

Treading water is all about keeping ourselves afloat. In this situation, it’s hard to remember that our real purpose is to bring glory to God – including in our finances.

As a result, the key stewardship tenet for those of us who are treading water is that God owns it all. He is the one who gives us the ability to earn income. Our health, our knowledge, our skills, the economy we live in – all these are gifts from God. Most people around the world don’t enjoy these gifts in the abundance that we do.

God has put resources in our care to manage for him. The Parable of the Talents (Matthew 25:14-30) illustrates this well. The Master entrusts resources to each of his servants before leaving on a long trip. On his return, he calls them to account for the money he had entrusted to them. Two of them had managed his money faithfully and earned a return on his investment; the third had let his money lie dormant, making no effort to earn a return. The Master commended the first two servants and denounced the third.

Now it is required that those who have been given a trust must prove faithful.

1 Corinthians 4:2

Paul speaks of his being entrusted with the mysteries of God. But his statement is true for any trust – those who have been entrusted must prove faithful. A trustee manages the resources entrusted to him for the benefit of the owner, not for his own benefit.

When we’re treading water, it’s easy to overlook the fact that the resources we’ve been entrusted with have a wider and deeper purpose than just keeping us afloat. They are for the service of the Master. Of course, the Master intends some of those resources to take care of us – but if we’re just treading water financially, we’re likely using all those resources for ourselves.

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Once we’re clear on our roles as stewards, it’s time to get clear on our real financial situation. Not the surface situation (“I’m getting all my bills paid”) but the underlying question of how faithfully we’re managing the resources God has entrusted to us.

Clarify Current Spending

Remember we said that some aspects of stewardship span across financial conditions? This is one of them. If we don’t know what we’re spending, we don’t know how we can make changes. And if we’re treading water, we need to make changes. So clarifying our current spending is the place to start.

As we mentioned in our previous article, if we’re not tracking our spending, we’re likely spending more than we think we are in a number of areas. This is especially true for expenses that aren’t based on bills – things like groceries, clothes, and other items we purchase. Tracking and categorizing our spending – both repeated monthly bills and more irregular spending – is the starting point for understanding our current financial stewardship.

If you haven’t been keeping spending records, you can still approximate your spending for the last two or three months to give you a start. Use your bills and credit card statements as a starting point.

Clarify Key Goals

Unlike those who are “under water,” you have a neutral or slightly positive cash flow – you’re not losing ground every month. (If you are actually losing some ground every month, then you’re probably under water.) So cash flow isn’t your main issue. But several other key goals look very similar to the goals for those who are in financial crisis. We just summarize those goals here; see the article entitled “Stewardship Path: Stability” for details.

1. Create an Emergency Savings fund of at least 2% of your annual gross income.
2. Prayerfully establish a regular giving pattern and habit.
3. Start to build net worth.
4. Use the 10-10-80 plan as a guideline.

The key difference between treading water and being under water is cash flow. For those who are under water, cash flow is an immediate and pressing problem. But for those who are treading water, the focus is on building net worth (while also developing a lifestyle of generosity). This is a longer-term goal than stabilizing cash flow.

Net Worth is the difference between what you own (assets) and what you owe (liabilities). Over time, you want to build net worth – this is what will support you when you’re no longer working full-time to produce an income.

You can build net worth in two ways: by reducing what you owe (for example, paying off credit cards) and by increasing what you own (savings).

Clarify the Plan

Once we know what we’re spending and what we’re spending it on, we’re ready to begin to take control of that spending. Think of tracking spending as a set of tire tracks that shows where you’ve been. It’s important to know that, but that’s only the first step. The spending plan is the steering wheel for the car. You can make more tracks without a steering wheel, but you won’t be in control of where those tracks lead.

If you don’t have one already, create a spending plan using the last two or three months’ worth of spending as a starting point. Note that creating a spending plan is an iterative process. The first one you create may not balance and it almost certainly won’t reflect your deeper priorities.

As you create your spending plan, remember the 10-10-80 guideline: 10% of gross income for giving, 10% for saving (which includes retiring debt), and 80% for lifestyle spending (including taxes).

We outlined some key goals above to consider when creating your spending plan and we provided additional detail in our previous article. Here are some recommendations in terms of what to prioritize as you begin.

1. Generosity

You may not be able to start giving 10% right away, but don’t let that stop you from making generosity a top priority. Start with your spending records and identify a next step. If you’ve been giving sporadically, maybe that next step is to start giving regularly, as the first thing you do from your paycheck (see Proverbs 3:9). If you’re giving regularly, maybe the next step is to meaningfully increase your level of giving. Prayerfully consider what God would have you do.

2. Emergency savings

Prioritize quickly creating an Emergency Savings fund of 2% of annual gross income. This amount is usually large enough to handle most unexpected expenses but small enough to be accomplished in a short period of time. Think of this as a sprint and get there as quickly as you can.

3. Retirement Savings – Employer Match

With an Emergency Fund established, contribute to any employer-sponsored 401(k) plans up to the amount that the employer will match. This is a priority because of the benefit of the employer match – it’s a rate of return that nothing else can give and will help you begin the key discipline of long-term saving.

4. Consumer debt

Once you’ve maxed out the employer match, focus on retiring consumer debt. Start with credit cards, which tend to have the highest interest rates and the most impact on your credit score. Use the “debt snowball” method to pay off the lowest-balance card first, then the next-lowest balance, etc.  This will give you the most immediate results and help keep the momentum going.

5. Short-term Savings

Once credit cards are paid off, begin to build up short-term savings beyond the Emergency Fund. This is a longer-term process, but you’ll want to consider a 3-month net and replacement savings. As you’re doing this, continue to retire debt beyond credit cards – including medical and personal loans, education loans, and car loans. Because of the tax benefits associated with a mortgage and the relatively low interest rate, building savings should take priority over paying off a house.

Note that all of the above except for generosity are related to net worth – retiring debt and building savings.

Clarify Priorities

If you’re creating your spending plan with the guidelines of 10-10-80 in mind, then you’re already setting some important priorities. You’re placing significant emphasis on both giving and saving. But what about the other 80%? The largest amount of your income is going toward lifestyle spending – that is, spending on everything other than giving and savings. (This spending includes taxes.)

If you’ve been treading water financially, there’s a good chance that your spending isn’t matching your key life priorities. Most of us spend in ways we don’t think about much, and this often prevents us from accomplishing our goals and causes us to wonder where the money is going.

Once you have a spending plan that balances and reflects your realities, it’s time to determine whether your spending is accomplishing your goals. To do this, follow two important (but not easy!) steps:

1. Identify your priorities and non-negotiables
2. Manage Trade-offs

Spending Priorities and non-negotiables

The spending plan isn’t just a set of numbers. Ideally, it’s a reflection of our key priorities in life. It includes some things we have little choice about – like housing costs, food, and clothing. It incorporates other things that we’ve determined are important, like education and perhaps travel. And inevitably, it includes some things that we do purely for enjoyment.

These (and more) are all valid uses of money; the problem is that with limited resources, we can’t do them all. And that creates conflict. In fact, most of the arguments about money in a marriage aren’t really about the numbers – they’re about the unnamed priorities behind the numbers. So determining priorities together is a key step toward financial freedom for couples.

See our related article for an exercise to lead you through the process of determining spending priorities and non-negotiables.

Spending Trade-offs

We can spend a dollar any way we want, but we can only spend it once. So bringing our spending into alignment with our priorities inevitably means making some trade-offs. If we want to spend more in one area, we have to spend less in another.

The simplest path to follow is to identify which expenses are discretionary (optional) and which are not, and then which are fixed and which are variable. Every expense is either discretionary or non-discretionary and every expense is either fixed or variable.

A discretionary expense is one that we can choose to eliminate. Typically, entertainment expenses fall into this category, as well as some household expenses. A non-discretionary expense is one that we can’t eliminate, like utility bills or a mortgage payment.

A variable expense changes from month to month. Utility bills, most household expenses like groceries and clothing, and many entertainment expenses fall into this category. A fixed expense doesn’t change from month to month – like a mortgage, or housing association dues, etc.

Discretionary variable expenses – like many entertainment expenses – are the easiest to eliminate or reduce; we can simply choose not to spend that way. We can eat in rather than going out, watch a movie on TV rather than going to the theater, etc. Discretionary fixed expenses can also be eliminated but usually require some action, like cancelling a subscription.

Non-discretionary variable expenses can’t be eliminated, but often they can be reduced or postponed. Clothing purchases can usually be put off if needed; perhaps grocery expenses can be reduced by eliminating junk food, etc. Some are harder to adjust, like utility bills – but even here, there’s usually something that can be done if needed. 

The Tough Calls

Non-discretionary fixed expenses, like car payments and mortgages, are the hardest to adjust or eliminate. That’s why we don’t start there. But sometimes, unloading a major asset like a car or house is the only way to free up enough money to pursue the priorities we’ve determined. Many couples and individuals find themselves “house-poor” or “car-poor”, meaning that they spend so much on their mortgage or car payment that they don’t have enough left for other priorities.

This conundrum illustrates the fact that spending plans aren’t first and foremost about numbers. They’re about priorities. A large house in a nice neighborhood may be at odds with sending children to private schools or travelling.

God leads each of us differently in terms of what our priorities should be. One family with the gift of hospitality spends a significant amount on their house in order to entertain. Another family sets as a priority home-schooling their children, which means living on one income as one spouse stays home. There are no universal right and wrong answers here; each of us must prayerfully determine our own priorities. Financial freedom requires that we don’t let others determine our priorities (like “keeping up with the Joneses”) – and that we don’t feel compelled to weigh in on the priorities others set for themselves.

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Treading water financially usually results from a lack of clarity with regard to stewardship principles and practices and our own priorities. Treading water can lead us to think we’re doing OK – but our lack of progress financially both limits our own financial freedom and falls short of honoring God with our finances.

To help on the road to financial freedom and God-honoring stewardship (which are two sides of the same coin!), here are a few stewardship keys.

Key Principles

1. Our net worth is not our worth in God’s sight. Society tends to value us based on what we have, but in God’s eyes, our worth is measured in terms of the price Jesus paid for us on the cross.
2. God created and owns everything, including all the resources he has put in our care.
3. God calls us to faithfulness with the resources he has provided.

Key practices

1. Pray for clarity on priorities, for discipline to pursue those priorities, and for courage to make needed changes. Confess any materialism or lack of intentionality with God’s resources.
2. Prayerfully seek God’s priorities and put in place a plan to orient finances around those priorities.
3. Track spending against your plan and make adjustments when needed.

Key Posture

1. Gratitude: Avoid envy of others by practicing gratitude for God’s provision.
2. Perseverance: Be in it for the long run and avoid “get rich quick” schemes (1 Timothy 6:9-10; Proverbs 28:20; 16:32).
3. Awareness: Watch out for the traps of materialism on the one hand and apathy on the other; these are the traps that most often lead to treading water financially in the first place.

Key Perspective

“Do not store up for yourselves treasures on earth, where moths and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moths and rust do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also.

The eye is the lamp of the body. If your eyes are healthy, your whole body will be full of light. But if your eyes are unhealthy, your whole body will be full of darkness. If then the light within you is darkness, how great is that darkness!

No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.”

Matthew 6:19-24

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