Three Steps to Effectively Manage Your Debt, Part 2 of 3 By Rev. Dr. Patricia L. Hunter CFP®

Part one of our series on successfully managing your debt addressed establishing your financial goals. Part two will focus on developing a budget. MMBB understands the struggle of pastors and church workers whose income is often not sufficient to meet living expenses.

Managing your financial decisions is especially important so money does not get in the way of your calling to serve God. But successfully managing your debt and achieving financial wellness does not have to seem like an elusive goal. Start with creating a budget, the second step to effectively manage your debt.

Developing a budget is a crucial component of financial success and the first step toward taking control of your financial life. Budgeting allows you to see first-hand what you have vs. what you can spend. A budget also helps you to choose how to spend your money, pay off existing debt, save and most importantly, plan for the future. If you have never successfully created a budget, one of our Certified Financial Planning™ professionals can walk you through the process step-by-step.

To develop a budget, start by identifying all your current household income sources. Income is not limited to just salaries, annuities and social security; don’t forget to include honoraria from speaking or preaching events, weddings and funerals. Now that you have an idea about how much money is coming in, you need to know where your money is going. Who do you owe and how much? It is not uncommon for Americans in general and clergy in particular to have over $20K in non-mortgage debt . That kind of debt can make your dreams seem out of reach. Be sure to review bank and credit card statements, your checking account register, annually and quarterly paid expenses such as insurance and Social Security taxes. It is important to know the interest rate you are paying on your debt and to carefully review your statements.

Non-Discretionary vs. Discretionary One key factor to controlling your expenses is the idea of discretionary “optional/want” expenses vs. non-discretionary “must/need” expenses. The essentials or “must” expenses (housing, utilities, food, child care, insurance, auto) need to

be paid. While the discretionary expenses as the name itself suggests, are optional. Remember to use your discretion before incurring such expenses (dining out, luxury items, vacations, movie tickets). Your current discretionary costs should be thoroughly reviewed. If cash flow is tight, or if not enough is being saved in an emergency fund or for retirement, then look for areas in discretionary spending to cut expenses—fewer meals out, make coffee at home, or a less expensive gym membership. Controlling or making intentional cuts in the discretionary spending can lead to significant changes in overall expenses each year.

Review and Adjust Once you have identified your sources of income and made a budget of your discretionary and non-discretionary expenses, set some realistic goals to reduce costs and increase the amounts being saved for long-term goals. Review your spending and saving on a monthly basis to track your progress. If you are not where you want to be, adjust your plan accordingly. You may need an additional source of income if there are no more options for cutting expenses. We have to learn to make very difficult choices regarding money if we want to reach our financial goals. One way to keep yourself motivated is to remember to celebrate your savings and expense reduction milestones with your family and friends.

Developing a budget you can fine tune as life unfolds will allow peace of mind when it comes to your finances. Once you have your budget on track, you can now focus on consolidating and reducing debt. In the last part of this series, we tackle steps to eliminating expenses.

For assistance with managing your debt or other financial concerns, contact one of our Certified Financial Planner™ professionals at financialplanning@mmbb.org or 800.986.6222.

1Grey Matter Research & Consulting for the National Association of Evangelicals, Evangelical Pastor Study, July 2015

One way to keep yourself motivated is to remember to celebrate your savings and expense reduction

milestones with your family and friends.