The message of my post “How to Be Happy When You Are Poor” is that happiness does not come from money or circumstances but from positive beliefs, actions, and attitudes. “How to Be Happy When You Are Poor” introduces the importance of budgeting, saving, and avoiding debt. This post will detail financial practices that have helped our family prosper, even on a low income.
Financial stability gives great peace of mind because basic needs for food, shelter, and clothing are not a concern. When things needed to survive are there, your mind is free to think about what matters most (See Maslow’s Hierarchy of Needs). Maybe more importantly, financial prosperity enables you to give to others.
My Financial Background
My parents taught me money management at a young age. As a young adult, I attended a few money management classes and studied a pamphlet called One For The Money. I reviewed One For The Money periodically in my early marriage and did what it suggested. A lot of what I will include here I learned from Dave Ramsey’s Financial Peace University which my dear friend let me borrow a few years back. (I actually lost one of the CDs! Sorry, Friend!)
Key Practices To Prosper On A Low Income
- Pay an Honest Tithing
- Save $1,000 and Avoid or Snowball Debt
- Budget
- Council Together in Marriage
- Save 3-6 Months Income for Emergencies
- Use Your Tax Return For Smart Financial Goals
- Invest
- Pay Off Your Home
Pay an Honest Tithing
One For the Money says, “Successful financial management in every…home begins with the payment of an honest tithe. If our tithing and fast offerings are the first obligations met following the receipt of each paycheck, our commitment to this important gospel principle will be strengthened and the likelihood of financial mismanagement will be reduced. Paying tithing promptly to Him who does not come to check up each month will teach us and our children to be more honest with those physically closer at hand.”
I also believe that paying tithing invites God to bless us financially and spiritually. In Malachi 3:10-11 the Lord explains it far better than I can, “Bring ye all the tithes into the storehouse, that there may be meat in mine house, and prove me now herewith, saith the Lord of hosts, if I will not open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it. And I will rebuke the devourer for your sakes, and he shall not destroy the fruits of your ground; neither shall your vine cast her fruit before the time in the field, saith the Lord of hosts.”
Save $1,000 and Avoid or Snowball Debt
Dave Ramsey suggests you save $1,000 first. This helps you avoid further debt from unexpected expenses. Save it in cash or a bank account that you can easily get to if needed.
This takes a lot of self-restraint and self-discipline. One for the Money has a couple of good sections about this: “learn to manage money before it manages you” and “LEARN SELF-DISCIPLINE AND SELF-RESTRAINT IN MONEY MATTERS”.
When you are debt-free you can save and invest. It allows you to actually make progress. To avoid debt, remember that you can be happy on very little (see “How to Be Happy When You Are Poor”). For every purchase, assess whether it is a need or a want. Also, make a budget so you know where the money is going. We will go into budgeting in detail in a minute.
Another tip for avoiding debt is to remember the WWII slogan, “Use it up, wear it out, make it do or do without.” This slogan has helped me over the years. The scripture, “Thou shalt be diligent in preserving what thou hast…” reiterates part of that slogan. (D&C 136:27)
Debt can be inevitable sometimes because of Sickness, death, accidents, etc. If you are in debt, it is wise to “snowball” your debt. There are a worksheet and instructions for this in One for the Money.
Budget
It takes a budget to be able to save money and avoid debt on a low-income. Budgeting puts you in charge so that you tell your money where to go instead of being controlled by the money. You know exactly what is going on in your accounts and aren’t surprised when the money is out.
The Budget Spreadsheet
I do my budget in a spreadsheet on Google Drive because it’s free and I can access it from my computer or phone. I have made a Sample Budget that you can copy and customize if you would like to use it. In the Sample Budget, there are several sheets. One is for the budget and I name it the dates of that pay period.
Each time we get paid I duplicate the last pay period sheet and then rename it the dates for the current pay period. Then, I erase the details from the previous pay period that were copied. The first column under expenses, “Monthly Expenses”, usually stays the same. I copy and paste the amount from “Actual Expenses” for the last pay period and paste it into “Spent Last Pay-Period”. Then I plan out the column “Expected This Pay Period.”
I also list our Equity in our budget and update it every now and then. Reviewing it can be encouraging when you are doing without things you’d like but can’t afford. Financial Goals are listed in the spreadsheet to review from time to time. Goals can give you direction, perspective, and motivation to budget.
A sheet for a list of things you are Saving Up For helps prioritize spending and avoid impulse buying. I have found that I end up deleting things off my list after a while because they no longer seem important.
The last sheet in the Sample Budget is “Annual Expenses/Lump Savings.” These are bills only paid once a year that you may forget about if they are not recorded. Lump Savings are things that, on a low-income, we might not be able to fit into the budget unless we put money aside for them (like family photos, birthdays, car repairs, etc).
Steps For Doing a Budget on a Low Income
1. Record Income
I do this in the “Income” section of the spreadsheet
2.Pay Tithing and Fast Offerings
3.Plan Bills For that Pay Period
Look at the dates bills are due and see which ones fall in that pay period. Remember the annual bills or expenses you listed in “Annual Expenses/Lump Savings”.
I like to plan on the spreadsheet as well as a paper printout from the self-reliance program (page 75 of the pdf personal-finances-na-eng.pdf). I like the print out because it is a simple version for just that pay period. But, I need the spreadsheet because it holds bill dates for the month, keeps a history of our budgets, and has other important information. I print this by selecting page 75 only.
4.Plan a Financial Cushion
This is an amount of money you leave in your account so that your balance never goes below that. I started doing this because when I planned my budget out to $0, as Dave Ramsey suggests in Financial Peace University, I ended up getting overdraft fees due to my own miscalculations, bills I forgot, or unexpected transactions. If you
5.Plan Adjustable Expenses
Our adjustable expenses for food and allowances usually stay the same. Any money left over we divided in half for “other” and “extra savings”.
Envelop System– I started withdrawing the money we had planned to spend for adjustable expenses and putting it into separate envelopes. Paying with cash from the envelopes at the grocery store or Walmart helps me not go over budget. If I buy something online from one of the envelope categories, I deposit money from that envelope into the bank to cover it.
6. Record Actual Amounts Spent as Bills Process and Purchases are Made
This needs to be done regularly. Before I had kids I would check my bank account daily and record each transaction. Now, I do it about once a week, as needed, or at least at the end of each pay period. Cash spent from the envelop system doesn’t need to be recorded as separate transactions.
7.Add totals at the end of the Pay Period in the Spreadsheet
8.Adjust Budget as Needed
Council Together in Marriage
Usually, in a home, one person will be inclined to do the budget. I have also heard of couples taking turns. Either way, whoever does the budget needs to show it to the other person and get their input. It is everyone’s responsibility to be involved. Dave Ramsey says to make sure the person who didn’t do the budget makes some kind of change to it.
Great communication helps with conversations about money. I highly recommend the book Crucial Conversations by Patterson, Grenny, McMillan, and Switzler. That book might’ve saved our marriage because we liked each other a lot better after we started doing what it taught. It really helps people feel safe sharing their true thoughts and feelings. It also teaches people how to come up with ideas together that neither individual had in the first place.
One year we had a meeting about what to do with our tax return. We started with a prayer. We both shared all of our thoughts and ended up changing what we had been doing in the past years and made some new savings goals that we both felt really good about.
Save 3-6 Months Income for Emergencies
After you have $1,000 and are out of debt, Dave Ramsey suggests saving 3-6 months of income for emergencies. This gives you further peace of mind and freedom from debt.
Use Your Tax Return For Smart Financial Goals
If you are employed and on a low-income, you probably get a tax return. For most people, their tax return means a spending spree. Only you and your spouse can assess what you really need. A new car may be important for your situation. Pray about what to do with a large amount of money. Council together and maybe get advice from people that are wise with money.
I would advise putting it towards important financial goals like:
- $1,000 Emergency Fund
- Pay off Debt
- 3-6 month Emergency Savings
- Annual Expenses and Bills (like Christmas, Car Registration, Life Insurance Premiums, etc),
- Investing
- Mortgage Principal
Invest, Even On A Low Income
A lot of people on a low income don’t believe they have enough money to invest. However, who needs more help saving for retirement than people on a low income?
A 401K is a great opportunity if your employer offers it because they will generally match the money you invest 50-100%. If you can’t get a 401K, a mutual fund or an IRA (which includes mutual funds) are low-risk investments with good returns.
The average rate of increase for a Roth IRA is 7-10% a year. (see What is an Average Roth IRA Return? By Ashley Chorpenning.) At that rate, if you invested $1,000 at age 18 it would grow to $24,046-$88,197 by the time you were 65 and able to withdraw the money tax-free. Compound interest is powerful.
I suggest opening your own Roth IRA or Mutual Fund as soon as you can after you are 18. “The minimum initial investment for Vanguard Target Retirement Funds and Vanguard STAR Fund is $1,000.” (Open an IRA account in 3 Easy Steps by Vanguard)
Dave Ramsey suggests investing 15% of your income each year. On a low-income, we could only afford to do that if we invested almost our entire tax return. Otherwise, 15% was too large of an amount for us to invest and also meet our monthly expenses. But, we automatically transfer some money to our investments each month.
Pay off Home
Your rent or mortgage should not exceed 20% of your income. So, purchase a house that is reasonable for your income.
You can take years off your mortgage by paying extra money towards the principal early on. When it is paid off it will be like getting a raise because the money you usually spend on your mortgage payment can go towards something else.
Money is to Help God’s Work On the Earth
When we are self-reliant we can help others. My goal for prosperity is to have what I need and to relieve suffering in the world. This doesn’t mean I will never go on vacation or improve my lifestyle, but I want to keep in mind people in Africa, India, etc so my lifestyle is not extravagant compared to them (too late 😕).
I want to council with the Lord and live by the Spirit regarding money matters (and everything else) so that I can provide well for my children, enjoy my life, and at the same time help as many people as possible.
When we follow sound financial principles we can have financial freedom and prosper even on a low-income.
thankyou