When we last visited I outlined some of the basic principles that need attention to more effectively chart our financial course in life. The start of any journey requires proper preparation, and that’s what ‘the beginning’ is all about. Today we’ll revisit briefly those concepts, put the pieces together and look at another exercise for the parents among us.

The four elements of financial living we’ve looked at are:

• What we have already
• What we owe
• What we earn
• What we spend

Knowing what we have and what we owe allows us to create a Balance Sheet. Our assets (what we have already) minus our liabilities (what we owe) show us our Net Worth. Understanding what we earn and what we spend allows us to create an Income Statement. Our income (what we earn) minus our expenses and other debt payments (what we spend) show us our Net Income. Each is a point in time snapshot of the key elements of our financial health. Ideally, over time our Net Worth grows and our Income Statement never goes negative, or ‘into the red’.

While both an accurate Balance Sheet and Income Statement are elementary tools, it’s surprising how few can produce either when asked. For those who handle their finances manually, the task of creating an Income Statement should be undertaken once a month. A Balance Sheet should be updated at least quarterly. Both should be maintained with your other financial records. Since family finances are a ‘team sport’ it is important for both spouses to review these documents, and it’s even better if both participate in creating them. Also, if there are children, these are worth sharing in an age appropriate way. Our children need to understand how money works. It’s vital to their better future.

As an alternative for doing this work manually, I’m a big believer in Quicken or other similar software programs that are available at a nominal cost. My family tracks EVERYTHING in Quicken, even logging cash expenditures and others at a very detailed level. At first, it was tedious and seemed overly time consuming, but today it’s become something we look forward to doing as we chart our progress forward. And it’s even paid us back, by allowing us to fully maximize our deductions at tax time and in a host of other ways.

Next, let’s look at the concept of budgeting.

In this series, we’ve now talked at length about leadership that must be exercised in the home in regards to the family’s finances. We’ve indicated that the basis for all financial activities and decisions is a family Budget. Saving and Investing must be part of that budget to meet unforeseen expenses and things the family cannot currently afford without taking on debt. Another important step for many is to establish an intentional and teachable pattern of Giving to meets needs of others outside of the family. None of these things is automatic or easy. They require time, effort, and communication. But to fail to do so is to fail to lead the family. In my final post in this series, I want to talk about planning for the worst.

My 17-year old son came home from work the day after Thanksgiving with quite a story. He works as a cashier for a large grocery chain, and part way through his shift, all of the computers went down…those that control the music (important during the holidays), but more importantly those that control the registers. Certainly the store had a backup plan for when something like that happens, right? Wrong! The store manager reluctantly locked the front doors, preventing anyone else from coming in. Those that were already shopping were allowed to check out through a single line, where the prices of each item were estimated based on the manager’s memory and adjusted if the customer thought his guess was inaccurate. The store, of course, could only take cash since the credit card machines were down, and that had to be rounded to the nearest dollar since the computers controlled the automatic change machines. What a mess! You’d think they would have at least had all of the prices kept on a laptop with a portable bar code scanner. But the store manager stated that he had never seen this happen in 14 years, and he obviously assumed it would never happen.

So what does your family do when the unthinkable happens?

As I continue to discuss the importance of providing financial leadership in the home, I want to point out that I am not approaching this as exclusively, or even primarily, the husband’s or father’s role. In some cases, the role of administering the family’s finances falls to the husband and in others to the wife. Some couples choose to perform the tasks jointly or interchangeably. In still others, one handles the bill paying and bookkeeping chores while the other makes more strategic decisions. This structure is often based on skills, interests, or availability, and I don’t believe that any one is necessarily better or more effective than the others. That said, both spouses must ultimately be in agreement on the choices that are made…especially in regards to the family budget (please see my earlier post regarding the importance of a Budget).

An important area where there must be thought and agreement is in Giving. Will any of the family’s income or other financial resources be used to meet the needs of others, outside of the family? It may be as straightforward as traditional tithing to one’s church or as spur of the moment as helping buy groceries for the person ahead of you in line at the supermarket who is short of cash to cover what they have in their cart. It might be contributing to the United Way at the office or directly to charities such as the Red Cross for earthquake or hurricane relief. Giving is a very personal thing. What seems a very worthy or important cause to one may seem silly or naïve to another. But the point is to share one’s resources with others in need.

Assuming a family decides that it does have an obligation or at least a desire to help provide for others, the giving must obviously be built in to the family’s budget. As we discussed in a previous post, this does two things.

As we continue to look at a leader’s responsibility to take a proactive and intentional approach to managing their family’s finances, I want to state that I do not intend in this series to focus on the critical importance of eliminating financial debt. The crushing impact of adding the cost of servicing debt (i.e., interest) to the family budget has been well documented by many authors, counselors and commentators…most notably, Dave Ramsey. And actively and aggressively working to reduce and eliminate debt will have an even larger impact on the monthly budget in the short term. But it must be done. My assumption in this series of articles is that any necessary debt elimination is built into the family’s budget.

Another critical category of the family budget is Saving and Investing. When it comes to budgeting, most of a family’s monthly expenses are known and somewhat predictable. The rent or house payment are constant each month. Purchases of food and clothing can be controlled in most cases to remain within a preset spending limit. Although the electric bill can fluctuate greatly during different times of year, prior year usage can be a good predictor of what to expect in the future, so it also is predictable. However, car repairs, medical expenses for illness or injury, or a water heater that goes out (as mine recently did) are much harder to accurately predict. So the first type of Savings that must be built into the household budget is for emergencies and unpredicted expenses. Call it, as Dave Ramsey does, an emergency fund, or just call it good old boy scout advice to “be prepared”. Regardless, if you’re buying things you want but don’t need and not saving for unforeseen expenses, you are not managing your resources well.

The second type of saving is

In my recent post about Financial Leadership, I stated that many leaders find their financial responsibilities at home continually failing to reach the top of their priority list. Other things seem more urgent, more interesting, or just easier. However, finances are an area that a leader in the home simply cannot ignore.

The foundation of financial responsibility, whether in an organization or in a home, is a Budget. Much like other areas of leadership, creating a budget is a proactive, forward looking activity. Simply reacting to financial needs and decisions as they come rather than planning and providing vision is, by definition, not leadership. Most financial obligations are predictable, and even financial surprises can be anticipated and prepared for.

There are many methods and tools for budgeting. With each, the objective is to decide, in advance, how the family’s money will be spent. Beyond the basic food, shelter, and clothing, it also requires determining what is (or what should be) important to the family, and often times prioritizing those discretionary items. My goal here is not to provide a “how to” lesson or to give financial advice, but rather to encourage you who strive to be leaders to take this basic step if you haven’t already. Having a carefully prepared budget provides the justification to say “no” to discretionary spending that cannot be supported by the current income, and it also makes it easier to say “yes” when the family wants something that is within its means and consistent with its values.

I’ve been on more than my share of finance committees and served as Treasurer for numerous churches and non-profits. And I’ve come to realize that those who do not enjoy this type of work can be as passionate about avoiding financial chores and discussions as those that are gifted administratively are about ensuring proper planning, monitoring and reporting of the financial activity of an organization.

Likewise at home, many otherwise fervent leaders often find that anything and everything seems to take priority over doing those things that are necessary to provide financial leadership for their families…things such as Budgeting, Saving/Investing, Giving, and protecting the family’s wellbeing with a Will and Life Insurance.

If there are children in the home, these things become exponentially more important. The children must be protected financially in the event of the loss of one or both parents, the loss of job(s), a natural disaster or medical issue as well as educational needs. Preparing for these possibilities may involve sacrifice, both in terms of the time that it takes to plan, research, execute, and steward these activities as well as the money itself that could be spent on other things with more immediate and probable gratification.

Of parallel importance is the responsibility to lead by