Managing Your Personal Finances

Dave, I am finding it difficult to manage my personal finances. As a commissioned salesperson, my income varies from month to month. It seems like I'm always struggling with finances. Do you have suggestions for me?

Congratulations for having the courage to ask that question. Do I have suggestions? Yep, a bunch of them.

First, a little perspective, so you know from where I'm coming. For almost my entire adult life, I have been a commissioned salesperson whose income varied from month to month. Even now, my income varies monthly. So, I can certainly understand your situation on the income side. On the expense side, there have been times when I had obligations that, at times, seemed overwhelming. My wife was a full time homemaker, we raised a family of five children, and for many of those years I also had child support payments. Those were heavy financial responsibilities.

In all of this, I have learned some things about managing personal finances. Here are some of the lessons I have learned along the way.

First, as much as possible, avoid debt. Debt adds tremendously to your stress. You know that you must make those payments or you are going to have lots of unpleasant consequences. That may be constantly on your mind, contributing to sleepless nights and rising blood pressure.

Debt reduces your options. If you have monthly payments, for example, they must be paid even if you have a bad month or two. Without those payments, you can generally find a way to ride out low income months by temporarily reducing your standard of living. You can eat in every day, for example, instead of buying pizza or going out. Without monthly payments, you can even survive a few months of no income at all.

And the interest you pay eventually reduces your standard of living, because your interest payments are expenses that bring you no value.

So, be careful about putting anything on that charge card. And if you do, try to pay it off each month. Deciding to make just minimum payments is one of the most expensive decisions you'll ever make.

Also, be careful about any long term commitments. Instead of a three year lease on a new car, think about buying used and paying it off in two. Instead of a two year lease on that apartment, try 12 months. You may not ever be able to be totally debt free. However, you can make decisions which, over time, will significantly reduce your amount of debt, easing the pressure on you and allowing you more options.

Second, develop a monthly budget for reasonable living. In good months, don't spend the excess, put anything you make above that amount into a savings account. In bad months or years, tap into that savings account to meet your budget. At the end of the year, use some of the excess that you've build up to make those big purchases that you were tempted to put on a charge card during the year.

For example, say that you set up a budget of $4,000 a month. In January, you take home $4,400. Of that, $400 goes into the savings account, and you live on $4,000. In February, you take home $4,500. You repeat the discipline, putting $500 away. In March, you take home $3,500. You take $500 out of the savings for your day-to-day expenses. When you've built up a comfortable surplus, buy those big things that you'd like to have.

This is one of the best things that I ever did. Even to this day, my wife and I operate on a budget. Here's an example. We have a certain amount of money dedicated each month to "entertainment." We use this for meals out, concerts, etc. When the money's gone, we're done. If we want to go out to eat, but don't have any money in the entertainment budget, we don't go. It's called deferred gratification, and it's the secret of surviving financially in a turbulent environment.

A number of years ago, I was involved with a group that had an excellent budgeting system, and taught it in small groups that met in homes. If you are interested, check out Crown Ministries.

Finally, one last thought. This will sound counter-intuitive, but I have followed this rule for all of my adult life, and have found it to be extremely powerful. That rule is this: In times of economic uncertainty, increase your giving.

There is something about giving that helps you put your situation into perspective. It focuses you on people around you who need help in ways that you don't. It gives your family a broader perspective, injects new purpose into your life, and encourages everyone to be less self-centered.

Realize that I'm coming at this from a Christian perspective. There is a promise in the Bible that says we cannot out give God. When we give of our time and talents, God will respond by returning to us much more than what we have given. I have found that promise to be as bankable as my paycheck.

You may not share my perspective. Regardless, just from a purely pragmatic point of view, there are still some very practical reasons to increase your giving. When you get involved in some volunteer organization, you mix with a different group of people than that with which you are accustomed. New people, new situations, new issues are all invigorating for salespeople. Also, you'll find, through your investigation of places to which to donate time and money, lots of people who need help a whole lot more than you do. That helps you put your situation into perspective. And that helps you stay positive, optimistic and effective.

Think of giving in two ways: giving of your money, and donating your time and talent.

If you have some organization, cause or church to which you regularly donate, consider increasing your donation. If you don't, now is the time to find some place to donate some of your money.

Find something in which you can donate your time. If you are not involved in some volunteer work, find someplace to give of your time and talents. For a number of years my wife and I were foster parents, caring for a total of 19 children of various ages, races, and emotional and physical disabilities. It kept us humble, broadened our lives, and taught us a lot. I'd recommend you find something like that - something into which you can invest your time and talent.

It really is the difficult times in your life, and your reaction to them, that shape your character and make you a better person.