The perceived complexity of financial planning often leads to frustration and indecision by many families.  In last month’s column, we explored a simplified approach to financial planning by looking at the five short-term uses of money.  Money can be used in only one of five areas in the short-term: giving, lifestyle, repayment of debt, taxes and cash flow margin.  As you accumulate money from your cash flow margin, you grow your net worth for the purpose of meeting one or more of only six long-term objectives.  As we continue with part two of our look at a simple approach to financial planning, let’s explore those six long-term objectives.

Financial independence 

College education  

Paying off debt 

Major lifestyle desires 

Major charitable giving 

Owning your own business 

Financial independence means that the resources you’ve accumulated will generate enough income to fund all your short-range objectives, with the exception of savings. (Savings are no longer needed if enough has been accumulated).  Once you know what your short-range objectives are, you can easily calculate how large an investment fund is necessary in order to be financially independent.

In addition to accumulating for the purpose of achieving financial independence, couples with children may want to accumulate money in order to meet the major expense of college education. Many people also have a major long-term goal of being completely out of debt, including the debt on their home.  I believe it is a tremendous long-term objective to be totally debt free.

The long-range objective of major lifestyle desires is the area that makes each person unique.

The objective could be a larger home, a second home, a new car, a particular vacation, redecorating or remodeling the home, and so on.  

Many families have a desire to see significant portions of their resources given away for Kingdom impact.  God’s Word is clear that there is no better return on investment than money that compounds at eternal rates as it is used for eternal purposes. Lastly, you may want to accumulate in order to start your own business, which is also a legitimate long-range goal.

If you define and quantify these long-term goals, then you will have answered the question, “How much is enough?”  You will then know what your “finish lines” are.  It is much like a runner who runs the race until he breaks the tape.  Very few runners continue after they have broken the tape.  Yet in our financial lives, many of us never stop running because we do not know where the finish line is. We have never quantified where we are headed, and therefore we do not know when we have arrived. My challenge to you is to determine where you are going, both in the short-term and in the long-term.

As you consider these difficult decisions, it is important to begin with prayer.  Ask the Lord to give you insight about the appropriate lifestyle for your family, as well as the goals for your family. Next, consider applying three key financial decision-making principles.

The first is that all financial decisions involve making difficult choices.  If you make a decision to use financial resources in any one area, you have chosen not to use those same resources in other areas.  This means that if you choose to set aside money for college education or financial independence, you no longer have that money available to spend on giving, lifestyle desires, or debt repayment. By the same token, if you decide to spend money on lifestyle desires, you no longer have those same resources available for any other short-term or long-term goals.

The second principle is that the more long-term your perspective, the better the possibility of making a good current financial decision.  Financial maturity can be defined as being able to give up today’s desires for future benefits.  If I choose to give up something today in order to accumulate or save for tomorrow, I have probably made a wise financial decision.

The third principle is the lifetime nature of financial decisions.  Money is either used consumptively or productively. Anytime money is used consumptively, it is gone forever and can never be used for anything in the future.  I like to remind those with whom I counsel that decisions determine destiny.  Once I make a decision either to save or spend, I have determined, to some extent, my destiny.  You, of course, have to accept the truth of this implication – you cannot have everything you want when you want it.  

Success involves knowing what God would have you be and do and how to achieve that, so that when you stand before Him, you will hear Him say, “Well done, good and faithful servant.”  When money becomes your focus, you are doomed to disappointment Him because money is merely a resource, and was never intended by God to be anything more than that.

Rob West is the Training and Communications Director for Kingdom Advisors, a non-profit Life that exists to equip and prepare Christian financial advisors to integrate their faith and profession. Please send questions and comments to [email protected].

The information in this article is for informational purposes only and does not constitute advice. You should not rely on any information in this article to make (or refrain from making) any decision or take (or refrain from taking) any action.