I’ve already mentioned margin in a couple of previous posts, but today and tomorrow I want to devote the entire posts to this important concept. Margin at its simplest means leaving extra room when we budget our time and money, so we’ll have some extra when we need it. Most Americans are all too aware of what it’s like to have margin in neither–to live paycheck to paycheck, and day to day without much of a plan for how to provide margin in either bank accounts or calendars. By definition if we are going to lead we must be different than most Americans when it comes to margin. We must budget both our time and our money intentionally, because if we don’t plan our time someone else will, and as John Maxwell has said, “If you don’t tell your money where to go, you’ll wonder where it went. Leaders need margin if for no other reason than to have more time to think and more resources to apply to leadership opportunities.
I want to be extremely practical with these posts, and not just theorize about what it might look like to put some margin into our calendars and bank accounts. While I learned a long time ago that there is no one “right” way to do most things, particularly when it comes to something as individualized as planning the use of one’s time and money, so I will provide examples today and tomorrow describing what has worked for me. These will not be prescriptions of what will necessarily work for you. I have found quite often that when I read another’s examples of how he or she does something, while it might not fit me exactly, it’s a helpful place to start, rather than totally reinventing the wheel.
For the remainder of this post, let’s consider budgeting money. While I have studied just about every financial planning process out there with a Christian slant, Nancy and I have found that Joseph Sangl’s simple formula I-O=EZ proves quite helpful. The letters in the formula stand for I=Income; O=Outflow; EZ=Exactly Zero. In other words if you add up all your sources of income over a specific period: a week, every two weeks, each month, or whatever your pay periods happen to be, and then subtract all of your outflows over the same period, they need to EQUAL exactly zero. Remember that the outflows include giving and saving, along with all of the typical expenditures and commitments you have made with your money. I like the 10/10/80 “rule” as a guideline for how to disburse our income. The first 10 represents the percentage we give, the second 10 represents the percentage we save, and the 80 represents the percentage devoted to paying all the rest of the bills.
The first time Nancy and I put a budget together and got serious about following it we were surprised by two things: 1) John Maxwell was right! We didn’t realize how much money we were spending that we didn’t know we were spending. 2) Including EVERYTHING in the Outflow area is both crucial and challenging. It’s crucial, because if you don’t know exactly how much you are spending, you won’t be able to balance your budget (or spending plan, as I like to call it!). It’s challenging because the first several months we put together our spending plan, we had to keep adjusting the totals, because we forgot things. We forgot what we call the “1/12 items.” 1/12 items are bills that come due once a year. If you put aside 1/12 of the amount each month, then when the annual bill comes due, you will have the amount you need. A couple examples of 1/12 bills in our lives are life insurance and Christmas presents. Nancy and I each have a life insurance policy that comes due once a year. We simply divide the total cost by 12 and put that amount in a special checking account each month. Then when it comes due, we write a check from that account. We have a Christmas savings account, because we want to have money to buy Christmas presents, and since Christmas is always on December 25th, we start saving the first week of November the year BEFORE the Christmas for which we’re saving. We put $50 in the bank every two weeks (now that we get paid every other week), and then at the end of October we have $1,200 to spend on Christmas. We usually don’t spend that much, so we donate the rest to a charity such as Samaritan’s Purse. We remembered the Christmas 1/12 expenditure several years ago, and it’s been fun to look forward to buying Christmas presents and knowing we won’t be paying for Christmas into the following year.
Nancy and I also found out that our original outflow number was larger than our income. When that happens there are only two ways to balance the equation: add more income or subtract expenses. It’s simpler (not necessarily easier) to subtract expenses. Nancy and I found that we had some “fat” in our spending plan so we started cutting there. We also realized that our savings in various areas are the MARGIN that we’ve been talking about in this post. When we have an emergency fund, (which we do, now!) and an emergency comes up, such as an expensive car repair, or a root canal, or any true emergency, we have money to pay for it. That way we don’t find ourselves using a credit card to pay for emergencies, putting us back into a cycle of debt.
At this time we’ve been working our budget for years, so we’ve been able to eliminate all debt with the exception of the remainder of our home mortgage, and we have developed several additional “margin” accounts. We have an appliance replacement fund, a car replacement fund, and a major repair fund to which we contribute every month. That way when the stove stops working, or the roof needs to be replaced down the road, or we want to buy a new couch, or replace a car we have the money to do so. What we have found is that by putting $25 or $50 away each month in these various funds, the margin increases fairly quickly. Thankfully, a roof only needs to be replaced every thirty years, and a stove every 10-15 years. If you put these replacement funds in the Outflow portion of your budget the money will be there when those eventualities become realities.
If you’re thinking: I could never do all that! The truth is all of us can take a next step from where we are. Nancy and I didn’t realize that we would ever be at place to consider all these eventualities when we first started using the I-O=EZ formula, but what we noticed within a few months was we started to have a little margin. It wasn’t much, but it was there. Over the years the margin has grown. We still don’t have a great deal of day-to-day margin, but we know that a blown transmission, or a broken dishwasher is no longer going to blow our budget. We also know that when a giving opportunity comes up and we believe God is calling us to give to it, we are able to say, “Yes!” far more often than we used to be able to do. That’s a great blessing.
The key is: the younger you are when you start to develop margin in your finances, by developing a workable spending plan and sticking with it over time, the sooner you will have margin and the more margin you will have. As the old saying goes, “The best time to plant an oak tree is fifty years ago. The second best time is today.”
Here’s to leading better by creating or using a spending plan to create or increase margin in our finances–today!