Financial Freedom Series: The Break-Even Money Manager
Welcome back to our Financial Freedom Series, where we’re looking into God’s Blueprint for Building Wealth and Managing Your Money Well!
We dive into biblical principles and cutting-edge money management wisdom to help you…
- Honor God with your money
- Build wealth
- Shrink your debt
- And build toward financial freedom
Over the last two weeks, we looked at the importance of improving your CASH FLOW so that you can build your WEALTH FLOW. We examined the importance of having an INCOME STATEMENT and a BALANCE SHEET, as this can help you revolutionize your money management.
What is Your Income Statement?
An INCOME STATEMENT is a statement that clearly shows your INCOME and your EXPENSES.
INCOME refers to money that you EARN and causes money to FLOW IN.
EXPENSES refers to the money you SPEND and causes money to FLOW OUT.
Your income statement will show the FLOW of your CASH.
If you spend less than you earn, you will have a POSITIVE CASH FLOW.
If you spend more than you earn, you will have a NEGATIVE CASH FLOW.
Your INCOME brings wealth flowing IN.
Your EXPENSES cause wealth to flow OUT.
| YOUR INCOME STATEMENT… INCOME – EXPENSES = CASH FLOW |
What is Your Balance Sheet?
A BALANCE SHEET is a statement that clearly shows…
- Your ASSETS
- Your LIABILITIES
An ASSET refers to any ITEM OF VALUE that can be converted into cash – WHAT YOU OWN.
Your assets include…
- Cash in your bank savings
- Investments
- Property
- Personal items
Your assets have the potential to earn extra income through interest, dividends, and rental income, which will cause more money to flow back into your income statement.
A LIABILITY refers to any DEBT you have to re-pay, usually with interest – WHAT YOU OWE.
Your liabilities include…
- Loans
- Mortgage (home loan)
- Credit and store card debts
- Vehicle finance
Your liabilities will increase your expenses, causing more money to flow OUT of your income statement.
Your BALANCE SHEET will give you a good understanding of your NET WEALTH.
| YOUR BALANCE SHEET… ASSETS – LIABILITIES = WEALTH PORTFOLIO |
To create WEALTH, your ASSETS need to be greater than your LIABILITIES.
If you spend all you earn, you will NOT BUILD UP ASSETS.
If you have too much debt, all your income will go towards LIABILITIES.
| INCOME STATEMENT | BALANCE SHEET |
| INCOME: Use your hard-earned money wisely. Save and invest so that you can turn your income into assets. | ASSETS: Growing your assets will lead to building your wealth portfolio and will bring in more income. |
| EXPENSES: Cut wasteful expenditure and spend less than you earn. | LIABILITIES: You need to shrink your debts. |
Last week, we asked, WHAT TYPE OF MONEY MANAGER ARE YOU?
Do you GO WITH THE FLOW, or do you have a PLAN?
Are you a SPENDER or a SAVER?
Are you creating DEBT or building WEALTH?
Are you BREAKING-EVEN even each month, just spending all you earn?
Are you SHORT each month, thereby needing to take on debt or max out the credit card to get by?
Are you able to spend less than you earn, thereby being able to TURN YOUR INCOME INTO ASSETS?
The way you manage your money each month will affect your short-term stress or joy levels and shape your financial future. Will your current money management leave you broke or financially free in the future?
The simple day-to-day choices you make regarding how you manage your money often only show up in later years.
Are you setting yourself up for a brighter tomorrow, or is your current money management sabotaging your future goals and dreams?
The good news is that if you are prepared to change the way you manage your money, you can change your future destiny.
What Type of Money Manager Are You?
Over the next few weeks, I want to look at 4 types of money managers…
- BREAK-EVEN MONEY MANAGER
- THE SPENDER
- THE MIDDLE-CLASS MONEY MANAGER
- THE WEALTH BUILDER
Over the next few weeks, we will also show you how to improve your money management.
You can become a wealth builder and work towards financial freedom by making a few simple changes.
So today, let us unpack…
Break-Even Money Manager
If you are a BREAK-EVEN MONEY MANAGER, you will SPEND ALL THE INCOME YOU EARN each month.
If your income increases, you spend more. You will live pay cheque to pay cheque.
If you are a break-even money manager, you may stay out of debt because you will only spend what you have available. Unfortunately, you will also never build up your assets if you spend all you earn each month.
As a break-even money manager, not having debt is good as it removes the day-to-day cash flow stressors. However, if you never save and invest, you will not build up your assets, and this will leave you having to work forever, as you will never build up the assets you need to fund your future income needs.
If you want to break the break-even money management mentality, you need to limit your spending and save part of your income.
You do NOT have to SPEND ALL YOU EARN. You can choose to live within your means and INVEST part of your income, thereby building your wealth portfolio.
Are you spending all that you earn?
Break-Even Money Manager:
| INCOME STATEMENT | BALANCE SHEET | ||
| EXPENSES: Spend R10,000 p.m. | LIABILITIES: No debt | ||
| ASSETS: No assets | LIABILITIES: No debt | ||
| CASH FLOW: R0.00 (BREAK-EVEN) | WEALTH PORTFOLIO: R0.00 (STAY POOR) |
Problem:
As a break-even money manager, you spend all your income, and while you have no debt, you never build your wealth portfolio.
Solution:
By investing part of your income each month, you can start converting your income into assets, thereby building towards financial freedom.
“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.” (Proverbs 21:5)
Next week, we will examine THE SPENDER MONEY MANAGER and give you the solution to break the cycle and work towards financial freedom.
In Summary…
- Your income brings money flowing in.
- Your expenses cause your money to flow out.
- To create wealth, you need to spend less on your expenses.
- By cutting down on your liabilities, you will improve your cash flow, and by reviewing your budget, you can cut back on non-essential income stealers.
- By investing part of your income, you can turn your income into assets, thereby building wealth.
- As you shrink your liabilities and build your assets, your wealth portfolio will grow. This, in turn, will generate extra income, thereby improving your cash flow and wealth flow.
“The wise man saves for the future, but the foolish man spends whatever he gets.” (Proverbs 21:20)
If you build margin into your budget and start investing your surplus income, you will BUILD WEALTH, which will SET YOU UP ON THE JOURNEY toward FINANCIAL FREEDOM.
How Are You Managing Your Money?
Become a good money manager. It is your time to build towards financial freedom.
- YOU CAN TURN YOUR INCOME INTO ASSETS!
- YOU CAN BE A GOOD MONEY MANAGER
- YOU CAN BUILD WEALTH
- ABOVE ALL, DON’T FORGET JESUS
- MAKE JESUS THE CENTER, FOR HE IS YOUR SAVIOR AND WANTS TO WALK THE JOURNEY WITH YOU.
“I will guide you along the best pathway for your life. I will advise you and watch over you.” (Psalm 32:8)
