If you are like most people, you hardly know where your last paycheck went.

You might be flabbergasted to see just where your money disappears—the wasted dollars, pounds or euros that could have been put to good work elsewhere.

Every successful business operates on a budget. Whether you are with or without debt—in a low-income bracket or high—if you would rather live on Boardwalk than the poorhouse on Baltic Avenue, you need to establish a budget.

But how?

The Necessities

Here is the basic rule for sensible budgeting: Never plan to spend more than you can afford.

In the past, financial planners in the U.S. said to spend no more than 20 percent of your income on housing. During the housing bubble years of the late 2000s, many planners adjusted that estimate up to 40 or even 50 percent. In the post-bubble era of recession and contraction, it is prudent to spend no more than 30 percent. That figure includes utilities and repairs as well as the rent or mortgage payment. (All of the percentages given here are to be figured on your net income—after income taxes and other deductions have been taken from the gross amount of your check.)

Food and groceries will generally take up 10 to 15 percent of your net income. This includes miscellaneous items purchased at the grocery store such as toothpaste, hair products, soap and so on. Those with large incomes can apportion a smaller percentage here and a larger percentage to some other category. If you have a large garden, you may apportion less since you grow much of your own food. Larger families, on the other hand, may have to increase this percentage to be sure their budget allows for an adequate, wholesome diet.

Shoppers are often too hurried to notice prices. Many are unaware of the high cost of certain kinds of items. But it is also important not to skimp on food. Don’t let the price drive you to eat cheaper, less-healthy foods. Instead, cut down your other expenses to allow enough money for a healthful diet.

To get the most healthful food for your money, be bargain conscious. Watch for specials, and eat plenty of fruits and vegetables—organic when possible. You can also save money by not buying the most expensive cuts of meat. By being careful and prudent, you can cut down your grocery expenses considerably and still eat healthy.

Your clothing budget may range from 5 to 10 percent of your net income, depending on regional climate, season and occupation. Buy only the type and quality of clothing that your budget will allow. Control your desires for expensive clothes if you cannot afford them. Be very careful about using that department store credit card; it can ruin you before you know it.

After the Necessities

Next after these three basic necessities comes transportation. Car payments, if any, gas and oil, insurance and repairs must be included. Don’t forget that cars need repairs and preventive maintenance to keep them in safe running condition. If you cannot afford a car, don’t buy one. You may need to explore the availability of public transportation instead. If you can afford a car, stay within your ability to pay for it. Endeavour to keep your transportation costs between 10 to 15 percent.

Be sure you carry at least the minimum auto insurance required by your state. You should also carry life insurance if you can possibly afford it. God’s Word testifies that certain events will transpire and befall all men. It’s appointed to man once to die (Hebrews 9:27). And “time and chance happeneth to them all” (Ecclesiastes 9:11). Therefore, faith, wisdom, common sense and prudence alike dictate that we should be prepared for unforeseen eventualities. Having insurance is being responsible. In fact, it is showing love toward your neighbor. But don’t let the combined premiums for all your insurance climb beyond 5 percent or so of your net income.

Other smaller items that you are apt to overlook are entertainment and pocket money. Though many feel that entertainment or recreation are luxuries they cannot afford, the truth is that some form of diversion is necessary to maintain a happy family. Plus, budgeting for these expenses keeps them from consuming more of your income than they should.

Pocket money for miscellaneous small expenses not included elsewhere in the budget—such as haircuts and newspapers—is also important. Without money in your pocket to buy what you need when you need it, you can feel like a pauper even though you have a comfortable balance in the bank.

Also, it’s critical that you apportion part of your income to savings. More on that in a bit.

These overall guidelines will help you establish a practical, balanced budget.

Nuts and Bolts

Here’s how to begin setting up a budget. First, sit down and make a complete list of all ordinary monthly and yearly expenses, including any monthly debt payments you might have.

Next, apportion the correct amount from each check for each expense. If you are paid twice a month, simply divide monthly bills in half and double any weekly bills to arrive at the amount to be taken from each check. Divide yearly bills by 24.

Once you have done this, make a list of the amounts that must come from each paycheck for each expense. This list will tell you exactly how much to save out of each check so you will have precisely what you need on hand to pay each bill.

There are two ways to handle the money itself. One is to turn it into cash and keep it in separate envelopes for each budget category. The other is to use a record book or computer program, and keep the money in the bank.

You may want to use a combination of these two methods. For those expenses most conveniently paid by check or automatic bill-pay, the bank method is probably safer and therefore recommended. You will have to keep detailed records, however, whereas no written records are necessary when you keep your cash in envelopes. The separate envelopes are their own record.

Since keeping large sums of money at home is rather risky, extreme care should be taken to keep any cash—and the knowledge of it—safe. The envelope system should be kept away from children and possible burglars and in a fireproof box if possible. If you are struggling to keep to your budget due to uncontrollable credit card spending, cutting those cards up and using envelopes might be your best option. The only things you can buy are the things you have cash for.

Once properly set up, your budget will be simple to maintain each time you receive your check. You will always know that you have not overlooked any items and where your money is coming from and going to. You will be able to spend your money with the reassuring knowledge that it was intended for that purpose, and that it was spent the wisest way possible within the bounds of your income. You will experience new joy and peace of mind, and you won’t feel guilty spending for extras and even luxuries—because those expenses will come out of the funds specifically prepared for that purpose.

Two Categories of Savings

If we are to be truly successful in managing our finances, we must take Christ’s advice in Matthew 6: Put our confidence in God. We can only do that if we are faithfully obeying His command to tithe. If we obey this law, blessings will overwhelm us (Malachi 3:10)—God promises! Those blessings might not always be apparent or exactly what you are looking for. This passage in Malachi doesn’t guarantee financial blessings in the form of cash, but God says He will take care of us in far greater proportion than the 10 percent we pay back to Him. The context in Malachi 3 shows that if we rob God, or if we fail to live obediently under His tithing laws, we should not expect blessings and success.

It has been said that a good rule for wise financial management is to save something for a rainy day. A companion rule is to distinguish between light sprinkles and heavy showers.

Every family budget should provide for two kinds of savings. Though your initial amounts will be small, you need to develop this habit of saving.

One type of savings is for expected expenses. It is called operational savings. Special expenses like maternity bills, a major furnishing, new shingles for your roof, or preparing for winter should be paid for from such a fund. This savings fund is for things not regularly budgeted out of each check.

The other kind of savings is for totally unexpected, unpredictable emergencies. This is your reserve savings, a built-in safety valve for your budget. Authorities recommend you budget approximately 5 percent of your net earnings each pay period until you have accumulated two to three times your monthly pay. In today’s uncertain economy, it would be best to have up to six months’ worth of emergency savings. Then, when an emergency occurs that reduces your reserve, build it back up with the same diligence as before. An emergency fund reduces the stress resulting from any future financial problem. Anything we can do to prepare for tomorrow in a regular, consistent manner will help diminish some of the emotional impact that might result from an emergency.

Discipline

Using a budget to guide our financial lives requires diligence, thorough accounting and fortitude. Society throws many materialistic temptations our way, and human weakness is hard to overcome. But we must be disciplined throughout the year to stick to our budget. A well-managed budget accounts for our needs and helps us fulfill some of our desires.

We should review and change our budget whenever circumstances change, such as a pay raise at work or an increase in insurance costs. At least once a year, we need to review its accuracy. Throughout the year, we should evaluate our position to make sure we are consistently living within our means.

Don’t view budgeting as restrictive. It is a practical, real way to ensure freedom from financial worry. As Jesus Christ said about God’s way of life, happy are we if we do it! If we live a balanced lifestyle and are financially responsible, then even the emergencies that might arise will be less troubling, and we will certainly have more financial freedom and peace of mind on a day-to-day basis.

Set yourself the goal now to establish a well-balanced budget! Determine to live according to it and not let anything distract you! Doing so will prevent your tumbling from circumstance to circumstance and lead you into financial freedom. Needless worry and concern will be eliminated. Take charge of your financial future. That is what God desires for all of us!

For more of these Christian living articles, check out pcog.org.