Meeting financial goals requires having a clear view of your money situation.

Most people who are stressed about money struggle in part because they don’t have a solid understanding of what is going on in their financial lives. They may know how much money they have in their bank accounts at any given moment. But they don’t have a firm grasp on what expenses are coming up or what they can afford to buy.

As a result, they find it difficult to get out of debt, save money, plan for the future or do many of the other things necessary for meeting financial goals.

Fortunately, getting a clear picture of your financial life isn’t as difficult as it sounds. Today we’re going to talk about how to do that with a plan that has stood the test of time.

To start, I want to show you something the Bible says about financial success in Proverbs 21:5 —

Good planning and hard work lead to prosperity,
but hasty shortcuts lead to poverty.

This proverb is short, but it contains a really powerful financial principle. In this post, we’re going to take a closer look at this principle and talk about how it applies to our financial lives in the modern world.

The proverb we’re examining emphasizes the importance of both planning and hard work. Many people understand intuitively that hard work is required for prosperity. But the planning part doesn’t come as easily. So let’s talk about it.

Here are four things you need to know about planning for prosperity.

1) The plan for meeting financial goals is called a budget.

You’ve probably heard the word budget before. And, if you’re like many people, you probably have a misunderstanding of what it really means.

To some people, budget means “cheap.” To others, a budget means your broke. But in its most basic form, a budget is just a plan for your money.

Smart planning always takes place in advance of something important. You use a calendar to plan your day long before the day begins. You use a checklist to plan all the steps necessary in an important project. And you use a budget to plan how to spend your money before you actually spend it.

Why should you do this? Because you’ll have much more clarity about what you do with your money if you plan your spending in advance. If you wait to make spending decisions in the moment, you’ll be influenced by impulse and emotions, which often leads to undesirable outcomes.

When you plan in advance, though, you’ll be able to make clear-eyed, strategic decisions. And that’s key for meeting financial goals.

2) Budget = Income – Expenses

So you’re on board with the concept of having a budget. But how do you go about making one?

There are all kinds of great tools available for budgeting. You can use a spreadsheet, one of a dozen apps or even just a pencil and paper. (For a simple and easy-to-understand solution, we recommend the Budget Genius.)

But regardless of which particular tool you use, all budgets follow the same basic formula: Your budget equals your income minus your expenses.

When you make a budget, you start by listing all the income you expect to get in a given period (usually a month). Then you list all the expenses you expect to incur in the same period. These expenses should include absolutely every penny you’ll spend. That means the obvious things like housing, food and utilities, as well as things you may overlook, such as streaming services, cosmetics or haircuts. Your expenses should also include any debt payments you need to make.

Once you have a thorough list of all your expenses, subtract them from the income you expect. The result of that calculation will shed a lot of light on your financial situation.

If you do the math and end up with a negative number, it means you’re spending more money than you’re taking in. The bad news here is that you can’t afford your lifestyle. The good news? Now you have the knowledge to fix it.

3) The goal is to create a surplus — and maximize it.

After you’ve done this exercise in subtraction, you can clearly see where your money is going. If you have a deficit — more money going out than coming in — you’ll have to choose what expenses to eliminate in order to balance your budget.

If you have a surplus — more money coming in than going out — you’re in a much better position. Your budget surplus is essential for meeting financial goals. This extra money you don’t need for basic expenses every month can be used to pay off debt, save for emergencies and even invest for the future.

But just because you have a surplus doesn’t mean your budgeting work is done. While any surplus is good, a bigger surplus is better. With a bigger surplus, you’ll have more funds to help you meet your goals faster.

So even if your initial budget calculation shows a surplus, you should still take a strategic look at your spending and see if there are any areas you can cut. The more you cut, the bigger your surplus will be, and the faster you can travel down the road to financial freedom.

4) A budget only works if you stick with it.

Let’s take another look at the proverb we started with at the beginning of this article. It says “Good planning and hard work lead to prosperity.” We’ve talked about the good planning part — that’s making your budget. But we need to give some more attention to the “hard work” part.

The truth is that making a budget is the easy part of meeting financial goals. The harder part is living by the budget that you’ve set. That takes work.

When you make a budget at the beginning of a month, you’ll have the best of intentions about your spending. But then things will happen. A friend will invite you to out for dinner. You’ll see a sale you can’t pass up. An impulse item at the grocery store or gas station will look too good to resist. And you’ll be tempted to spend money that’s not in your budget.

Going a little bit off script here and there doesn’t seem like a big deal in the moment. But over time, these unplanned expenditures can completely undermine your budget. They shoot your surplus full of holes. Or worse, they push you into a deficit.

If you treat your budget as a mere suggestion, it’s not going to get you where you want to go. A budget is like a map — it will show you the way, but you still have to walk the path yourself.

If you get lazy about following your budget, you’ll never get to the places you want to go. But if you do the hard work of sticking with your budget, even when it hurts, you’ll soon be living the life of financial freedom that you were made for.

Meeting financial goals requires building a budget… and sticking with it.