A Formula for Financial Freedom (3 of 6)

Thrift is 1-20% of your gross that you pay to debts, investments, purchases and savings (DIPS). It should be the second thing you do in budgeting—that is, pay toward your future. Thrift is what you do to make your money work for you. It is the pivot point of financial freedom. “Thrift” comes from the word “thrive.” And you will thrive financially if you follow this simple step based on the principle that, “whoever gathers money little by little makes it grow” (Proverbs 13:11). Ideally, setting aside 20% would be of the most benefit, which means 5% of your gross would go into each of the DIPS categories. Realistically, you may have to start small, depending on your current debt and expenses. I suggest paying at least as much to thrift as you do to tithe. Keep in mind, that the more you pay toward thrift the faster you will achieve financial freedom.

Debts is ¼ of what you set aside in thrift that goes toward paying off your smallest debt first (in addition to your minimum payments). Again in Romans 13:7-8, it says, “Give to everyone what you owe . . . if revenue, then revenue . . . Let no debt remain outstanding,”

Investments is ¼ of what you set aside in thrift that goes toward building investments, such as a 401k, mutual funds, stocks, and/or bonds and the like. Investment is a calculated risk—using a portion of your money to make money. You should seek professional advice when making investment decisions. But here is one tip from Ecclesiastes 11:2: “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” In other words, don’t put all your money in one place. What if you invest only in Starbucks, and it turns out Coffee Bean puts them out of business?

Purchases is ¼ of what you set aside in the thrift fund that goes toward saving up for bigger purchases (besides regular household necessities and living expenses). Make a list of all the things that aren’t in your monthly budget and prioritize them. Figure out how much each item on the list costs. When you have saved up enough money, buy it. If you don’t have the money yet, wait to buy it. Do not finance it!

Savings is ¼ of what you set aside in the thrift fund that goes toward saving for emergencies. Proverbs 10:15 warns, “the wealth of the rich is their fortified city, but poverty is the ruin of the poor.” Life doesn’t always happen according to plan. It we don’t have a financial cushion, it could be our ruin.

Because of this, I suggest that, before you even start setting aside money in thrift (DIPS), start by devoting all of your thrift funds to savings until you have at least a $500 cushion ($1000 is better). Hopefully, this takes less than six months. After you have reached this first goal of putting away $500-$1000 in savings, you can start paying your thrift money into all four categories of the DIPS. You’ll already have at least $500 at the start; now you’re just building up your financial firewalls.

The big question will be how you keep track of your DIPS—by ledger or accounts? I personally do not have the discipline to leave my DIPS alone if the money is in my checking account with all the rest. So I have set up four accounts at two banks. At one bank we have a checking account for debts and a savings account for investments. We also have savings account for savings and checking account for purchases at another bank. All our income first goes into my main account (which I use for debts and all other expenses) from which I transfer the money online to my other accounts as needed.

Think about how you want to keep track of your thrift money, on paper of by using separate accounts. Make a goal for yourself to decide and have your system set up by the time you have your initial $500-1,000 saved up.