"Get ready for huge energy price swings. All indications are that the first few months of 2002 will usher in steeper price volatility than has been seen in decades," quotes the OPIS Energy Group. "Price increases of from 40 to 100 percent or more should be expected in many parts of the country during the first few months of this year [2002]," added Salomon Smith Barney’s energy analyst.¹

If you have not experienced a dramatic increase in your energy bill during the first month of 2002, you are one of the few fortunate ones. Energy costs—natural gas, heating oil, propane, and electricity—throughout the country have increased an average of 40 percent over the December 2001 energy cost average. However, there have been reports of 100 to 400 percent increases in some areas of the Midwest and New England.²

Although most American residents expected an increase in energy costs with the re-establishment of energy fuel deregulation three years ago, no one was prepared for such a dramatic increase, catching many off guard. Not only does the increase relate directly to household heating energy consumption, but it affects every aspect of family life because industry, manufacturing, and retail distributors in all probability will pass along their energy price increases to the American consumer.

In light of this most obvious example of unexpected household expense, how does an average American family cope with such potentially drastic lifestyle changes? The answer is by budgeting and preparing for emergencies in advance.

Be Prepared

The Scriptures encourage us to plan for the unexpected and equate planning with being wise. "Go to the ant, O sluggard, observe her ways and be wise, which, having no chief, officer or ruler, prepares her food in the summer and gathers her provision in the harvest" (Proverbs 6:6-8).

Unexpected expenses are not only bitter disappointments, but they can cause a painful realization if people do not have funds set aside to cover the expenses. Even if some surplus has been set aside, there is little escape from personal or family difficulties that result from financial emergencies, such as the current energy price increase. But, when there are crises or unexpected emergencies, much frustration can be avoided if a contingency fund has been established to help absorb the distress of the crisis. This type of fund is not long-range savings for college or retirement; it is nonallocated, short-term emergency savings. If emergencies did occur, families without emergency reserve funds would have to rely on credit and, ultimately, end up deeper in debt. Simply put, without emergency reserve funds borrowing would be a foregone conclusion, the use of credit would become a lifelong necessity, and debt would be a way of life. "The rich rules over the poor, and the borrower becomes the lender’s slave" (Proverbs 22:7).³

"There is precious treasure and oil in the dwelling of the wise, but a foolish man swallows it up" (Proverbs 21:20). The common attitude presented in the Bible is to save on a regular basis, and it is important that Christians develop good habits to replace bad habits. The discipline it takes to do that can be very difficult, but laying this foundation is vitally important; and, if it can be managed, contingency funds can give families the ability to absorb the financial shock when they find themselves facing unexpected expenses.

Every family should allocate a percentage of its income to emergency savings. Everyone in our society living above the poverty level has the capability to save money; yet many fail to do so because they believe that the amount they can save is so small it is meaningless. However, no amount is insignificant. Even $5 per month will add up.⁴

Families need to work toward setting aside an amount equal to three to six months salary for emergency savings for those who have a steady income; and for those who have a fluctuating or seasonal income, six months salary is best. This does not mean that large amounts of money should be saved while failing to pay creditors, but a good habit to develop is to save a small amount on a regular basis.

Establish a Budget

Although establishing an emergency reserve fund is absolutely mandatory to safeguard against potentially financially devastating emergency expenditures, the emergency reserve fund should be only a part of a more specified family budget.

Simply put, a budget is a written guide that divides household incomes into expenditure categories and determines what percent of families’ Net Spendable Income—income after tithes and taxes have been deducted—should be spent for items in a particular category. Categories include Housing, Automobile, Clothing, Food, and so on. For details concerning Crown Financial Ministries guide for suggested family budgets, we encourage you to investigate our Online Budget Guide or purchase our Family Financial Workbook.

The category percentages recommended are suggested guidelines only, meant to be tailored to each person or family’s unique circumstances. View your budget as a whole and feel free to alter the percentages suggested to accommodate household needs and annual household income. There are some categories in which the percentages may need to be increased or decreased and others that may not even apply. If this is the case, allocate that suggested percentage to another category. As an example, if we assume an annual income of $35,000, the suggested percentage for debts is 5 percent. But if a household has no credit debt, yet their housing is 41 percent rather than 36 percent, they can add the 5 percent allocated to debt to their housing allowance percentage. In addition to these monthly expenditures, provision must also be made for non-monthly expenses: annual insurance premiums, vacations, gifts, and so on.

These are guidelines and can be tailored to meet individual or family needs. The bottom line, regardless of annual income, is to make sure that all percentages in all categories combined total 100 percent and that spending does not exceed income. However, if drastic adjustments in more than two categories have to be made, it may be a signal that budgets are out of balance.⁵

Getting Started

Before developing a budget, it is necessary to assess where the household money is going, so it may be helpful to keep diaries of every expenditure for the next 30 days, no matter how small. Divide the diaries into basic categories of a budget: Housing, Automobiles, Clothing, Food, Entertainment, and the rest. Anything that does not fit logically into one of those categories is Miscellaneous. By the end of the month you will know how much is spent in each category.

Then put into envelopes the money you have set aside from one pay-period to the next for spending on each category, based on the previous 30-day period. When you run out of money in a particular envelope, spend no more. Use only the money in the envelopes and put the change back that you do not use. Then, as you spend it, write on the envelope where your money went. This will enable you to determine whether enough or too much is being allocated to each category, and you can make adjustments. Spend, based on the budgeted amount, not on what is in your checking account. "Know well the condition of your flocks, and pay attention to your herds" (Proverbs 27:23).

A primary goal in establishing budgets should be to establish a budget based on the husband’s income only, because too many times the wife’s income is interrupted by illness, pregnancy, or a change in the husband’s employment location. The wife’s income could be applied to one-time purchases only, such as vacations, furniture, cars, or to savings or debt reduction.

If families are accustomed to a lifestyle based on two incomes, establishing a budget based on one may be very difficult and involve strict discipline. However, if couples pray and seek God’s wisdom and direction ahead of time, they can perhaps avoid the problems that arise with a change in income. "The mind of man plans his way, but the Lord directs his steps" (Proverbs 16:9).

Conclusion

Although very little can be done when price increases beyond our control threaten our accustomed standard of living, we can ease the trauma of those potentially devastating and unexpected occurrences by developing a household budget that incorporates emergency reserve funds. Then faithfully stick to that budget, regardless of circumstances.

¹ http//abcnews.go.com/sections/DailyNews/consumer-natgas010104.html (Link no longer valid)

² www.opisnet.com/headlines.htm#midwinter (Link no longer valid)

³ Larry Burkett, Debt-Free Living, Moody, 1989, pp. 148-149

⁴ Larry Burkett, The Complete Guide to Managing Your Money, Inspirational, 1996, pp. 55-56