The 5 Uses of Money and Purposeful Income Allocation
Chip Brackley | September 11 2020
Does budgeting really work? Or, should you throw it out the window?
Wouldn’t it be amazing if you could throw your budget out the window for good? Would that free you from the stress of thinking you had to account for every dollar and every penny if you want to be successful?
Let’s be honest here, for the most part, budgets don’t work.
You say the word budget and half the population’s eyes glaze over and they start making their exit!
I can see my wife giving me the look just thinking about it. We’ve been married for 15 years and some of our greatest memories are of all the times that I pulled out our budget spreadsheet and made her go through last month’s expenses… line item by line item…like nails on a chalkboard!
Sound familiar to anyone? This is why… budgets. don’t. work. Looking at what you spent last month doesn’t fix the issue. But, focusing on your cash flow can make a huge difference.
⛏️ ready to see how you stack up?
Gain a better understanding of your risk tolerance and how this fits with the investments you currently hold.
“The goal should be you telling your money where to go rather than it telling you where it went.”
In all honesty, most people that we work with really don’t need a budget in the old sense of the word. They are making enough money to not have to get into the details and worry about every small expense, but… and this is a big BUT… most people we work with understand the value of a hard-earned dollar. They have worked hard to build what they have and they want to be smart with their money.
So, I want to give you a new way to look at your income allocation. I want you to look at it in two different ways:
1) First, I want you to think in percentage terms rather than dollar terms.
2) Second, I want you to tell your money where it is going before it ever hits your bank account.
It’s all about having a plan and putting your core choices on autopilot.
So how do you do it?
Let me start by saying this, and this might come as a surprise to you, but there are only 5 uses of money… 5….that’s it! Of course, there are unlimited options within those choices but there are only 5.
1: You can give your money away.
2: You can save or invest your money.
3: You live off of it…..your living expenses.
4: You can happily pay taxes with your money.
5: You can service debt, meaning you pay your principal and interest.
Think of it this way… Give, Save, Live, Taxes, Debt
So before you start thinking about where your money is currently going, I want you to sit down and think in terms of percentages, for example: $ Amount Given / Income = % Given.
What percentage of your money or your income do you want to go to each of these 5 areas? Think about your ideal situation, not where you think you are. What do you ideally want your money doing? What’s important to you?
Now, go back and look at where your money is going. Is there a gap? If so, that is fine. Now you know where changes need to be made.
What I’ve just described is stewardship. It’s about being purposeful and moving away from old practices that don’t work and moving towards a system that makes sense.
Whether you are trying to make ends meet and need to do this, or you have more than enough and just want more integrity in your financial life; It’s time to start thinking in terms of percentages.
Decide where your money is going before it hits your bank account. That’s the answer. So throw out that budget, tell your money where to go, and gain control.
Chip Brackley is the Director of Atlanta for Archetype Wealth Partners. Chip is passionate about helping families experience greater clarity, confidence and contentment by connecting their wealth with their purpose. Archetype exists to help families thrive across generations.
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