Spending Goals
Posted Under: Career and Finance
So, by now you have looked at where the money comes from and where the money goes. AND you have enlightened yourself as to what is important to you. (I hope all of you figured out that food, water and shelter are high priority items.) If you haven’t done the prioritization, you’re missing out on the main benefit of this exercise. Where you put your money is an indicator of your values. Your values are really what make you tick and the purpose of this post is to align your values to your income and to give you a strategy for doing that on an ongoing basis.
One of my favorite books about money is called The Richest Man in Babylon. It is a wonderful allegory wrapped up like a Biblical epic. The story follows the life of a young poor man who rises (with the advice of many smart people) to great wealth. I’m not going to recount it here, but I am going to give the magic formula to wealth and financial security so you can live your life as you want it.
(Spoilers ahead!) If you’ll forgive the prosaic condensation of the book, the magic formula is this: 10% + 20% +70% = 100%
What does this mean?
- Pay yourself first. The first 10% of your net income goes directly into savings. Do not pass Go. Take it straight off the top.
- Pay others next. If you have debts (consumer debts, personal debts, or other) pay them out of the next 20%. Commit this 20% to the elimination of debt. The lion’s share of this money goes to the one with the highest interest rate. Apply minimum payments to the others. When the first one is paid off, pay off the next highest interest debt, and apply minimum payments to the remainder. And so on until all the debts are gone.
- Live on 70% of your income. OUCH! I know it hurts, but in time, you’ll get used to it. And, hey, at least you have an income. Some people in this economy don’t!
Following this formula, once you pay off your debts and are used to living on 70%, you’re now able to save 30%. Isn’t that amazing?
More next time.
