Your Spending Plan: The Five Uses of Money

Share This Insight

In the first part of our article series on making and sticking with a spending plan, we explained some of what a budget is and why it’s important to set healthy financial habits from an early age. We also talked about why you should start thinking of your money as a tool rather than an end itself.

But if money is a tool, what is it used for? We teach that there are really five things you can do with money. These make up the most basic building blocks of your spending plan.

Live

On a basic level, money is necessary to live. You need it for things like housing, food, gas for your car, insurance, and so forth. How much money you need to live depends on your lifestyle, the cost of living in your area, and so forth. Think in terms of both needs and wants. Some “wants” are fine, because enjoying yourself is part of living. But if your “wants” are getting in the way of funding your long-term goals, that’s a good sign you need to trim your budget in that area.

Give

One of the most powerful things you can do with money is use it for the greater good. We believe it’s our responsibility to use our resources to help others and give glory to God by bettering the world. Starting a habit of giving, even if it’s just a few dollars at a time, can add up to something powerful over time.

Owe

“Owe” is a two-for-one category: debt and taxes.

Taxes are unavoidable. They’re the price of living in society. Young people are often shocked to receive their first paycheck and see how much is taken out in taxes. While there are strategies for minimizing your tax burden, you’ll always owe something. Taking time to understand what taxes are owed and how they’ll affect your take-home pay allows you to plan a more realistic budget.

Debt is a different story. We advise people to be prudent about debt. It’s not always possible to live debt-free. You’ll almost certainly need to borrow money for student loans or purchasing a house, for example. But understanding what debt means, and the true cost of interest rates, will help you live within your means.

Grow

The most powerful use of money is investing. By delaying gratification today, you can put your money to work for you. Growing your wealth involves setting goals and planning for the long and short term. Do you want to buy a car, make a down payment on a house, start a family, open your own business, etc.? You can start setting money aside toward those goals today, and use the power of compound interest to grow it over time so you’ll have more purchasing power later.

Making Your Spending Plan

Imagine your income as a pie. Figure out how big each slice of pie should be according to those five uses of money. Some slices will be fixed. Your taxes will depend on your income. Some of your living expenses, like your rent, will also be the same month-to-month. Others are variable, like food costs or clothing expenses. How much do you spend now? What can you reasonably afford to spend? Are there places you can realistically cut costs to make room for more savings?

Once your budget is balanced, meaning every dollar is allotted to a category, you’ll need a system for monitoring your spending to be sure you’re following the plan you made for yourself. You can do this the old-fashioned way with a pen and paper or take advantage of an app like FaithFi, MonarchMoney, or YNAB that does it for you.

Of course, making a money plan is just the first step. In Part 3 of our series, we give some practical tips for sticking with your plan so you can stay on the path toward reaching your goals.

Subscribe for More Financial Insights

Never miss a post. Receive notifications by email whenever we post a new JMA Insight.