When we think about spending our money wisely, we usually focus on getting the best value for the lowest price. We comparison shop and download apps to find the latest discounts and deals; we’re seduced by the daily special or the limited-time offer. Spending choices can make us happier or leave us disappointed.
Brian Macharia a Financial Literacy Advocate and an author of Budget Like A Goal Getter, looks at the best ways we can spend wisely:
The purpose for giving is to remove the fear of poverty from your heart. Tithe represents 10% of your income. Tithing is a way of honoring your creator for empowering you to earn an income or create wealth.
Deuteronomy 8:18 Remember that it is the Lord your God who gives you the power to become rich. He does this because he is still faithful today to the covenant that he made with your ancestors.
God is your major financial partner who has given you the life, energy, mind, health, relationships, resources, favor, and opportunities necessary for you to earn money.
He could have asked for 90% (which He legally deserves) as His fair share of your income, but He only asks for 10% (which is what you deserve as a minor partner).
God is a generous major partner in your finances and asks you for 10% to test your heart to see whether you are a greedy partner or a fair and faithful partner. Which one are you?
Whereas in tithing God is testing you to know if you can be fair, in giving He is testing whether you can be generous.
Giving to people brings relief to them and joy to your heart as you make a difference in their lives. Give any percentage of your income that you decide. You could start by giving 1%.
Give tithe to God, and gifts to people/causes.
Recommendation: Tithe 10% and Give 5%
The purpose of saving is to create financial security.
After deducting your giving funds, say 11%, reserve some money for a rainy day. The cash forms your Emergency Fund.
Your emergency funds are your financial safety net and should be used only when you face a crisis such as losing your income or incurring medical costs that aren’t covered by your insurance policies.
It’s recommended you save up emergency funds that can handle at least three months of your monthly lifestyle bills.
Your Emergency Fund offers you short-term financial security, so make sure it is well funded with cash and liquid assets.
Moreover, ensure you never use the cash or assets in your Emergency Fund as credit collateral or to guarantee a loan for someone. This could lock you out of your money when you need it the most.
Recommendation: save at least 10% on your emergency funds.
The purpose of investing is to grow your resources.
Depending on your income level, it may not be enough to adequately fund the accomplishment of your financial goals within a certain time frame.
Thus, it’s essential to consistently invest your money so it can grow enough to attain your financial goals such as debt freedom, financial independence, kids’ education, and homeownership.
Set aside at least 10% of your income as investment capital. But before you invest, do due diligence with the help of accredited financial experts so that you become aware of all the risks and rewards of a particular investment, and whether or not it fits your financial goal.
Recommendation: invest 15%
The purpose of insurance is to protect you from risks.
You may be following these recommendations perfectly by saving and investing, but if you don’t insure against risks, you might lose much of what you’ve accumulated when something unexpected happens, such as a lawsuit, fire, an accident, or political violence.
That’s why it’s critical to make sure you are adequately insured. As a minimum, ensure you have medical insurance and a personal accident cover.
As your age, lifestyle, occupation, assets, and commitments change, you’ll need to adjust your insurance covers to match the new realities of your life.
So reach out to an insurance advisor to help you figure out which types of insurance, and what amount of cover you need to have in each phase of your life.
Recommendation: allocate 5% for insurance
5) Personal Growth
The purpose of personal development is to increase your value in the marketplace
All successful people are lifelong learners. They know that their ability to create better results in their lives, and in the marketplace, is tied to their current level of understanding/expertise. So they read books, attend seminars, do courses, and get coaches and mentors to help them grow into the person they need to become in order to achieve the goals they have.
Recommendation: spend 5% on personal development
The purpose of paying bills is to give you a decent, comfortable life
After you’ve allocated funds for your giving, savings, investing, insurance, and personal growth, it’s time to focus on your lifestyle.
Your lifestyle bills are made of your Needs and Wants.
Your needs are your essential expenses for living a decent life, such as housing, food, and utilities.
Your Wants are your non-essential expenses for living a comfortable enjoyable life, such as transportation, entertainment, and vacation.
Recommendation: use 50% of your income for lifestyle bills.
I placed Bills last on this list because they are value-consuming costs that don’t bring any profit to you. Once you pay a utility bill, that money goes out of your life and never comes back.
On the other hand, your Goals expenses—of giving, saving, investing, insurance, personal growth—are value-producing costs that eventually benefit you. For instance, the savings in your Emergency Fund can be earning you interest.
Finally, when making your budget of how you intend to spend your income, ensure that you prioritize your goals rather than your bills.
Plan your monthly lifestyle bills around the monthly costs of your goals. Follow this life-changing formula: Income – Goals = Bills
Those are the six ways to spend your money wisely, ranked in order of priority. That’s the pattern I always endeavor to follow when spending my money.
This mindset will help you achieve your financial goals faster. It’s an empowering budgeting method called goals-based budgeting, which I teach in my eBook Budget Like A Goal Getter, available on Amazon.