When I was a kid, I thought rich people were greedy.
Needless to say, my beliefs about money have changed since then.
Money is a neutral resource, which reflects the owner’s priorities. It is not value itself.
Mark Manson explains the real value of money in this way:
There are many stores of value in life. Time is a form of value. Knowledge is a form of value. Happiness and other positive emotions are a form of value. Money is often just the vehicle of interchanging these various forms of value with one another.
Caring for your money doesn’t have to be a drag. In fact, it’s an important life skill we all must learn. Fortunately, there are some important rules to guide us.
How can you spend money to reach your goals? Let’s find out.
Where is your money going?
Take a look at the last three months expenditures and list what you spent. Divide these totals by three to get a monthly average.
You’ll have some expenditures that did not show up for the last three months. Go back and find these, divide them by 12 and you’ll have your Basic Expenses (read: rent, food, etc.) for one month.
Once you know where you spend your money, the fun begins: it’s time to set up a spending plan.
Gary Barnes argues that spending plans sound more fun than budgets. I couldn’t agree more.
After all, that’s what a budget is: a plan on how to spend your money.
Give every dollar a job
As soon as you get some money, you’ll decide what it needs to do.
You assign every dollar a job by dividing them into different categories. This is the first rule of money.
After you’ve covered your Basic Expenses, you create a list of categories. Your task is to assign a percentage to each category, based on how important it is for you.
Here’s an example from my own spending plan:
Books & education: 10%
Clothes & Hair: 20%
Rainy day: 40%
By allocating a certain percentage to each category, you’ll spend your money more wisely.
Why does this principle work? Because every dollar has a job to do.
Spend your money the smarter way
Let’s say you earn $1000. Basic expenses account for $600. You have $400 left.
Here’s how your money will work for you:
Vacation (20% of $400): $80
Books & education (10 % of $400): $40
Entertainment (10 % of $400): $40
Clothes & Hair (20% of $400): $80
Rainy day (40% of $400): $160
Of course, you may want to adjust how many percent you give each category, depending on your needs. But at least you’ll spend your money in a smarter way.
How does your money serve you?
Money is not the root of all evil. It’s the vehicle of interchanging various forms of value with one another.
By figuring out what matters most to you, money can work to your advantage. Money becomes a loyal servant, and you’re its master.
What are some of your best money tips? How do you spend your money? Let us know in the comments!
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