Did you know that there are really only four places your money can go? All of your money can be divided among four key areas: giving, living, owing, and growing. By breaking down your income into these four categories, it’s easier to understand where your money is going.
Let’s take a closer look at the categories. Two of the categories are productive in nature and two are consumptive. Both giving and growing are considered productive and will yield a harvest in the future. Living and owing represent areas where your money is consumed.
When it comes to setting up a budget, simply look at your finances from last year and fill in the blanks for how much owing (debt), growing, and giving you did. The portion of your income that remains is what you have left to live on.
Two things to consider when determining how to allocate your money: your commitments and your values.
Everyone owes money to someone, incurring debt through past spending decisions or simply taxes. Your cost of living expenses like food, clothing, and daily needs are impacted by your unique family situation and lifestyle. In both cases, you have made financial commitments.
Additionally, your values will ultimately determine how you allocate your money. If you prioritize spending on your lifestyle, you will have less money for saving or giving. If you prioritize giving, you will have less money to spend, pay down debt or to save and invest. Life continually demands that we assess our values and adjust our spending decisions accordingly. Being clear about your values will allow you to make financial decisions that are in line with your priorities.
There is no one right way, it’s about balancing your commitments and your values, and deciding what is right for you.
* Aviso Wealth Inc. (‘Aviso’) is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and The CUMIS Group Limited. The following entities are subsidiaries of Aviso: Credential Qtrade Securities Inc. (including Credential Securities, Qtrade Direct Investing, Qtrade Advisor, Qtrade Guided Portfolios and Aviso Correspondent Partners), Credential Asset Management Inc., Credential Insurance Services Inc., Credential Financial Strategies Inc. and Northwest & Ethical Investments L.P.