Tell Your Money Where to Go

The first task I’ve completed on my way to become a Money Master is to tweak my budget. (If you cringe at the idea of a budget, think of it as a Conscious Spending Plan instead.) It didn’t take me very long, since I already had a good understanding of my finances.


It’s nice to know that all of your bills are taken care of, and that you can go out and spend money guilt-free. A spending plan allows you to do exactly this. When the money in the “guilt-free spending” category is gone, I’m done for the month. However, I can spend that category on whatever I wish. Ahh… the freedom!

The basic idea

The first step in telling your money where it should go is to have an idea of where it currently disappears to. To find out, track your spending habits for a month. You might want to use, an app on your smart phone, or a simple legal pad. Once you know where you spend your money, you will be able to build your spending plan.

A Template

The basic template that I used for my budget only has 5 broad categories. I love this simplicity.

  • Fixed costs – 60%
  • Retirement savings – 10%
  • Long-term savings – 10%
  • Short-term savings for irregular expenses – 10%
  • Fun money – 10%

Fixed Costs

These are the things that you have to pay each month: rent, utilities, car payments, debt payments, insurance premiums, groceries, etc. Fortunately, they normally don’t fluctuate very much from month to month. This makes it easier to plan. After adding all of these together, add 15% to the total. Trust me, you’ll be glad that you have this bit of extra when you need it (think of those extra cold days when the heater is running over-time and runs your bill up).

Retirement Savings

If you’re not adding money to your retirement account on a regular basis, you should be. While 10% is a good rule of thumb, this amount is likely to change over your life. When you’re younger, it will probably be less, and increase as you get older. The most important thing is to be investing something each month, even if you can only manage $10.

Long-term Savings

Long-term savings include things like a wedding, new car, or the down payment for a new house. They’re called long-term for a reason, they’re often a number of years in the future. It’s easier to save big chunks of money over a lot of years than having to come up with it quickly, however.

Short-term Savings

These are often the items that blow our budgets, because we fail to plan for them. Save up a little each month for Christmas and birthday presents instead of having to put it all on your credit card when November rolls around. Vacations are so much more enjoyable when you have the cash set aside before you head out, so start saving for your trip now.

Fun Money

Finally, our favorite category! This category includes whatever you do for fun. It includes things like purses, eating out, going to the movies, drinking, buying books, or spending money on gadgets. There are two important things to keep in mind with this category: spend on whatever you want, until you run out of money. Once this category is gone for the month, stop spending! Knowing that you can go out with your friends, or buy that new thing you want without worrying about breaking the budget is an amazing feeling. Guilt-free spending at its best!

Now what?

I’ve put together my spending plan, so I know where my money goes each month. The next step is to figure out what I don’t want to spend money on so that I can live the fullest life possible.

In the next post I’ll show you how I am going to do all of the things that I want to, and you can do the same! Until then, I’d love to hear what your Fun Money will be going for. Leave a comment or shoot me an email.

4 thoughts on “Tell Your Money Where to Go

  1. Rebecca Burgener says:

    Congrats on having obedient money!

    Do you have a plan for those who are dealing with fixed costs of much more than 60%? Perhaps from past bad money decisions. Of course, step one is changing money habits, but it can be quite overwhelming to hear that your fixed costs should be 60% when they actually add up to 95%.

    • Matthew says:

      My next post talks about this, actually. It gives some guidelines about how you might be able to lower your expenses a bit.

      The next bit of advice is to earn more. I’ll be talking about that in the near future as well.

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