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BUDGET ORDER MATTERS

  • Writer: Treavor Dodsworth CFP®, CPA, CKA®
    Treavor Dodsworth CFP®, CPA, CKA®
  • Jan 10
  • 2 min read

You won't have to read or listen to me for very long before you will hear this simple cash flow concept- there are only five uses of money (Giving, Taxes, Debt, Lifestyle, and Savings).

Budget Order Matters

Sometimes financial professionals will combine Taxes/Debt and call these categories Live, Give, Owe, Grow. While I love the rhyming cadence of this (as it helps with remembering it), there is one very important reason why I still use the - Giving, Taxes, Debt, Lifestyle, Savings. That reason is that budget order matters.


These categories are listed in the way in which you would set up your budget. Giving is first- this is supportive of the idea of giving first fruits to God. Taxes is next followed by debt. If you spend all of your non-giving money on lifestyle, you will get into tax and debt trouble.


Your lifestyle budget at a minimum should not be more than your income less giving less taxes less debt. You could argue that savings needs to be allocated before lifestyle as most people will want to make sure they are also saving. The default rule I have heard is at least 15% of income should be savings. That number may be higher depending on your goals and/or if you are behind on saving. It could also be lower though if you did a really good job of saving early.


Sometimes our tendency is to budget lifestyle first and then struggle to pay our debts or say that we don't have any money for giving. The order in which you budget matters. If you find you struggle to set money aside in savings- consider setting up your budget with savings before lifestyle.

 
 

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