Let’s be honest, money is emotional. As soon as we get it in our hands, we can do things that are completely irrational or misaligned with our goals and values. It’s important to know your financial priorities in advance, so your money is spent in a way that truly reflects your values.
Personal finance is just that, personal. So we will all have different priorities for our finances, but we’d like to offer our take on how we prioritize and spend. This applies whether you’re expecting a tax refund, a bonus or just looking to do better with your regular paycheck. With any income we receive, we follow a simple formula:
Give 1st. Save 2nd. Spend 3rd.
This formula aligns with our values and keeps us financially responsible with any money we receive. The reason we recommend to Give 1st is to counteract our naturally selfish instincts with money. Our first instinct when we receive money is to think about how to spend it, most often on ourselves. By stepping outside of ourselves and giving, not only do we end up spending less, but it actually makes us happier. We don’t have to give a lot, but the action of giving to something or someone that is important to us is an important first step with being disciplined with our money.
Similarly, we Save 2nd to make sure we prioritize future needs over current wants. Have you ever tried saving for something, but you get to the end of the month and there isn’t much left to save? Just like the IRS with an employee paycheck, if you don’t take it off the top, it may not be there when you need it. This also can include additional debt payments to get out of debt sooner.
Now that you’ve given, saved and paid off debt, Spend 3rd is all about you to do as you wish! You may have some current needs like auto or home repairs and then set aside money for current wants.
That’s it! Our simple formula for prioritizing how we spend. Give 1st, Save 2nd, Spend 3rd. Now let’s translate that formula to real actions and see what it could look like.
- Give to a charity or cause that is important to you.
- Start or Replenish Your Emergency Fund
- Pay off High-Interest Debt (Credit Cards)
- Fund Savings/Investment Accounts (IRA, College Savings, Car Fund, Vacation Fund, Baby Fund)
- Spend of Something You Need (Car Repairs, Home Repairs, Business Expenses)
- Spend on Something You Want (Have Fun!)
Again, whether it’s a tax refund, a bonus or just your paycheck, make sure you align your spending with your values. Using the Give 1st. Save 2nd. Spend 3rd formula can help you develop financial discipline while at the same time making sure you make progress toward your financial goals.