Hierarchy Of Spending Needs

If you struggle to prioritise your spending and find you have more month left at the end of your money or you aren’t putting enough away for the future you may wish to consider a hierarchy of spending to prioritise your expenditure.

At the base of the pyramid is today’s essential expenditure. That is everything you have to spend money on today to survive and live your basic lifestyle; food, basic clothing, taxes, utility bills, housing costs and the cost of children would fit in here.

Once you have satisfied your current basic costs you should focus on your future self. Trust me, you will thank yourself later. Paying your future self will enable you to maintain your basic and desired lifestyle in the future and will be in the form of savings, pension and investment contributions.

You may argue that you may get run over by a bus tomorrow and prefer to live for today (Yolo!) but let’s be realistic and accept you probably won’t.

Once your current and future self is taken care of you can start to think about your desired lifestyle today. This will be the cost of everything that is important to you; your hobbies, interests, holidays, gifts and charitable donations (though you may consider those to be essential expenditure). Spending here should be in line with what you value most of all rather than life’s luxuries.

It is in this box that most people will spend their discretionary expenditure. It is why they find there isn’t enough month left at the end of the money and why they’ll be working long after they wish to have stopped.

Having satisfied your ‘what’s important to you now’ box you can start to think about additional luxuries. This may be time-saving costs such as a cleaner, gardener and even certain technology. You could do it yourself but if you value your time why not pay for someone else to do it?

Only when you have allocated your income and savings to the lower down part of the pyramid can you think about the peak of it and spending on “stuff”. This is life’s luxuries you don’t put much value in but like to have in your life. This may be open to debate but I would include non-essential clothing, gadgets, cars, jewellery and fine dining amongst other things here.

I accept what goes into each section of the hierarchy is subjective but by reviewing what you spend your money on and what is important to you, you will at least be able to make sure you are looking after yourself now and in the future.

If you want to talk about how you can make sure your future self has enough money contact me.

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