Day 88: The Top 7 Purposes of Your Money

Whether we realize it or not, we are all money managers. That is because on a daily basis every adult makes decisions about where each dollar they receive will go. If someone is focused solely on paying rent and buying groceries, they are nonetheless directing their money to a specific purpose: getting their basic needs met. If they are maxing out their credit cards constantly, they are making a choice to forfeit part of future earnings (and perhaps a substantial part) to service debt. Whether or not our financial decisions are best for us, we are nonetheless in every moment the commanders of our own financial ships, sailing towards our individual financial destinies.

Given that we are all money managers, hopefully our financial choices reflect sound, long-term thinking. If we are thoughtful about how we allocate our money, even a modest income can be used to bring joy and workability* to our lives.

Well-optimized, our money might be used for these purposes:

  1. Handle daily essentials (food, housing, transportation)
  2. Make life sweeter (fun experiences, entertainment, experiences, travel, quality of home life, relationship)
  3. Pay off past debt obligations (school loan, credit cards, mortgage, auto loans)
  4. Finance our dreams or run our business (education expenses, business expenses, professional services, estimated taxes)
  5. Provide a cushion for unexpected expenses (contingency fund**)
  6. Create more money (ie wealth) through investments and assets (retirement accounts, other paper assets, real estate, physical assets)
  7. Help others (charity, good causes, generosity to others)

The first three items probably dominate most people’s financial lives. That’s how it was for me as a child. Back then, money was primarily a) a supplier of critical goods and services, like food and housing (#1 ); and b) a supplier of fun, like Christmas presents and trips to the amusement park (#2). As a college student, I took on my first loan (#3) and felt a particular revulsion to carrying debt.

In other words, money was about daily essentials, recreation, and debt :(. Ultimately, my dissatisfaction with this limited view motivated me to take on my own financial education, which is why I can write this blog post now.

*On a related topic, a few years ago I wrote this post about integrity in one’s finances.

**I like the term “contingency fund” over the “emergency fund,” but they are the same thing šŸ™‚

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