Reframing How You Think About Money

How many of you have heard of the income distribution strategy? I am sure many have heard of a budget, but not many have heard of income distribution. That’s because income distribution is a strategy, not an allotment of money separated into small piles dedicated for specific expenses. There is a vast difference between a budget and an income strategy.

Let me give you a short history lesson on the word budget and its origin. The word budget is delivered from the Latin word bugla which translated means “little bag.” Therefore, think of a budget as a series of little bags where money is placed for future expenses. The concept is one of setting money aside with the expressed intent of spending it.

In contrast, a strategy is designed to accomplish a specific goal, usually one that has positive results for the person executing it. In reality, expenses are only a small part of the income distribution strategy, as you will see below.

There are four basic goals to achieve when executing an income distribution strategy. Those goals are to meet the requirements of Obligations, Necessities, Commitments, and Everything Else. Since some of you might be reading this for the first time, let me explain these four requirements of the income distribution strategy.

Obligations are those things for which a person should consider top priority. These include income taxes, retirement savings, healthcare needs, and additional savings and investments. These are not listed in any order or precedence.

Necessities are those things for which a person requires in order to remain healthy and secure. These include food, clothing, shelter, utilities, and transportation. These too, are not listed in any order or precedence.

Commitments are those things for which a person, either through decision or force, must comply or adverse consequences would arise. These can be court ordered, such as alimony, child support, or other legal judgements or self-imposed, such as credit card debt, mortgages, and personal loans or other financial commitments. Order of precedence would be legal first and self-imposed last.

Everything Else are those things for which a person desires to have that do not fall within the parameters of the first three requirements. The list is endless, therefore if it is not mentioned above, consider it everything else.

Let’s quickly see how observant you are. How many times would you have to adopt this strategy before your financial future began to change? I’ll let you ruminate on that question as I continue to highlight the details of the income distribution strategy.

Although each requirement has its own bulga within it, the difference between a budget and a strategy is a strategy is going somewhere, whereas a budget is waiting to be spent. A strategy is setting a priority structure that can only be violated at the peril of the one executing it. A budget typically is reactionary to the shifting sands of other people’s demands upon it.

Visually, the income distribution strategy appears as the following.

This image shows the priority structure in the proper order reading from left to right. You should always try to maintain the priority structure. However, there are times when you will be forced to suspend the priority due to the contraction of your own personal economy. When that happens, suspend only those parts that do not cause detrimental personal impacts, such as retirement savings, additional savings and investments, and if possible, healthcare savings.

These should only be suspended after you have restricted spending on everything else and some self-imposed commitments. If your contracting economy is not due to a job loss, then take on a second job until the threat has abated. The goal is to keep the strategy flexible so it can provide you with the maximum benefit in all economies.

The “necessities” requirement is where you would find a basic budget or the Bulga of your strategy. The money committed to this requirement is set aside to be spent on known or expected expenses. In the beginning it is a large part of your overall strategy, but in time, it will become a smaller and smaller portion. Resources in the “obligations” requirement keeps you safe from the IRS and protected in retirement as well as in emergency situations.

Resources in the “necessities” requirement provides a level of security and comfort, which is necessary to maintain good physical and mental health. Resources in the “everything else” requirement allows you to experience some of the pleasures of life without jeopardizing your security and comfort. This strategy creates balance within your financial economies that actually reduces the stress associated with maintaining a traditional budget.

Remember this question: How many times would you have to adopt this strategy before your financial future began to change? The answer is found in the first letter of each requirement. O.N.C.E. Once you implement this strategic income distribution process, your financial future will forever be changed. If you are successful at the implementation and continual application of the principles of this strategy, you will forever change the way you approach financial decisions.

The ultimate goal of an income distribution strategy is to move from O.N.C.E. to O.N.E. You want to eventually get rid of the third requirement known as Commitment. No legal judgements and self-imposed debt. Then your life and financial future will be forever changed. All of the financial resources that were used to support your commitments can be directed to your obligations first, because that is priority.

If at some point in the future you decide to live a little better than you have been in the area of your necessities, then you will have the ability to do so. However, increasing your retirement, healthcare, and additional savings and investments will ensure you have the things you want, when you want, without worrying about if it will impact your near-term future or retirement.