Personal Finance » Spending

A disciplined spending plan

The last few times I have taught my TAKE CONTROL OF YOUR MONEY workshop to younger adults, I find myself coming back to a really basic concept called a Disciplined Spending Plan.

Ironically, this concept is so basic that it’s what I teach young children when I donate my time to schools. Every now and then I donate my time to teach kids about money and when I do, I always talk about four things you can do with money:

  • spend
  • save
  • share
  • invest

The conscious spending grid

When I teach children, including my own boys, I take a piece of paper and divide the page into 4 quadrants. In each quadrant, I have the kids write each of the four things you can do with money into each of the grids. (Just so you know, these grids are no different than money jars, piggy banks, etc)

I then give the kids play money and ask the kids to put money into each of the 4 quadrants.

With really young kids, I don’t tell them what each of the quadrants means. They just have fun splitting up the money into different boxes. Instinctively, most kids split up the money and put some in each box. (As adults, we call this diversification)

Once they are done, I then show them what they will look like in the future.

  • SPEND BOX – If you put money in this box, there will be nothing there in the future.
  • SAVING BOX – If you put money in this box, there will be the same amount in the future. In other words, savings is good to have because it is liquid but it does not really pay interest.
  • INVEST BOX – This box has more money than you put in which illustrates the idea of having your money make money even when you do nothing.
  • SHARE BOX – This box has a chocolate heart in the box which represents a good deed in exchanges for good feelings.

The point of the exercise is to show kids the future impact/consequence of their actions today.

Teaching adults the same concept

Ironically, I have been teaching this concept to adults because so many people employ a wing-it strategy when it comes to spending. When you get a tax refund, what do you do with it? When you get a bonus, what do you do with it? Most people employ a spending strategy based on what their needs are today or at that moment.

The whole idea of a disciplined spending plan is that it’s a plan. I’ve often said a plan looks into the future to make the future more predictable. Instead of winging it, having a conscious spending plan means you have thought about the 4 things you can do with your money and the best way to do it.

Here’s an example of a conscious spending plan:

Mary and Sam have decided their spending plan looks like this:

  • 5% to saving (TFSA)
  • 10% to investing (RRSP)
  • 5% for sharing
  • 80% for spending

When Mary got an inheritance of $250,000 they applied their disciplined spending plan to the amount immediately:

  • $12,500 went straight to their TFSA
  • $25,000 went to their RRSPs
  • $12,500 went to 3 different charities
  • Although the remaining $200,000 was allocated to spending, they decided to pay off a $75,000 line of credit, take the family to Hawaii ($14,000), replace washer and dryer ($5000) and buy new furniture for the family room ($10,000). The rest of the money was put into a savings account.

When Mary and Jack sold some of their old furniture on Kijiji for $1000, they applied for the money according to their conscious spending plan. When Sam got a tax refund back from the government, he asked Mary if he could use it to buy a new set of golf clubs.

Having a conscious spending plan makes saving and investing easier because it makes the decision automatic. As you can see from Mary and Sam, you can always apply for money differently but it just fosters discipline by having a pre-determined plan that was thought out instead of ad hoc.

What do you think of the disciplined spending plan?


  1. Devin

    Funny how simple things work for both kids and adults. Keeping it simple means you don’t have to fret about it. The only thing that I would add is that the spending be conscious. What can be thought as a one time spending can always lead to additional spending. The golf clubs example you used would be a great one. How often do you use your golf clubs without spending additional money?

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