Five things to spend your money on.

[Alphakilo]

I agree that everything listed are important but spending money wisely is the key. For you to spend wisely , you must start from the most important one.

And number one listed is the most important because you can't have children at home without food on their table and then be thinking of investment, luxury, and even savings. The necessary expenses such as food, house rent, school fees, and health care must be taken care of first before the other ones.

The remaining expenses, such as savings, investment, and buying of luxury items will depend how much income the individual makes. You can guess that some people , after spending on the necessary expenses, they do not have funds anymore for investment or even savings. That is why I agree with you that spending wisely is the key because even those with enough funds start from the most important things before giving themselves luxury  things, knowing well that the essential things have been sorted out.

[tabas]

What people mostly know is about needs and wants. So, we have to spend our money with the needs first before going with the wants. And the luxuries that you've mentioned is better if it's said as wants. Because that's indeed what we have to spend sometimes to give ourselves the luxuries of having a job and why we work for it. We provide but we also need to provide for our own happiness. If things such as what we like to have makes us happy, we shouldn't deprive ourselves with it because as long as we are paying the bills, we provide food to the table, we deserve that kind treat to ourselves.

[HONDACD125]

I think the list is partially accurate, there are people that never gets to the stage (5) of buying luxury things. Spending on the primary needs are definitely important for survival, savings and investing is to pursue more financial growth and wealth and only after one has archived that growth that is when they can afford luxury but when they are not able to have a stable financial status, it will be difficult. I agree with what the first comment said about considering savings first before expenses, because if you agree that you would save 30% every month, once the salary comes, you need to keep the savings apart first before you spend on your needs, that is how I believe it's done.

I agree with your first point because I believe every person goes through the phase at some point in their life where they don't get to have or enjoy any luxury or fulfill their wants, and it's because whatever they earn mostly goes into basic needs and savings; most people can't even make investments with their regular income because it isn't enough. If you save some of it, you won't have anything left that you can invest, or it won't be enough. So it's better to just add the little that remains into the savings, or maybe keep saving that separately so that you can invest it when it becomes a good enough sum.

About the second point, I think not everyone can do that. You will only be able to save a certain percentage of your income before you sort the basic needs if you know you earn enough and the remaining funds will get everything covered, but if that's not the case, you will probably try to solve the necessary problems and fulfill the basic needs first and then see how much remains that can go towards your savings.

Some people can't even save anything because their income isn't enough to cover that part, unfortunately.

[Fortify]

I think that we should allocate our money into 5 categories.

1. Necessary expenses. I am talking electricity bills, food, school fees (if you are studying or have children), housing, healthcare, and transportation. I believe this group is where most of our money goes because we basically can't survive without these things.

2. Emergency fund. In cases of emergency, we should be able to get some money for it. Especially in countries where healthcare is not free, we should be prepared to pay if ever we get into accidents or we get sick though hopefully it never happens but still we have to be always prepared either way.

3. Savings. Some people save up for specific things like buying a better house, a better car, getting your kid into a better school among other things. Some people may just save for the sake of having money to pull for emergencies. I think emergency money and money I want to use into building a new home should be separate.

4. Investment. Aside from our day jobs where we get most of our money to pay for our necessary expenses, we should invest in assets to make our money grow. This could be gold, real estate or cryptocurrencies.

5. Luxury. When I mean luxury, I do not actually mean it has to be expensive. But I say luxury because there are things that we do not need but still want to have or experience like traveling or eating at a good restaurant. I believe that even though we should be smart in finances this does not mean we have to completely deprive ourselves of enjoyment.

It's good to remind everyone, especially those who are perhaps still trying to find their way into adulthood, about how they should be allocating their often limited financial resources. It all comes back to having a proper budget really and then starting with your income for the month versus outgoings. You can almost write off the funds required to cover "necessary expenses" into a black hole as you often have limited control, but should be looking into things like reducing energy costs and your rent/mortgage where possible. The emergency fund should really have a cap, say 12-24 months expenses maximum, which means you'll eventually stop topping it up and it can be merged with investment funds as long as you segregate it properly (i.e. into government bonds which are ultra reliable). I'd call it fun money rather than luxury, because you can often get a lot of pleasure out of the cheaper things in life - like spending a bit of cash at the arcade or treating yourself to fast food. Savings could also be part of your investment fund and/or emergency fund, so it doesn't need its own exclusive group.

[mindrust]

You need only one, assets. The others come later. Just collect assets for a decade or two and you’ll be living like a king for the rest the of your life.

Crypto, stocks, commodities and even bonds maybe. Keep FIAT at minimum only to buy the dips. The rest should always stay in assets.

When you get big and your passive income exceeds your income from your job, you can buy whatever luxury you like. Yeah that’s not easy I know but nobody said it has to be easy. Life ain’t no easy gaime mate.

[salad daging]

That's a great list - because I personally spend a lot of money in those 5 categories.

You did a great research.

And savings and investment - some people might combine these because they are the same, some people consider them different where savings are in fiat and investment is in assets like Bitcoin or stocks.

But I myself now combine the two, the important thing is that there is an emergency fund then the next goal of investment must be grown.

[Felicity_Tide]

I took my time to read through the entire reply section hoping to find a particular thing, but regardless, i think OPs points are quite okay, but just that i might personally think that some of these categories can be a sub category to another. What do i mean?. Take savings for example, i personally don't like saving especially in cash just for the sole purpose of using it for future purchases. Instead, i feel every penny that isn't part of my Emergency fund and my day to day expenses which are very necessary, should all end up as an investment instead. It is best to use such investment and the generated profit to buy the better house, car, and other things that you mentioned, than to just save alone. This isn't and shouldn't necessary be the main investment though. Not everyone likes having cash lying around.

That aside, one other thing i think people can spend, or should spend money on, is on themselves.
Self improvements sometimes, or should i say, most times, demands some expenses and spending as well. There are some fields that knowledge is never sufficient, so in order to keep making progress, and keep earning more, you definitely need to know more, or have more skills. And those skill or knowledge comes with a cost, which sometimes has to do with money. Trading is a very good example.

[Stablexcoin]

What people mostly know is about needs and wants. So, we have to spend our money with the needs first before going with the wants. And the luxuries that you've mentioned is better if it's said as wants. Because that's indeed what we have to spend sometimes to give ourselves the luxuries of having a job and why we work for it. We provide but we also need to provide for our own happiness. If things such as what we like to have makes us happy, we shouldn't deprive ourselves with it because as long as we are paying the bills, we provide food to the table, we deserve that kind treat to ourselves.

Its a must to solve our needs before investing in Bitcoin or any kind of investment. No human can live alright and think about making investment while needs are not being met, the essentials of quality livings needs to be proportioned in the first list of spending. Bitcoin investment shouldn't affect our standard of living, not for those who display high standard above their financial capability, those who leave above their income will always return back to their investment for further survival when the main source for expenses finishes.

I like as OP kept luxury last, its rather not important when you don't have enough to spend for the lifestyle.

[ShowOff]

You need only one, assets. The others come later. Just collect assets for a decade or two and you’ll be living like a king for the rest the of your life.

Crypto, stocks, commodities and even bonds maybe. Keep FIAT at minimum only to buy the dips. The rest should always stay in assets.

When you get big and your passive income exceeds your income from your job, you can buy whatever luxury you like. Yeah that’s not easy I know but nobody said it has to be easy. Life ain’t no easy gaime mate.

Adopting one asset and investing in it in the long term will lead someone to reach the point of financial freedom. It would be much better to diversify assets to minimize risk. But what is more important here is to determine the type of asset that has the most potential to provide significant benefits in the long term. I think Bitcoin and Stocks are pretty good choices, but it all comes back to each person perspective.

There are many challenges to discipline yourself in investing, and it is also not easy to balance needs and wants. For adults, maybe many of them have put aside their personal desires, because they meet the needs of their families, and it does not mean rejecting luxury. I imagine being able to enjoy the benefits of every penny of investment I have made in the future, that is the real luxury.

[aoluain]

I think that we should allocate our money into 5 categories.

1. Necessary expenses. I am talking electricity bills, food, school fees (if you are studying or have children), housing, healthcare, and transportation. I believe this group is where most of our money goes because we basically can't survive without these things.

2. Emergency fund. In cases of emergency, we should be able to get some money for it. Especially in countries where healthcare is not free, we should be prepared to pay if ever we get into accidents or we get sick though hopefully it never happens but still we have to be always prepared either way.

3. Savings. Some people save up for specific things like buying a better house, a better car, getting your kid into a better school among other things. Some people may just save for the sake of having money to pull for emergencies. I think emergency money and money I want to use into building a new home should be separate.

4. Investment. Aside from our day jobs where we get most of our money to pay for our necessary expenses, we should invest in assets to make our money grow. This could be gold, real estate or cryptocurrencies.

5. Luxury. When I mean luxury, I do not actually mean it has to be expensive. But I say luxury because there are things that we do not need but still want to have or experience like traveling or eating at a good restaurant. I believe that even though we should be smart in finances this does not mean we have to completely deprive ourselves of enjoyment.

You should include this one.

6. Leisure
This talks about travel, going outside with your family, an other things on which this would be that out of the budget.

7. Wants
We do have our own wishes in life specially on buying up gadgets, cars and other wants on which you should be that also putting up some budget allocation too.

We do know that there's something that would be that totally be those things that we do spend out on which it would be that resulting into that out of budget.
This is why its important that you do always allocate something for you not to get over dropped or would be that out of budget. It all matters about on how you do handle things
accordingly on which it will be that ended up for you to have that shortage of funds. It all matters about money management because if you dont have these things then you would be having
that problem later on.

Good list by the OP and two good additions. With time most of us are able
to figure out what the important things are in life and what we need to fucus our
efforts on, Food, shelter and the future - the future being savings and investments
for a comfortable and healthy life.

In time we also realise that the "wants" are mostly depreciating assets and in terms
of investments are not great options, fancy cars and fancy watches etc. which dont
actually enhance our life.

[AVE5]

I think that we should allocate our money into 5 categories.

1. Necessary expenses

2. Emergency fund.

3. Savings.

4. Investment.

5. Luxury.

The whole lists lies on good financial management and how we can maximize our profits.
Normally if we aren't drastically concious on how we spend our incomes, then we might probably be minimizing our incomes because a growing investment may require increase of capitals or diversifications of investment so that we don't only hold on one source of income.
So to meet up our investment goals, there's need to understand that spending on things that doesn't matter such as funds like gambling and out doors event should be treated like non essential or non profitable expenditures and long term goal should be made a prior to encourage a responsible and successful investor.

[Questat]

This could be an ideal approach if you are making a sufficient amount of income, but in reality, those who are living paycheck to paycheck will only fit their income up to their expenses only, no savings, not even emergency funds. Although I’m not saying to normalize this kind of approach, but it’s the sad reality these days, most especially that inflation stays for good.

However, still this is a good post OP. This should be prioritized to avoid financial struggles in the future.

[Darker45]

I think we can generalize them into expenses and savings. Every time payday comes, you can easily divide your salary into two: expenses and savings. That's pretty much it. You can go 70:30 or 80:20 or 90:10, respectively, depending on your salary.

The money that's intended for expenses shall go to bills and the rest of what you regularly need. If there's an extra, it could either go to leisure or savings. If there's none, for as long as it isn't like that all the time, leisure and unnecessary luxuries could give way to savings.

Generally, savings is for many things. It's for the rainy days. It's for unexpected expenses, emergencies, investment plans, and so on. That's why it can't easily be sacrificed for wants and vices and other unnecessary expenses.

[LDL]

For others, there may be more than just the five areas of spending money, but for me, the most important thing is the ongoing expenses to meet daily needs. My family's daily needs are so high that it becomes difficult to meet those needs with my small salary. In this situation, I cannot spend money on other things, especially investing or saving for future security. Due to the large number of members in my family, I am currently in a difficult situation, due to which there is no opportunity to live a luxurious life or even increase my bank balance. So basically, 75% of my expenses are for meeting the needs of my family and the remaining 25% is spent on other things.

[AbuBhakar]

Is that based on ranking? If so, the ranking looks accurate.

But I read a book that suggests a better approach, after you receive your income, it should be income → savings → expenses, instead of the usual way. It’s a way to discipline yourself and prioritize saving, because that savings will be the one to cover your emergency needs and future investments.

It's hard to prioritize savings if your income is just enough for your monthly expenses. For a family that earns minimum wage, if they have 2-3 children saving is not an option for them.

I think we can generalize them into expenses and savings. Every time payday comes, you can easily divide your salary into two: expenses and savings. That's pretty much it. You can go 70:30 or 80:20 or 90:10, respectively, depending on your salary.

The money that's intended for expenses shall go to bills and the rest of what you regularly need. If there's an extra, it could either go to leisure or savings. If there's none, for as long as it isn't like that all the time, leisure and unnecessary luxuries could give way to savings.

Generally, savings is for many things. It's for the rainy days. It's for unexpected expenses, emergencies, investment plans, and so on. That's why it can't easily be sacrificed for wants and vices and other unnecessary expenses.

This is more easier approach. You can easily divide your monthly income into 2 then for your savings, it's up to you in what way how you will sub-divide it since not all people are confident in investing and rather just save their money for the future.

[Wonder Work]

But I read a book that suggests a better approach, after you receive your income, it should be income → savings → expenses, instead of the usual way. It’s a way to discipline yourself and prioritize saving, because that savings will be the one to cover your emergency needs and future investments.

I completely agree with you because the expense lists are made depending on the income. Whoever has the income spends it to meet the needs of daily life. Saving is the most important thing. Many earn but cannot save. Whatever they earn ends up being spent, and finally, they become empty, and there is nothing to be said about their savings. Those who continue like this have to take loans in times of trouble later. Those who give priority to saving can overcome the danger beautifully with the money they save in times of trouble.

[Text]

I feel like a lot of people lump emergency funds and savings but having clear distinctions makes a huge difference in staying financially prepared and focused on long-term goals.

It's easy to feel guilty about spending on things that aren't essential but it doesn’t have to be expensive, sometimes even a nice meal or a short trip can recharge us and keep us motivated to stick to our financial plans.

[Wonder Work]

It's easy to feel guilty about spending on things that aren't essential but it doesn’t have to be expensive, sometimes even a nice meal or a short trip can recharge us and keep us motivated to stick to our financial plans.

It is right that spending on unnecessary things will be called a sin. Because spending on what is not needed means wasting your money, for this, you have to be careful not to spend money haphazardly. You have to learn to use money properly; otherwise, it will be a waste of money. If you keep wasting money like this, then you will not be able to improve in the future.

Yes, sometimes good food and travel are necessary. When you have free time, you must travel, and if you have time, eating good food sometimes gives us physical and mental pleasure. Travelling is our need. When we travel, we can learn about many things that we cannot learn from other means. Eating good food and travelling gives us the strength to leave boring times behind and move forward in a new way.

[Minor Miner]

I feel like a lot of people lump emergency funds and savings but having clear distinctions makes a huge difference in staying financially prepared and focused on long-term goals.

As I understand it, an emergency fund is just a small part of saving, the purpose of saving is much broader. Savings are not just for emergencies, there are savings that will be used to meet future needs or goals such as investing, or saving helps us form good financial habits...But among savings, emergency fund can be considered the most special savings fund because it is our financial protection layer, it needs to be considered the most important.
I agree with you that we should separate our emergency fund from other savings to avoid confusion and misuse.

[davis196]

1. Necessary expenses.-You don't have any choice, when it comes to spending money for food, gas, bills, taxes, etc.
2. Emergency fund.-In my case, my emergency funds and my savings are in the same category. I'm sure that the same thing applies to most people.
3. Savings.-We have to invest our savings and not just put a bunch of fiat money in a jar under our beds. Inflation will eat our savings, if we don't invest them properly. I don't consider buying a better car or a better house to be an investment. Cars and houses are liabilities. They must be put into the "necessary expenses" category.
4. Investment. No need to add anything here.
5. Luxury.-Buying overpriced goods, just to show them off and brag about them. No thanks.