I am a card-carrying budgeting nerd. I plan, track, and categorize every penny our family earns and spends. Using my favorite program to do so – You Need A Budget – probably confirms my bias that everyone does need to budget. I can tell you within a few clicks where pretty much where every dime we’ve received has gone for years.
However, I’ve realized that not EVERY family wants (or perhaps needs) to do this – at least not as religiously as I do. I think there’s a lot of clarity that happens when you do, but I’m on record saying before that as long as you have your big rocks funded, you might not need to plan out the details.
That said – it’s really hard to know if you are spending your money in alignment with your values unless you have some tool to measure it. And that’s why I love using a Live / Give / Grow / Owe (LiGGO) summary – it gives a zoomed out macro view without the nitty gritty details. I first came across the idea from Ron Blue’s teachings.
It’s pretty simple, and with a few resources on hand anyone can knock it out in probably 15 or 20 minutes.
The philosophy is that you can slice and dice categories for any expense, but they all generally fall into one of four broad buckets:
- Live – what you’re paying for your lifestyle
- Give – what you’re sharing with others
- Grow – what you’re using to build your net worth
- Owe – what you’re obligated to pay
You can use this tool as either forward-looking to plan ahead, or rear-looking to review – and it really shines when you add multiple comparable years over time.
I’ll leave the Excel/Google sheet engineering to your own creativity, but it’s pretty straight forward. Within the document, you can add up the total of all your gross income, from however many sources. Wages, self-employment, dividends, business withdrawals, Social Security, pensions, etc. Then create areas for what you’re giving (I like to include both deductible-giving and non-deductible gifts), what you’re using to grow (401k contributions, Roth IRAs, college funding, etc.), and what you’re paying for what you owe (debt and taxes – – federal, state, and local income as well as property taxes).
Sum up those three (Give, Grow and Owe), subtract from your total income, and you arrive at what (approximately) you’re living on.
Then take a look at things. If one of your family values is generosity, does your Give total reflect that? If another is financial independence, does your Grow total reflect that?
For underneath Live, you can create some customized categories as well with minimal effort. In the example included in the image above, the family cherished quality family time as a value, and one way for funding that was through family vacations. Do those numbers align?
[Note: I’ve yet to have a client state a family value of paying more taxes, but taxes are a very real part of a financial plan, and are something that should be measured. And it can be fun to see how some Grow and Give components push down the Taxable Owe amounts.]
The tool shouldn’t be used as a shaming vehicle – especially on first pass. It’s more of an “Ahh, isn’t that interesting?” tool, and a way that you can perhaps course-correct your cash-flow to more align with what’s important to you.
Last note: this tool can be an effective way of combating lifestyle creep – the sneaky way that families keep spending more and more as their income increases overtime. Looking back – and again, not in a judgemental way – it can be enlightening to see what happens when our income jumps upward. Do we unintentionally live on the difference, or does it find its way to other areas? If we’re using the LiGGO tool to plan ahead, we can make better proactive decisions where it goes.