I was first introduced to the idea of life roles by Stephen Covey’s 7 Habits. It’s such a simple yet powerful concept that it changed the way I thought about everything in life, and made me more effective than ever.
By changing what we name ourselves at any given time, we change how we think and act. By nourishing all of our roles at the appropriate times, we can maintain life balance and grow.
It made perfect sense to apply this concept to personal finance – balancing where your money goes between the different responsibilities in your life is just as important as balancing how you spend your time.
What are the Benefits?
I realized it was important to get out of the mindset of bills, bills, bills and into grow, grow, grow. Without the appropriate money allocated to non-urgent items – like development, preventative care, maintenance, and various savings, we can only hope to take care of the now without any thought to the future.
The key of going through the process is the change in mindset as you move through the various roles. I’ve noticed that people around me tend to emphasize 2-3 roles in their life that overpower everything else. By forcing yourself to think in terms of all areas of life, it snaps you out of this narrow focus.
Establishing Your Roles
The first exercise I went through some time ago was establishing the roles in my life. Think of your own responsibilities. While they are ever-changing, consider where you spend your time now and where you’d like to spend it in the future. My own roles look like this:
- Personal Renewal (Stephen Covey’s most important habit and a ‘gimme’)
- Family Member & Friend
- Home Manager
Seven is the magic limit to the number of roles we should have (other than personal renewal). The idea is to come up with a concise list that doesn’t overpower.
Below, you’ll see how my personal roles morphed once I put this together with my wife, because we wanted this to be a true ‘family’ budget. Therefore, our budget reflects the roles we play as a family, not as individuals.
Taking Care of the Basics
Once I had these established, I created several ‘non-role’ categories to take care of the items that don’t get categorized by role:
- Bills. This includes rent, utilities, cable, miscellaneous forms of insurance, and memberships.
- Daily Living. In this category, I took care of groceries and eating out, disposable home goods, personal care, and clothing.
- Savings. Far from mundane, this category includes various savings, including an emergency fund for sudden needs, a rainy day fund for long-term cash flow problems, retirement savings, a passive income creation fund (investing, essentially), and an opportunity fund for taking advantage of future ‘open doors.’
- Transportation. Everything ‘car’ here – including car payments, insurance, gas, maintenance, and savings for our next vehicle.
- Wiggle Room. Or my silly name for what is simply an unexpected expenses fund.
Changing the Way You Think
With those out of the way, I listed each role individually (remember, we changed the names to reflect family roles, not individual roles) and brainstormed with my wife about what could be included. We thought long and hard and tried to focus on growing.
Instantly, we came up with budget categories we had never thought of! As you go through this list, don’t forget that we use an envelope budget, so a lot of our envelopes act as mini-savings accounts for various non-regular and future expenses.
Here’s what our budget looks like now:
- Personal Renewal. Our personal spending (allowances) were included here, as well as charitable support, entertainment, and my favorite – hobbies.
- Health & Wellness. So important is the ‘physical’ aspect of personal renewal that we decided to give it its own category. Some of the envelopes here are for active care (hospital, sickness), preventative care (physicals, vitamins, etc.), savings for deductibles, health insurance payments, and another one of my favorites – sports and equipment.
- Family & Friends. Relationships are important, and to reflect this, we created a number of sub-categories here – including travel, activities, entertaining, gifts, pet care, and a few specialty envelopes.
- Marriage. It’s easy to forget about nurturing our closest relationships with so much other ‘stuff’ going on around us. This role provides us with some cash to spend time with one another – whether it’s date night or a trip out of town.
- Kids. Yes, we’re expecting, so naturally we needed to account for child expenses now and for the next few decades. Included here are pregnancy expenses, college and general savings, kid’s furniture and kid’s supplies, and life insurance.
- Home Improvement. We places three distinct items in this role – savings for our wish list items, savings for a future property purchase, and a repair/replace fund for maintaining things around the house that simply die out.
- Career. We often see our jobs as one-way streets – we get paid and go on our merry way. We took a more proactive approach, creating envelopes for basics, like administrative costs (licenses and certifications), required continuing education, and student loans – but also for other items, like career development (courses, books), and savings for graduate school.
- Business. Finally, this is where our blogging adventures shake out, with envelopes for basic expenses (hosting, domains, theme purchases), business development, and taxes.
Living the Budget
At first glance, this list may seem overwhelming. How can we save for so many little ideas, many of which are years (if not decades) away?
The truth is we can’t possibly fund every single category we listed. But we include it with our budget anyway, and show an entry of ‘$0.’ The idea is to get everything we want down on paper. Our income will change, our budget and expenses will morph constantly, and these gentle reminders will be there through it all.
Eventually, we’ll get to fund them all!
Care to Try It?
If you have a similar experience with organizing your own budget, or if you went home and tried this with your family, please let me know how the experience went. Or if you have other ideas and would like to add to the discussion, please comment!
Photo by SashaW