Blueprints to The Space Program

In January, I expanded on my decision to donate twenty percent of my gross income this year in a post called The Space Program. I really wanted to encourage others to take more initiative when it comes to their finances. However, while my post may have inspired readers to increase their giving, I failed to make sure that readers were financially prepared to embark on such a mission. As a result, I want to provide the blueprint I chose to follow in order to be in a position to make such a financial commitment.

Foundational Appropriations

As a Christian, I believe that I am called to give my resources because ultimately I was blessed with those resources by God. I also believe that purposeful and joyful giving starts with adequate financial planning. The cornerstone to any meaningful giving is the budget. In the absence of a budget, giving is often in grave danger of becoming an afterthought, not a priority. What follows is a close representation of how I prioritize my monthly budget:

1. Giving: As I stated in the The Space Program, I understand that many people are in different points on their life journey and may not be able to give much. I also have no misconceptions that I am blessed to work in a well-paying industry that enables me to give more financially. With that said, I strongly believe that every single one of us should prioritize giving as our first budget item, Christian or not. It can be one dollar or it can be one million dollars. Because in the words of Jesus Christ, “It is better to give than to receive.”
2. Emergency Fund (10% of take home pay): There was a study recently that suggested that sixty percent of all Americans cannot afford an unexpected one thousand dollar cash expense. That is frightening given how manageable this situation is when equipped with an emergency fund. A fully funded emergency fund should at a minimum cover three months worth of essential expenses. Fully funding an emergency fund takes time and patience but the confidence that comes with knowing emergency expenses are manageable is absolutely worth while.
3. IRA (max $458.33): For the uninitiated, IRA stands for Individual Retirement Account. An IRA is a tax-advantaged investment account utilized to build retirement savings through the stock market. Currently, you can contribute $5500 annually to any of these accounts. Thus, that comes out to $458.33 a month. There are plenty of good resources on how the average person should be investing, so I won’t rehash the issue here.
4. Debt: It may appear counterintuitive but paying off debt should not be your first priority. The biggest reason is this: By prioritizing giving, your emergency fund, and your IRA, you can achieve a larger return on investment than by first prioritizing your debts. But in what order should debt be paid? The optimal solution is to follow the avalanche method. The avalanche method requires debtors to pay off highest interest loans first. This method minimizes the overall balance paid over time. The second method is the snowball method. This method suggests paying off the loans with the lowest remaining balance first, allowing you to use the money going to low balance loans on other loans quicker. Whichever method you choose, the most important point about paying off debt is this: choose a monthly allocation and stick to it, independent of your loans’ minimum payments.

I want to break from this list for two reasons. The first is to reiterate that your allocation of take home pay to these four budget items may differ based on your beliefs and current financial status. That’s okay. The overall point is that you must allocate something to these three (or four) areas. This leads to my second point. I consider giving, emergency funding, IRAs, and debt (if applicable) to be foundational appropriations. Foundational appropriations are high priority, inflexible budget items whose existence affects how other elements of your budget are allocated. In practice, this means that the money is not appropriated to other elements of your budget until it is determined how much money is being spent on foundational appropriations. A consequence of this is that you may be required to make sacrifices or lifestyle changes as a result of how you allocated money to these areas. It affects where you live, how often you eat out, and your mode of transportation. This sounds radical because long-term personal financial stability and peace of mind for Americans is a radical idea.

Non-foundational Appropriations

With the concept of foundational appropriations in mind, let’s take a look at the remaining core budget items. Again, these are in priority order:

1. Housing: In my view, housing, not food or transportation, is the most important non-foundational appropriation. Housing locations can dictate access to transportation as well as grocery stores. This ultimately will impact your spending habits. Spending more money to live in area that makes it easy (Note: easy does not equal quick) to get to frequently visited locations can eliminate your need for a car (and therefore car payments and insurance). Living near a grocery store can make eating out a less attractive option. Housing is absolutely a long-term value proposition and whether your goal is to max out savings or giving, an optimal housing location can actually increase money allocated towards your goals over time.
2. Transportation: Transportation and food are about equal priority when it comes to allocating money. I value transportation slightly more than food because good transportation may enable access to less expensive food. That being said, transportation is an area where many people have frivolous expenses. Whether it be buying a brand new car, buying an oversized car, or using Uber too much, people spend far more on transportation than is actually required. You can have fun and enjoy life without blowing money on a depreciating asset.
3. Food: I guess you need to eat. But you don’t need to eat out. Cutting down how often you eat out is the easiest way to save money. Also, if you’ve somehow decided that you absolutely need to go to Whole Foods, do I have some crazy news for you: you don’t. Your local supermarket will do just as well and probably cost you far less money.
4. Savings: Building up your general savings, independent of your retirement funds, are important. Use this fund to save up for travel, a suit, a desktop, etc. Contribute a fixed amount here every month and place any additional leftover money into this account.

What remains after these appropriations is discretionary spending. It’s up to you what you do with any leftover money. I’d personally recommend a hobby or two. Life is short and isn’t all about maximizing your savings or your giving, despite what you just read.

Final Thoughts

This is by no means a comprehensive list of expected budget items. Some of you may be responsible for your own healthcare. Others may have kids. Some of you may be bootstrapping your own business. In any case, your expense categories may vary. It is also worth noting that expense categories were prioritized in such a way to maximize giving. Maybe you want to prioritize eating out; maybe you want to save more money. This will change how you allocate money in your budget. Do I believe certain budget allocations are superior to others? Absolutely! Do I believe you should experience long-term misery because you are sticking to a budget? Not at all. Short-term pain is expected (and even encouraged) so that you can reap long-term benefits but long-term pain is pointless. The core principle here is discipline. Just like the best workout is the one you’ll actually do, the most effective budget is the one you’ll actually keep. And that’s all there is to building your own space program.