Set Budget Priorities With Net Spendable Income

When you were in school did you ever notice that most people would use all the time they had for a particular assignment? The teacher would assign a book report or a paper and most of us would work on it until the very last second it was due. Likewise most of us used up every single minute available during a test, regardless of whether the instructor gave the class extra time at the very end.

I think that we tend to fill up all the time we have available, regardless of the work load. Now clearly there are some “step-function” changes in workload that would require significantly more time to complete, but for the most part we would still work the same number of hours if our workload increased or decreased 20%.

From what I’ve observed most people tend to do the same thing with their money. We grow or shrink our spending based on our current income because it’s the easy thing to do. And we spend most of what we earn because we place spending before saving in our budget. After all, spending comes right after “Income” in every budget form I’ve ever seen. I did this too for quite some time, until I started to work from my “net spendable income” instead of my “income”.

Net Spendable Income (my definition) means the amount of income you have available to spend within your budget. When the net spendable income (NSI) runs out, you stop spending. Period.

The different between NSI and “regular” income is that it allows you to prioritize your spending in a new way. Similar to having money taken directly out of your check each pay period for investments or medical insurance, using the concept of NSI allows you to reorder your priorities within your budget.

Instead of spending in this order:

1. debt payments
2. lifestyle
3. savings (if anything is left!)

You can place your key goals above your Net Spendable Income in your budget. One example would be to place giving and saving for retirement ahead of additional spending on lifestyle:

income
- giving (tithe, or other giving)
- saving for retirement (or college or a replacement car, etc)

= Net Spendable Income

- Debt Payments

- Lifestyle spending

= 0

By figuring out your net spendable income based on your goals, you will quickly recalibrate your thinking (and budget) to work within your NSI limit. Similar to using all of the time for a test or project, you have artificially shrunk the available resource in order to achieve your goals.

I realize this is just a mental accounting trick, but it has really helped me with my budget. It has also helped me stick with it in the area of giving, because I no longer consider those funds “mine” or up for debate.

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