Save family money by taking a monthly allowance for yourself!

Whenever I speak with someone in my family who’s running a business, I tell them to always draw a salary for themselves. I tell them, “Take some money out for yourself every month. If you can’t afford to take ₹10,000 a month, take ₹2,000 a month. But your personal expenses should all come from your own salary. Spending for business needs and personal needs from the same bank account will either lead to excessive spending, and/or confusion about your cash flow.”

As new business owners, they are reluctant to draw a salary for themselves: they feel they should work without a salary until the business is profitable. Taking money out for their personal needs looks selfish to them. But the reality is that they have their own personal expenses, and they often end up spending business capital without realising it.

Image credit: mohamed hassan form PxHere

We always have clarity of thought when we advise others. We conveniently forget or ignore that advice in our own matters. That’s exactly what I was doing too: I was spending family money for my own personal expenses!

I manage money in our household. I take care of cash flow management, saving for recurring expenses (such as insurance premiums, school fees, etc), investing for future needs, and so on. In addition to our main investment portfolio, I also have a “fun portfolio”. The main portfolio is for the family’s needs, so it’s conservative and big in size. The fun portfolio is tiny and has all sorts of random assets that catch my fancy.

Earlier today I was thinking that I should be setting a limit for this fun portfolio. When I was wondering what the limit should be, I realised for the first time that I had been spending family money for my personal expenses (i.e. building this fun portfolio). Oops! I immediately added a certain sum as my allowance to our monthly budget. Whatever personal expense that I have, it must come from that allowance.

Having this arrangement is so liberating. Now I can buy random flashy assets without feeling guilty about splurging family money on random things! It’ll also force me to trim the portfolio by selling some old assets when I want to buy a new asset but I don’t have enough money.

It’s counter-intuitive how taking some money out for my personal expenses ends up saving family money in the long run.

My money management goal for 2022

Ever since I started tracking my expenses in 2019, one thing has been bothering me: I spend more than I earn through regular salary. I am not going broke, though. I have other irregular income too. My total income (salary + irregular) is more than my expenses, so I have some money left over for saving/investing.

This is likely irrational, but I want to spend less than my salary income. Every month I notice that the expenses are more than the salary income, and that stresses me out. As we all know, such a consistent stress is bad for the mind and also bad for the body. And I do notice the impact of this stress.

I don’t know what the solution is. Maybe I can recalibrate the expectations to live within the total income (instead of within the salary income). Maybe I need to come up with a novel way of accounting so that the spending looks healthy. (Reducing expenses is not really an option because I don’t want to downgrade the quality of life.)

I think this is a good money management goal for 2022. What good is money and wealth if you can’t be happy!