I wrote about this in a M.I.T.. but felt I needed to write an article on it, to further expand on this topic because itâ€™s so important.
Most people donâ€™t give a second thought to allocation but itâ€™s SO important that we do.
Think about it. When a boss has a project, he allocates the work to his team because thereâ€™s no way he can get it done by himself. When he allocates, he gives separate tasks to each person. He doesnâ€™t assign everybody to do the same thing because that would be foolish. Thatâ€™s like saying everybody on the basketball team should be a forward or everybody on the football team should be quarterback. You allocate to maximize whatever it is that needs to get done.
Where the does the power lie in allocation?
Well, it lies in a lot of things but first and foremost is this:
You feel that sense of control, where youâ€™re on top of things, so it gives you that strong, but subtle sense of confidence to the point where nothing really gets to you.
Think of the type of people who are not in control. Theyâ€™re all over the place arenâ€™t they? Always running around like a chicken with no head, complaining that thereâ€™s none of this or that, frustrated, exasperated, etc.
Now think of the people who are calm, cool and collected – they are in control.
They allocate things like their time, money, and resources.
They plan their day not just with a to do list, but they allocate time to each specific task just like the President of the United States does.
They allocate their space in their houses to do certain things.
They allocate their money toward certain things.
With regard to money, have you ever noticed those who donâ€™t allocate â€“ they spend their money on silly things? Their money has no purpose. Itâ€™s not going anywhere to do anything except burn a hole in their pocket so they just spend it on any silly thing they see.
Most people who save, if at all, have it all in their ONE savings account. Itâ€™s nice because itâ€™s a big fat chunk but the flip side is that they hesitate to split it up and allocate it to different things because it might not look like thereâ€™s a lot if it gets separated.
Hereâ€™s the thing.
If all you have is one big savings account, itâ€™s easy to spend most, if not all of it, on whatever the situation warrants or if youâ€™re the opposite, itâ€™s easy to just keep on saving, to not spend at all out of fear of losing part of that chunk.
Both extremes are unhealthy.
Thatâ€™s why itâ€™s wise to allocate, in order to get CONTROL of that chunk of money.
Thatâ€™s what happens when you allocate your money.
For example, if you have $10,000 in one savings account, you should start allocating that chunk into separate accounts.
One account for emergencies, one account for maybe saving up for a down payment of a car you want to buy, one account for that trip you want to Tahiti, etc. So you do the math and you allocate $6,000 to emergency savings in case you lose your job, $2,000 for the car, and $2,000 for the trip.
Now just by doing that alone, youâ€™re going to experience a sense of freedom that you NEVER had before when it was all just sitting in one account.
Youâ€™re going to feel empowered and not trapped because it was all put in one account labeled â€śSavingsâ€ť.
Itâ€™s going to become easy for you to spend that $2,000 for the vacation or the car BECAUSE THATâ€™S WHAT IT’S THERE FOR.
Thatâ€™s its purpose.
You can spend it without guilt.
Plus, letâ€™s say you need to save $3,000 for the down payment of the car and $4,000 for the vacation. Obviously, youâ€™re going to need to put more in there because you havenâ€™t reached those amounts yet. What that is going to do is move you into action.
Youâ€™re going to get excited.
Because youâ€™re almost there. Just $1,000 more for the car and $2,000 more for the vacation!
Youâ€™re going to want to find ways to put in more money in those accounts and more frequently as well. That translates into cutting costs from your budget, looking for extra ways to earn more income, and when you start putting in all that additional money in those separate accounts, you get excited. Youâ€™re almost there. Itâ€™s going to happen. Itâ€™s like watching the mercury rise to the top of the thermometer.
You see, without those separate accounts, you didnâ€™t really have a purpose for your money. Now that you have something to go for thatâ€™s realistic, you start getting smart with your money.
Also, that excitement, that drive wasnâ€™t there when all your money was sitting in one account.
It wasnâ€™t fun.
Even if you were saving for something really big like a down payment on a house and your goal was $40,000, you knew once you reached it, that account would be wiped out.
That excitement factor isnâ€™t there when itâ€™s all lumped in one sum.
You can still save for the down payment on the house â€“ you just have to create another account for it and allocate a certain percentage of your money toward it every month.
When you allocate and have goals for each account, it makes money and budgeting fun but more importantly, IT GIVES YOU A SENSE OF CONTROL THAT BRINGS PEACE OF MIND.
It also helps you FOCUS, to put your attention on where it needs to be, and gives you FREEDOM to do what you want without guilt because you successfully allocated your resources.
Youâ€™ve got your bases covered. Thereâ€™s nothing to worry about. Thereâ€™s no sense of loss when you cash out that account because thatâ€™s what itâ€™s there for, to be used for the specific purpose you designated.
Itâ€™s the same thing with time.
Most people allocate it when it comes to things like doctor appointments, vacations, dinner out with friends but when it comes time to allocating things for their personal goals, they donâ€™t do it.
Instead of writing a to do list, take that one step further. Allocate SPECIFIC TIME to it. Say from 5:00 â€“ 6:00 youâ€™re going to be doing this. Take a break from 6-6:20. Then from 6:30 â€“ 7:00 youâ€™re going to do that.
See how much you get done when you allocate time compared to when you donâ€™t.
When you allocate, it gives you a SENSE OF PERSONAL CONTROL which is MUCH MORE conducive to actually DOING.
You get more done when you allocate and if you think about it, whatever we manage by allocating â€“ WE GET MORE of whether itâ€™s time, money, space, etc.
Think of it as a way of telling life that you can handle the amount that has been bestowed upon you. You can handle it and control it well. Life will see that and give you more of whatever that is.
Contrast that with somebody who canâ€™t even handle the small amount of whatever heâ€™s given â€“ heâ€™s not going to get any more at all.
Get in the habit of ALLOCATING so you can get CONTROL and youâ€™ll find youâ€™ll actually get more done AND experience the focus, simplicity, freedom and peace of mind that comes along with it.