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| Pathways Advisory Group, Inc. Dustin J. Smith, CFP® |
In case you missed it from the September 2013 Newsletter...
You hate it. I hate it. We all hate it. But it’s not that bad…
We ask all clients to quantify their lifestyle at some point. It’s an important part of our process. We might call it a “spending plan” or simply ask clients to “categorize expenses”. We do not use the “B-Word”. The responses vary but we often meet resistance. Why is that?
It’s painful. It’s stressful. And it’s time consuming. Perhaps it feels better not to know. There are simply more enjoyable ways to spend an afternoon. But it doesn’t have to be that way!
You can make it easier by changing your approach. Simply start with a strong foundation and build from there…
Step one: Review total monies in and out of your household (3 months, 6 months, etc.) until you understand monthly and annual spending. Don’t judge it, understand it. Separate expenses into categories (household, transportation, health, recreation, etc.) for greater understanding. There are helpful websites (www.mint.com), software packages (www.quicken.intuit.com) and/or spreadsheets (see below for our spreadsheet). The old “notepad” works too.
Click for a larger view...
If you understand spending in each category, then you have a strong foundation. And if 1) your lifestyle fits comfortably within your resources 2) you feel good about the spending in each category and 3) you are on pace to meet your future goals – then you do not have to keep building.
If not, then there is some work to do. But you can work smart, not hard…
Step two: Review each category for discretionary spending. Leave the non-discretionary (“needs”) spending out of it. If married, discuss discretionary spending carefully with your spouse - no finger pointing. The first step is to prioritize among discretionary categories. If married, work together to identify common priorities – there will be differences. What discretionary spending do you enjoy most? What do you want to spend money on? What don’t you want to spend money on? Does your checkbook agree with you? I know, nobody has a checkbook anymore…
Don’t forget to include future discretionary spending in the discussion. Today’s goals and tomorrow’s goals need to be considered. Hopefully, our periodic life goals projections provide context for this portion of the discussion. If necessary, minor sacrifices today are easier than major sacrifices tomorrow. Relying on “Powerball” tickets is not a financial plan...
Goals: The primary goals are conscious spending and financial clarity. It’s much easier to assess your overall financial security if you have an awareness of spending. Additional spending goals will vary with each stage of life. Sometimes “budgeting” will be a necessary tool. But it always starts with awareness.
The discussion above is, of course, simplified – no two households are exactly alike. Some households may discover that awareness leads to more questions than answers. Whatever goals emerge, it’s worth the effort. Let us know if we can help…
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