SPEND LESS THAN YOU EARN
This may seem obvious; however, it must be said. If you spend less than you bring home, then you will begin to accumulate wealth! It is almost too easy to make purchases these days. Within a minute, anyone can think of a product, order it on Amazon, pay for it with a credit card already on file and have it delivered to their home within 2 hours. This technology is amazing! Speaking from experience, my home hosts a symphony of delivery trucks on a regular basis. Everything from home goods to home cooked meals, the world is just a few clicks away! Consider the following as a starting point in combating your retail inhibitions…
-Take a tally of your total monthly income from all sources
-Next add up all of your fixed, essential monthly expenses
-The difference between these two numbers is what you would consider your discretionary expense. This is what you can control.
-Note, if your essential expenses are higher than your monthly income, then it is time to find different job and/or a second job, etc.
Known as the dreaded B-word by many, budgeting can actually serve as one of your greatest financial tools. Here is the best part…it is free. When used properly, budgeting can help expose your poor spending habits and/or serve as a personalized spending plan. Give it a try! Organize and track your expenses for a few months. It will not take long before your spending inefficiencies and/or savings opportunities are exposed. Whether your goal is to save more, to spend less or to simply know what you are spending, a budget is one of the best financial reality checks available. The truth will set you free!
PAY YOURSELF FIRST
There is often one major expense that many forget to include in their budget/spending plan. While you are putting together a list of all of the most important vendors in your life, do not forget to include yourself. Establish a goal to save on a monthly basis and don’t consider it optional. We are creatures of habit. It might amaze you how easy it is to adjust to this new “expense.” It is a beautiful thing to live within this discipline, as monthly saving can add up quickly.
Don’t make purchases on impulse. Rather, be a smart consumer. There is no shame in clipping coupons, searching for promo codes or waiting for sales. Instead of walking into a store and buying things, consider establishing a “wish list.” Next time you’re catching an episode of “The Walking Dead,” pull out your laptop, jump online and start comparing your wish list item prices between different retailers. Not sure if your desired products ever go on sale? Simply ask! The worst thing that can happen is you hear “no.” Call me crazy, but I love getting deals. I actually consider it WINNING!
ESTABLISH WANTS AND NEEDS
Consider making a list of your wants and needs. For many, this can be a toughie. While it might seem like your daily $8 Starbucks coffee run is as essential as the air in your lungs, I can assure you that it is not. It never ceases to amaze me how little it really takes to get by. I regularly see people loses jobs and dramatically reduce their spending habits seemingly overnight. It is truly a phenomenon…the more people make, the more they spend. You definitely do not want to compete with these people either. Decide what really matters in your life and cut back or discontinue spending money on the things that are not. If you can live without it, then don’t buy it. Consider forcing yourself to wait a few days before pulling the trigger on any large purchases. You may find that you can live without it. These steps may help you save some money. Or even better…keep you out of debt.
THE JONES’S ARE NOT THAT GREAT
Please fight the urge to compete materialistically with those around you. “Keeping up with the Jones’s” may be the ultimate deciding factor of whether or not you will meet your financial objectives. We all know people that seemingly have it all going on financially…good for them. You never know their story. Perhaps they inherited a lot of money. Maybe they won the lottery. It does not make sense to compete with these people. It’s like challenging Mike Tyson to a boxing match. Don’t do it! The reality is that there are a lot of people living out of their means. The cost of materialism can be steep! On the surface, it might seem amazing. However, beneath the surface, there is often a pile of debt and anxiety.
EMERGENCY FUND IS A MUST
It is always wise to maintain an emergency fund. Expect your financial plan to take a curve at some point. Whether it’s unforeseen health expenses, loss of a job or a loved one in need, expect the unexpected. An adequate savings reserve can help you weather the storm and keep you out of debt. Generally, a six months’ worth of your monthly expenses is a good rule of thumb.
ENJOY SOME OF YOUR DOE
Financial planning is not the enemy of fun. I tell my clients all the time that they do not get to take their money with them when they die. It is important to spend some of that hard earned money. There is a fine line in there somewhere though. The peace of mind and confidence that accompany a sound financial plan can not only enhance your net worth, but also your self-worth. Be patient and realistic when addressing your savings and/or spending plans. There is no substitute for slow and steady savings and/or spending cuts. Like dieting, there is no quick fix. Any overly aggressive financial adjustments can be overwhelming and unsustainable.
GOING NOWHERE LEADS TO NOWHERE
There are way too many smart people out there aimlessly saving on a monthly basis without knowing the end result. How much should you save? When can you retire? What is the probability of success in reaching your goals? A CERTIFIED FINANCIAL PLANNER ™ at Wealthnest Planners can help answer these questions. We not only help you establish realistic financial goals, but help implement and monitor a meaningful, custom financial plan.
Kevin Foster, CFP ®
Comprehensive Wealth Manager | Tax Advisor
Chandler, AZ 85226