Questions we get all the time and, in the core, the most critical question(s) that, once answered, determine long term financial success or failure. Yes, you read that right, THE most important determinant of YOUR success. What you spend on a consistent basis is the determining factor. From there, it’s all a math equation....
Over the next couple months in the Women and Finance series, we are going to take a deep dive into it and tackle this critical area. First and foremost, ascertaining ones spending level is the first step. Knowing WHAT you spend and WHERE you spend it, on a regular basis is the task. Sadly, it is the first step most don’t take and the data point many don’t know.
How do you proceed..... sit down uninterrupted and make a list. Write down all your spending. Go through your credit card and bank statements. Don’t forget the dreaded “cash ATM withdrawals” too. List everything. From here, break your list into 3 categories. Those are fixed expenses, variable expenses, and discretionary spending. If you need a guide, we have a template you can use. Once you do this, and you know where your money went, you have a modicum of control moving forward. The mechanism for the control is an accounting process known as a budget.
After the painful part is over, and you know where your money went, you can make some decisions. What I often see in the first part of the process is people identify a lot of things they were unaware of. We call it “leakage”.... the dollars that go away without known function or an old purpose. Think about the old subscriptions you don’t watch., the gym you no longer frequent, or the occasional automatic purchases that aren’t needed anymore. Everybody has these, some worse than others.
Now we get to the good part.... you have the data and can ask....where do you want your money to go ? Looking at the clean slate and asking your self “where to allocate my dollars”. Congrats, you have started the process of doing a budget !
Setting up YOUR budget is your process of determining where you want your money to go. As we tell everyone, if you don’t have a budget.... get one. Its well worth your time.
Thanks for your time and hope you got some good nuggets from this. Next month we will transition into discussion of budget integration into the retirement planning process. If you want to discuss budgeting further, or need a template to use, don’t hesitate to reach out. I am here to help !