Spring Forward Your Savings and Spending Strategies
Spring is in the air! Temperatures are rising and forecasts for rain are replacing predictions for snow. When you think about your spending and saving behaviors, are you confidently springing forward with strategies for growth, or are you soaking in April showers?
Sowing Seeds that Grow
The Wall Street Journal article, “Americans Are Spending More, Saving Less” claims more Americans are not saving as much as they have in the past. What’s the “right” amount to spend and save? The most accurate answer is, “it depends on your specific situation” because different factors like your financial goals, your income, and your existing debt and savings all impact your numbers.
While each of us have different specific spending and savings numbers, two key principles set up all of us for financial success: spend less than you earn and save for the future. While these are not hard concepts to understand, they are habits that require attention, focus, and ongoing care until they are firmly rooted in our attitudes and behaviors, just like a spring seedling.
Steps for Cultivating Green Sustainably
Use the new season to reflect on your own metaphorical spending and savings garden. Are the choices that you are making today feeding only your immediate needs, or are they helping your money grow sustainably?
Following are steps you can take to deepen your understanding of your spending and savings so that you are nourished in this moment and positioned to enjoy a bountiful financial harvest in the future.
Step 1: Confirm
Regardless of your income, spending less than you earn is easier to do when you understand how much money flows into your control and how you spend it. When you have this visibility around your cash inflows and outflows, you can prioritize your expenses according to those essential for survival and those that you enjoy when you have enough income to afford them.
Take a couple of hours one day this spring to review your spending and saving. Collect all documents related to your income and expenses for one to two months. Your income documents might reflect wages, average tips or bonuses, alimony payments, and investment income. Your expense documents might include bank statements, loan payment statements, and credit card statements.
Step 2: Analyze
Review the information that you’ve gathered. See how much money you earned and how you spent it. Consider the following questions:
- How much did I spend on fixed expenses? These include:
- Housing debt (homeowners: principal, interest, tax, and insurance; renters: rent and insurance)
- Consumer debt (credit card)
- All other debt (personal loans, student loans, auto loans)
- How much did I save to my:
- Personal savings account?
- Emergency reserves?
- College funding?
- How much did I spend on everything else?
- What was the “everything else” that I spent money on, for example:
- Dining out
- Coffee, drinks, soda, snacks
Step 3: Reflect
Now that you have analyzed your spending and savings details, how do you feel? Are your spending and saving behaviors as you expected? Are there any surprises?
Step 4: Obtain perspective
As mentioned before, the “right” amount for you to save and spend depends on a variety of factors unique to your specific financial situation. A Certified Financial PlannerTM (CFP®) can work with you to determine your unique numbers and develop strategies with you for reaching those numbers.
CFP® professionals often consider the following when guiding clients on their spending and savings:
- Consumer debt ratio: all monthly debt payments except housing and student loans are less than 20% of net (take home) income
- Emergency reserves: cash equivalent to 3 – 6 months of expenses is set aside and used for only unanticipated, unforeseen circumstances (e.g. accident, change in income, injury, job loss, etc.)
- Housing debt ratio: all housing debt (homeowners: principal, interest, tax and insurance; renters: rent and insurance) is less than 28% of gross (before tax) income
- Monthly debt ratio: all monthly debt payments, inclusive of consumer, housing, personal loan, student loan, etc., are less than 36% of gross (before tax) income
Step 5: Develop and act on your plan
Congratulations! You now have more information about both your spending and savings as well as financial services professionals’ perspectives. Are you satisfied with your approach? Are there changes that you’d like to make?
Even if you’re drenched from past spending storms, you can make new decisions today to help your finances blossom radiantly in the future. You can prioritize your spending and adjust how much you pay on your fixed and “everything else” expenses. And you can increase your savings as a result of decreasing your “everything else” expenses. Finally, you can change your income sources and amount. Your ongoing, diligent care for your spending and savings garden will help your money grow over time.
Caroline Wetzel is a Certified Financial PlannerTM (CFP®) and Vice President, Private Wealth Advisor with Procyon Private Wealth Partners, LLC. Procyon Private Wealth Partners, LLC and Procyon Institutional Partners, LLC (collectively “Procyon Partners”) are registered investment advisors with the U.S. Securities and Exchange Commission (“SEC”). This article is provided for informational purposes only and for the intended recipient[s] only. This article is derived from numerous sources, which are believed to be reliable, but not audited by Procyon for accuracy. This article may also include opinions and forward-looking statements which may not come to pass. Information is at a point in time and subject to change. Procyon Partners does not provide tax or legal advice.