Most of the businesswomen we know have many financial goals they’d like to achieve before retirement. It might be buying a house, putting a child through college, or travel, just to mention a few. The goals truly vary, but nearly everyone we work with shares one thing: retirement is years away. Rather than just focus primarily on saving for retirement, these people have goals that are more of a priority to them than retirement that might be 20 or 30 years away.
A challenge we’ve seen is figuring out how to carve out the money they make for all the different goals they have. And the even bigger challenge is finding the money to allocate to those different goals.
Are you one of those people who makes good money, but it just seems to go somewhere every pay check? Do you have any idea where you spend it?
We have found that many people making decent incomes just don’t know where it goes. When we look at how much money is earned and life’s fixed expenses, it tells us that there is often a surplus. But is there really? Is there loads of extra money piling up in your savings account just waiting to be allocated to your personal goals? The answer is usually no.
So, we decided to find the “missing money.” Our thought was that once we find where the money is going, clients can choose to spend it differently. But until you know where it is going, you can’t stop spending it in those places. Below are the steps you can take to find the “missing money.” It’s easier than you probably think.
STEP ONE: TRACK YOUR EXPENSES AND FIND THE MONEY
Our solution to this is to track expenses for two or three months to find trends in spending. We use a software that links client accounts so we can see all expenses. Clients go in to their account and categorize the expenses based on what the money is being spent on. We know that fixed expenses such as mortgage or rent, utilities, cell phone bills, have to be covered monthly. But everything else, which we call discretionary expenses, is money that can be spent however they choose. The tracking exercise will help you see just how much your fixed expenses are, and how much is left that you are spending everywhere else. Your income, minus your fixed expenses, is the surplus you have that you can spend where you’d like, on goals, on eating out, whatever your priority is.
STEP TWO: CREATE YOUR PERSONAL BUDGET AND CHOOSE WHERE YOU SPEND THE MONEY
Based on our experience, the missing money is usually in a variety of discretionary categories. Big offenders are groceries, dining out, entertainment, and travel. Once you know what the big offenders are you can choose limits to put on a particular category. This is how we create a personal budget. For example, you might have been spending $1000/month on groceries, but you are willing to cut that back to $650. This will free up $350/month for other goals, like your house fund, if you are saving for a down payment on a house. You’ll choose a limit for every category where you have been spending discretionary money, freeing up as much as you need to fund your important goals.
STEP THREE: TRY OUT THE BUDGET AND ADJUST TO FIT BEST
Our suggestion is to try this new budget out for a couple months knowing you’ll probably have to tweak it a bit so it works best for you. Check in on your spending during the month so you stay on target with spending limits for specific categories.
It is really as simple as that: tracking where you spend the money, choosing limits on that spending, and allocating the extra money to goals that are important to you.
Funding personal financial goals starts with awareness. If you know where you are, where you want to be, and what the gaps are, you can take steps to reach your goals. It’s amazing how tracking your expenses can help. It allows you to see where you spend your money, and to choose to spend it elsewhere. Everything about planning for goals is about give and take and making choices, but we have found often times the money is there to fund your goals. You just have to find it and choose to allocate it to what is most important to you.
If you’d like to learn more about how we help our clients reach their financial goals, please contact us.
