I had the great pleasure this summer of organizing and experiencing another 18-day non-motorized and non-commercial whitewater expedition through the full 280 river miles of the Grand Canyon. It was my fourth trip down the Big Ditch since 2008 and being disconnected from all technology and my familiar environment for almost three weeks always allows for deep contemplation. Floating down through the majesty of the Grand Canyon, I reflected on the things in my life that are truly priceless - the relationships with my family and other loved ones, our health, and our liberty.
Financial security facilitates those priceless relationships, and managing cashflow effectively is at the root of financial security. I was raised to believe that being a good saver was an admirable trait, and being a good spender was a character flaw. Opposites famously attract and it is common for married couples to have a saver focused on the future and a spender focused on taking care of everyone in the family right now. This tension can be a primary source of marital conflict and can even lead to divorce. Some couples never learn to communicate effectively about their finances and these discussions eventually become taboo, with one or both partners seething in a state of financial discontent and worry.
We are all familiar with the results of overspending – financial worry, strained relationships, growing debt, and even bankruptcy, but what about underspending? I am good at saving money due to my natural aversion to spending which can literally cause me emotional and even physical distress. I tend to drag my feet on major purchases such as the new car I continue to procrastinate on buying. We gave my Honda to our college-age daughter a year ago with the idea we would be replacing it with a new car, and I am still driving our old GMC with almost 250k miles on it. Frugality taken too far can become financial hoarding which can also lead to relationship strain.
In a perfect financial world, we would all have an evolving plan for exactly how to direct our take-home monthly income that strikes the right balance between long-term obligations such as retirement and shorter-term expenses like vacations, nice cars and entertainment. Everyone has heard the financial advice to “pay yourself first” and we have created a simple cashflow system that can truly allow you to "Get Rich Living Paycheck to Paycheck" by prioritizing the most critical cashflow needs and confidently spending the rest every month. I have written a whitepaper, which you can download from our website here at http://www.StewardshipColorado.com. This plan can be customized as needed and here are the highlights:
Initial Planning and Budgeting:
- Create a financial plan that includes your retirement “number,” which is the total amount of savings that you will need at your retirement age along with your planned Social Security claiming strategy
- Analyze your historic spending and categorize into fixed and discretionary. This can also be a good time to prioritize if you need to reduce your overall monthly expenditures. It is always better to look at your historical spending rather than what you feel you should be spending
- Create a systematic debt elimination strategy to retire all non-mortgage debt and create a cash emergency fund within a specific timeframe, which may be years
- Create a systematic retirement savings plan to fund your retirement accounts. For many people, this is as simple as transitioning over time to maxing out your 401k contributions and investing them properly. If you are closer to retirement with smaller account balances, you may need to save additional funds or lower your expectations
Monthly Cashflow Management:
- Set aside funds to pay all monthly fixed expenses, including escrowing funds to pay annual fixed bills such as insurance and taxes
- Transfer remaining funds monthly into a “spending” account and feel free to spend this entire account every month!
- Meet monthly to review and make adjustments for the upcoming month
This system works when you keep it simple, become mutually committed to it, and create a rhythm of monthly accountability, which we can help with. Simplifying often means eliminating the use of credit cards, which can make the process of managing your monthly spending very difficult. We recommend you consider at least temporarily using a debit card or cash until your monthly cashflow model stabilizes.
To Learn More
Please download the whitepaper from http://www.StewardshipColorado.com and feel free to schedule an initial meeting where we can answer any questions you may have. We provide a compassionate and confidential approach to helping clients get their financial house in order, whether your challenge is overspending or underspending. We can also provide specific quotes for any of your other planning or investment needs, either project-based or ongoing.