Is planning how much you spend the most tedious task on the planet?? Very possibly. Here’s the reason to do it anyway – it directly informs almost every other financial decision you should be making so this is not really a negotiable task. Money does not know or care who owns it. It’s a tool and one most effectively used when used intentionally vs. unconsciously. Below are some basic spending boundaries. How do yours line up? Notice savings is first. There is and probably always will be endless focus on retirement saving. That’s because when we no longer work, we are doing a 180 pivot generally and instead of building up reserves we are relentlessly drawing from them and we do this over a period where maintaining our health can be really expensive. We agree retirement savings is important. But so is general savings. This is such a fundamental concept but it is often ignored until some event forces us to look at it.
- Percent of Income
- Savings 20%
- Housing 25-35%
- Utilities 5-10%
- Car or Public Transportation 10-15%
- Food 10-15%
- Medical 5-10%
- Entertainment 5-7%
- Personal 2-7%
- Giving 5-10%
Saving on a general level matters because most of us have goals that include a lot more than just not working some day or working less. Financial goals include everything from the stuff we want in our lives (and must pay for) to the experiences we want to enjoy to dreams we want to pursue and to others we may wish to help. When we write down our spending and write down our goals and match them up, there is sometimes a great big hole between what we say we care about funding and what we actually do pay for. That can mean that 1) you don’t really care about those other goals, 2) you really do care more about what you are paying for now, or 3) you simply haven’t committed to changing what you’re funding now to what you do care about funding. Seems like it should be simple but often it’s not. Sometimes we might not care about paying for subscription TV but our spouse might find that important. Or we want to travel and but insist of 5 star plans and our spouse who also likes to travel is more than willing to go on budget trips. Insert friend for spouse if any of your own spending decisions are wrapped up in others’ expectations.
A dollar can only be spent once so getting this right matters. Saving gives us choices. Savings (even when it earns nothing) allows us to build up enough reserves to be able to invest to earn more, again as we save for those goals further out in time.
For this year, as we roll out our version of a robo advisor or online planning, we insist our clients sign a pledge to save a percentage of their earnings. This is our W.I.L.B.U.R. program ‘Wealth Is Likely Because of Unusual Reserves’. Meet WILBUR and keep saving!