So you want to save more money than you did in 2018? This is a top new year resolution for the majority of Americans, so let’s talk about it.
I am a big proponent of new year resolutions, and so every year I sit my reluctant husband down and we go through last year’s spending to make sure we understand where our money is going. Right now I am really into Marie Kondo’s organizational show where she helps families organize their belongings and really review every item/possession to make sure you only keep things that bring you joy.* I’ve implemented that into my family’s budget review process and with client’s budgets also, so when we review our spend for the prior year we analyze the highest spend categories first to make sure it aligns with our families goals and values. In order to make the process fun and simple, since we are busy parents of 2 toddlers and don’t have all the time in the world to spend tracking receipts and expenses, we use a tool that links to our credit cards so it puts together an annual summary for us and categorizes our expenses. This makes it easy and quick so we have no excuse not to do it!
So for example, looking at our last year’s spending our biggest categories:
- Education for our kids which comprises 20% of our gross income. This is in perfect harmony with our values, since we believe education helps build a solid foundation for our children’s future so they are comfortable in social settings and develop a passion for learning. Nobody knows what the future holds, and what the jobs of tomorrow will look like but I’m pretty sure that if you are comfortable interacting with others and love learning new skills you will be able to adapt to whatever that future looks like.
- Food expenses account for 10% of our gross, and this is a necessity of life because eating healthy, organic, mostly whole foods is good for our family. We are always conscious of how much we eat out and try to limit ourselves not only to save money but knowing what we put into our meals we feel is better for our health too.
I have a lot of clients who have health issues and weight issues, which go hand in hand oftentimes. As part of financial planning I recognize the need to invest in our health and try to eat well to maintain a healthy weight, reduce health conditions in the future which would cost more in the long run and we both agree that we want to be around for our grandkids one day.
- Shelter is another 20%. This includes our mortgage and utilities. This is really a basic necessity, but it’s one category that really trips up a lot of my clients. A good “benchmark” for your mortgage is no more than 28% of your gross income. I find that the higher this number gets, the closer you become to being “house poor/living paycheck to paycheck” which just limits your overall options because the more you spend on a home, the higher your utilities, typically, the higher the furnishing cost and so on, which just means less money available to spend on other things you enjoy-so less money to eat out, less money to save for future goals and needs, and so on.
- Auto and transport is another big category for us: My husband enjoys having a new car, so we are always stuck with a car payment and typically the gas guzzler he picks requires a lot of money spent on gas. This is something we talk about and discuss, but ultimately if it brings you joy and it doesn’t affect your finances significantly I say live your life, because ultimately you have to strike a balance between your future needs and being happy today! Otherwise, what is the point of life anyway?
- Saving is on auto pilot for us, and this is a combination of 401(k) contributions and Roth contributions to max out our retirement savings since we have a goal of reaching “financial independence” at age 55 and not have to work past that point. Knowing how much I love my work with my clients, I don’t plan to actually retire and quit at 55. It’s just an important milestone for us because it would be a great privilege to go to work for the pure joy of doing what we love but knowing financially we don’t have to make a living.
- And lastly, all the other miscellaneous stuff that adds up, including travel which is what we live for and we enjoy exploring different parts of the world together and exposing our children to different cultures, languages and different lifestyles around the world. We value these experiences as a family much more than material possessions, and this is a constant struggle to make sure we don’t spend a lot of money on the newest IPad, and other advertised consumerist possessions and instead take a trip somewhere as a family.
This is so important to us that we have told extended family we no longer want to do Xmas gifts but instead take a trip together and spend the money on a rental for us to share a home somewhere new and exciting. Last year, it was Salt Lake City, Utah and I can say that the memories we built are much more valuable than any possessions I could have purchased for myself. Of course, if you prefer an IPad that is ok too! It’s all about you and what makes you the happiest and spending money in a way that aligns with your values.
So what are my tips for saving the most money in 2019?
You guessed it! In order to make a change, you need to know where you stand today. So, pick a tool that helps you figure out how 2018 went for you financially. There is a whole line up of apps that help you budget, so pick any one and just go for it!
Once you categorize your spending for 2018 you can see how much you spent versus your income, and you can decide on a category where you can “Reduce the fat” or reduce your spending, and put that extra money away. If you already have an emergency account, you should start putting that money away into either a savings account (if it’s for a shorter term goal such as buying a home within 5 years) otherwise if it’s a longer term goal (such as retirement, or buying a lake house in 10 years) you can put that money to work in an investment vehicle, such as an IRA/Roth/Investment account that could potentially grow that money faster over the long haul. There is a wide variety of investment vehicles available today, so it’s a great time to save and invest your money. The first step is to start saving, and the next is to figure out how to invest the money. Of course, if you’re a point where you don’t want to go it alone that’s what we do as financial advisors.
P.S. I recently earned the CFP® mark in order to better serve all my clients. Although many professionals may call themselves “financial planners,” CFP® professionals have completed extensive training and experience requirements and are held to high ethical standards. We understand the complexities of the changing financial climate and know how to make recommendations based on your unique needs.
About the Author: Tess Zigo, CFP® , CPA studied Finance and Accounting at Northern Illinois University and spent a decade working in Treasury management for several large companies. Over that period, she developed a passion for personal finance and investing and wanted to help individuals and families manage their money better, so they can enjoy life today while having a plan for tomorrow. Many of her clients are trying to balance their short term financial needs such as a home purchase or remodeling dreams with long term objectives, from sending their children to college to retiring comfortably and having the income to support their current lifestyle. As a mother of two toddlers, Tess understands the time constraints young families face in balancing work and family matters and helps clients with their financial planning, from budgeting to investing for their goals and insuring their most valuable assets.
Tess is originally from Bulgaria and spent 5 years living in Botswana, Africa. When she is not meeting with clients, she is traveling to a new destination, teaching her children Bulgarian or hosting dinner parties to practice new recipes.
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