With nice weather and long summer nights on the horizon, I was reflecting over the inevitable increase of my own personal expenses and also the consistent sentiment from clients about the velocity of cash going out the door towards ‘wants’ instead of ‘needs’. The social pressures of attending or traveling for events, dinners, holidays, and celebrations can feel unavoidable. For many of our clients like myself who are in the ‘accumulation phase’ of life when you are doing your best to efficiently grow net worth and save, there is a rule of thumb that I feel is helpful to purposefully allocate every dollar of income that comes in the door. Note, this is not a rigid framework for all, nor an original concept with varying opinions all over the internet, but I feel this is a solid framework you can use to benchmark your current spending habits.

 

For every $100 of earned income that comes into your household, divide it up as follows:

$30 Taxes

  • (Using an average…some people pay more, most less)

$5 Short Term Savings

  • (High Yield Savings Account to fund emergencies OR short term goals like vacations or big purchases within 1-2 years)

$20 Long Term Investments

  • (Money that accumulates earnings and compounds undisturbed for 10+ years

$5 Risk Management

  • (Property insurance, life insurance, disability insurance. Protect your largest assets and things you love.

$40 Current Expenses

  • (THE GUT CHECK MOMENT: Can you cover your household’s expenses with 40% of your income? There are two simple solutions that are within your control: make more or spend less.)

 

I challenge you to have the (sometimes difficult) conversation with your significant other and/or your financial planner to manipulate pennies in a way that makes the most sense for your age, goals, lifestyle, etc.

 

Hope this helps and never hesitate to reach out if there is any way we can assist in improving your investment behaviors.