Are you spending enough money to actually achieve your financial goals?


As a CERTIFIED FINANCIAL PLANNER™ (CFP®), I often hear, “But Mr. Brewer, I have no money to invest!” But I usually respond with, “Could there be funds available that you know nothing about?” Let’s examine what could happen.

Credit cards make it easy to spend money, but without making us think too much about what we spend. Then the bill comes in and our payment is bigger than last month. Most employees think of their money in terms of net or disposable income. However, it’s not all the money.

A simple way to think about where your money goes can be expressed by the acronym TGISID: To tax, to give, to insure, to save, to invest, to go into debt (as in paying a debt) and to spend.

Invisible expenses

Many people don’t consider what they pay in taxes as an expense. The government doesn’t trust most of us to pay our tax bills, so they ask our employers to pay them on our behalf. We don’t get to think about it, like we do with employee benefits or whether to fund that night on the town.

Some people feel they have little control over taxes, but they get a refund. Refunds are often spent as “found money” and not directed towards achieving long-term financial goals.

Some people automate their donations and savings. They know, as does the government, that if it doesn’t land in their checking account, they will treat it as invisible. Your company may have automatically enrolled you in an employer-sponsored retirement plan, knowing you probably wouldn’t miss it. This money is for your retirement. That’s not a bad thing.

Visible expenses

If you tithe or write checks to charity or family members, it becomes visible. The same goes for writing a big check on April 14 for an IRA. Many people find they don’t have the money or find it a painful check to write for a small tax cut. Unfortunately, they don’t understand the benefit of tax-deferred growth on what they invest. However, it is a longer term gain.

Insurance, emergency savings, investing for college, and paying off debt are mostly visible expenses. Open enrollment for benefits involves visible expenses. Some companies allow you to purchase various types of insurance in addition to health.

Types of insurance can include disability, life, and long term care. Many people make the decision not to purchase certain insurance based on the fact that it lowers take home pay.

We can find a number of ways to rationalize not enjoying these benefits. Often at the center is our desire to maximize our current lifestyle. But it can easily leave you vulnerable to catastrophic risk that could have been covered by insurance or savings.

How much should you spend on your goals?

Have you stopped to calculate how much you need to save and the rate of return you need to reach your retirement standard of living? What about the college fund you need for a child or grandchild? You can try to delay your own retirement, but it’s hard to tell an 18-year-old not to go to college for a few years.

Let’s look at retirement research from the Benefits Research Institute by Jack VanDerhei, Ph.D1. It showed that men and women have different spending needs. For a 25-year-old man earning up to $65,000, a savings rate of 8.2% increases the probability of success to 90%.

The blessing for longer life expectancy means the need for more savings. For a 25-year-old woman earning up to $65,000, a savings rate of 9% increases the probability of success to 90%. If that same woman earning $65,000 waits until age 55, she would save 18.5% and see the probability of success drop to 50%.2

Redirect your spending and find a spending coach!

If you’re like many people, you don’t have a budget that fully describes your discretionary spending. You may see your credit card bill as just a credit card bill, but you don’t know if the bill was driven by expenses for gas, alcohol, latte entertainment, etc.

If you don’t pay off your credit card balance at the end of the month, these discretionary activities end up costing more than you thought when you decided to buy. These activities can quickly leave little or no room for spending on your financial goals.

Do you have a spending plan that includes your goals and other invisible and visible places where our money can go? If not, you may need to develop one in order to reallocate funds that could be earmarked for lattes, purses, golf rounds, and other items. Is your cost of credit also holding you back?

What about an accountability coach?

If you already know what to do (in terms of your expenses and finances), you probably won’t be able to do the complex goal calculations. It is therefore important that you hire someone who has the professional qualifications to do so. I believe in CFP® Professionals and Certified Retirement Planning Advisors. They are financial planning professionals who help you create a financial plan and create goal milestones that will help you create incentives for yourself and stick to a plan!

The opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations to any individual.

1 How Much to Save for Retirement After Accounting for Post-Retirement Risks: Evidence from the EBRI Retirement Security Projection Model, ® by Jack VanDerhei, Ph.D., Employee Benefit Research Institute.

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