How much money did you spend last month? How much have you spent so far this month? Sometimes it is easy to fall into a cycle of automatic payments where as long as your checking account still has money in it, you feel you are doing okay. But, a word of caution from your financial advisor friend: no good decisions can be made without good information behind them, and that is especially true when it comes to your dolla dolla bills.
Do you know exactly what goes into your bank account each month? And how much is taken out for health insurance, social security, disability, and any other benefits–snacks in the office? This is good to know if you should ever leave your job because you have a point of reference to what this thing called life actually costs. When I had to pay for my own health insurance for the first time, I was astounded to find out catastrophic health insurance was $250 a month. I would be grateful for a simple silver health benefit plan through an employer right now!
Are you clear what it costs to keep you alive? When I say what is your base budget, I literally mean only the things that will keep you ticking a la Maslow.
Yes, you will go higher up the pyramid, but start at the foundation: Rent/mortgage, transportation costs, groceries, utilities. And be real about what is actually needed. Groceries has so many variations from organic or conventional, meat or vegan, and impulse purchases or planned meals. Whether is it Marie Kondo, Minimalism, or my ultimate goal of Spartanism, challenge yourself to really live your most intentional and needed life.
The beauty of challenging yourself is that you really do get to choose your life journey and every day is an opportunity to pivot. For your money, that means everything extra from saving for retirement, to purchasing a ski pass, to heck why not finally getting that [second, third] dog? The goal is to facilitate the life you want but in a financially responsible manner.
Your retirement is a thing of the future, and us humans are programmed for immediate gratification. As a result, I really want to emphasize that if you think being young and poor stinks, trying being old and poor. Really consider the life you want tomorrow and also what that life looks like in 30 years. What can you do now to change your lifestyle for the financial better that will also translate to the future? Generally your spending does not change drastically in retirement, so 60-80% of current expenses will need to be covered. For $40k a year that means you will need about $1,000,000 in savings.
Yet, I still want you to enjoy the now. An often-missed step when making a financial decision is keeping in mind the full lifespan of what you are spending. If you get a cat- plan for food and kitty litter each month, a vet twice a year, and of course the occasional special treat or outfit. If you buy a ski pass-plan for parking/lodging/transport for the occasional [every] weekend trip, tune ups, and of course you will have a few aprés, no? As long as you give yourself (and your budget) a chance to anticipate how each purchase affects you over time, you can properly account for it. And maybe your dog attacks a porcupine and you need an emergency vet visit–that is where a rainy day fund comes in.
Whether weather gets the best of your car or you flat out lose your job; a good rainy day fund provides you the comfort to weather whatever comes your way. Aim to be able to cover around three to six months of your basic needs (remember earlier?). That exact number will vary based on your personal needs. If you are a contractor who has multiple sources of income, maybe you only need two months because if you lose one job you still have another source of income. Make sure you consider what happens in the case of a long term disability or ailment.
I want you to feel empowered to say yes to what you want and need in life and be able to move on with that decision. I also want you to be thoughtful for what want and need really means. Good luck on your journey!
This article was written by Laura Isanuk
If you are in need of a great financial adviser or have any questions about finances reach out to Laura: lauraisanuk@firstaffirmative.