Where did your money go?
I sit with individuals and families and talk about money. I do so in an environment free from the pressure to sell a product or orient the family to a particular lifestyle. I’m compensated the same regardless of their final decisions. Why does this matter? I am able to cut the clutter and get to what will really move the needle for the family:
Their savings rate (savings for the year / total income)
If a family saves $ 10,000 on an income of $ 40,000, then their savings rate is 25% (10,000/40,000)
Since we have already established where your excess monies should go, I go about the business of creating margin in the client's life. This is where we all push peas around the plate......because we like our cars and houses :)
Below is a graph showing where American families money went in 2012. The data is from the Bureau of Labor Statistics.
The takeaway? The big levers for you to pull are housing and transportation, but these are the last levers that we all want to pull.
How does this play out? Families will skip going to Starbucks to 'save' money, but will max out their home and car purchases. This gives families the illusion that they are ‘focused on their spending’, when the reality is farthest from the truth.
When seeking to reduce expenditures for a greater goal (financial freedom, increased giving, etc..) Start with the biggest expenditures and work your way down. Anything else is pea pushing on your plate.