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The 4 Things You Can Do Right Now to Kickstart a Healthy Spending Plan

By: Frances Cronlund, CIMA®, CExP™, CTFA, CFP®
3 Minute Read

As we approach year’s end, this is an excellent time to review your spending habits to implement an effective budget for the year ahead. As financial advisors, we typically recommend reviewing the previous 12 months to better understand typical spending patterns. However, 2020 has been anything but typical, and succeeding financially through this crisis may require a closer review of your family’s budget.

Many of us have experienced various hardships and changes to our income this year. The silver lining of our current economic situation is that we have been given a unique opportunity for a new perspective into discretionary spending habits. COVID-related closings and restrictions have forced many to re-evaluate what is essential to our lifestyle, and what we can go without.

Below, we have outlined four ways to kickstart a healthy spending plan for the upcoming year that focuses on your personal goals and lifestyle.

  1. Review your spending history and establish a baseline.

    Awareness is the key to building a healthy spending plan. Reviewing your spending history from the previous year is an excellent way to be mindful of where your hard-earned dollars are going. However, given that this year’s spending has likely been drastically different, it would be most effective to review 2019 as your baseline while noting some of the recognizable differences to your spending this year.

    The good news is this is much easier than you think. Look at your 2019 income tax forms to assess how much money you earned. Subtract federal, state, and payroll taxes paid along with any amount that went into your retirement or personal savings accounts, and you’re left with your baseline spending for one year.

    If you’re one of the vast majority of people who haven’t committed to a yearly budget, you may be asking yourself “where did all of my money go?” While it may be unsettling for some, you can use this information to understand how to build a healthy and sustainable plan going forward.

  2. Establish measurable goals for saving.

    This step is somewhat self-explanatory. The best advice we can give is to think big. Do you want to save for a down payment on a home or purchase a new car? Maybe you have a specific amount you’d like to invest in your child’s education fund, or you’d like to save up to remodel your kitchen. Now is a good time to write down (pen to paper) what you will need to save in order to meet these goals.

  3. Reflect on what is most important to you.

    We all have different spending priorities; take some time to consider yours, no matter how small or big. For some people, spending time and money on personal hobbies is important to their happiness. For others, investing in a second home or making education gifts can be a major priority. After you establish what’s most important, also take time to recognize common expenses that hold less importance in your life, and consciously make a decision to cut those back.

    This is where the silver lining comes in. As a result of closings and restrictions, many of us have been forced to forgo some of the luxuries and activities we typically enjoy, whether that’s a weekly kickboxing class or daily latte on your way into work. While you may have been forced to go without during most of 2020, take the time to consider which of these you wish to have back in your life when possible, as well as which you can easily go without in the future.

    Keep in mind that this time should be used to reflect, not judge. If those weekly golf outings are important to you, there are ways to fit it into your budget. However, when you are able to identify common expenses that do not contribute to your happiness or your goals, reducing spending in those areas can free up the necessary funds to finance what’s more important.

  4. Create a plan to track spending that’s sustainable for you.

    What I find works best is simply writing down spending patterns and habits each day. While there is software available to track spending, most programs only allow you to see this data at certain intervals that are often well after the purchases occurred. The simple act of journaling discretionary purchases as you go is an invaluable tool for an effective spending plan. It allows you to recognize where your money is going in real time, which can build a sense of accountability.

    Furthermore, to best track your spending, you may find that debit cards are easier than credit cards for purchases. While the various rewards offered by credit card companies may be enticing, it can be difficult to alter spending patterns when regularly using a credit card in place of a checking account. The ability to watch numbers fall as you spend, rather than rise as your incur debt, can help create a more accurate frame of reference when addressing spending habits.

    The act of budgeting doesn’t have to be restrictive. Working with a financial professional can help you build a unique and effective spending plan tailored to your life and your needs. For more information about financial planning, please reach out to our Curi Capital’s Wealth Management team at 984-202-2800.

Frances Cronlund, CIMA®, CExP™, CTFA, CFP®

Frances Cronlund is Curi Capital’s Senior Director of Wealth Planning, based in Raleigh, NC.

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