Telling the Truth to Yourself

According to a September 2011 article in the Journal of Financial Planning, "...about three-quarters of advisers (73 percent) report that their clients stretch the truth when it comes to living beyond their means; the same number of advisers say that lifestyle is the top roadblock to a secure financial future..." [Principal Financial Group study]

My own experience reflects that 90% of spending is a result of a client's lifestyle choices. Mainly, the housing costs and the transportation costs. Once the major decisions on where to live and what to drive are made, (and the taxes, interest and insurance premiums that go with them) we work for that remaining 10% of "fun".

Indeed, food and clothing and other areas are important to consider and manageable, too, but...

About 10% of spending is on those very controllable areas of dining out, entertainment (movies, fast-food, etc.), vacations, short trips, gifting (birthdays, Christmas, friend's wedding and baby showers and their kid's birthdays, etc.) and that infamous "other miscellaneous purchases" (housing decorations, ATM cash) category.

Know where your money really goes. 

Just for Children Ages 6 - 13

Discover this website for helping your children learn to save, spend and share:

www.ThreeJars.com

I like it.

Track Your Spending

There are many websites available to track your expenses. Here are some:

www.mint.com (This can link all of your accounts and help track expenses/investments)

The drawback is that the categories are difficult to cutomize just a few basic categories. I prefer: Personal, Home, Car, Major purchases and Fun. The Fun category is where 10-15% of your money probably goes and includes vacations, dining out, magazine subscriptions, ATM cash (don't even do this anymore), gift giving, etc.

The investment-side will provide an allocation by fund but that is not good enough. I would prefer to see it by asset category (for example, large-company, small-company, international, etc.) so you have to do this separately.

www.FeedThePig.org (sponsored by the AICPA)

You may find this basic information but it is a good starting place for ideas on where to stop spending if you find that you are not saving/investing enough and wonder how you can possibly meet retirement and other saving goals.

MY RULES:

Keep it simple.

5 categories or so.

Buy with cash.

Don't have it? There are two ways to purchase everything: borrow the money first or save first and then buy it. I prefer saving first for everything including cars (yes, forget leases and auto loans). The only exception are items that will, long-term, go up in value (education for yourself and your family and a home and possibly an investment that is assured).

Spending Plan - Simplified

Simplify your life. Forget all the categories and think of your spending plan as 4 major categories:

You, House, Car and Fun.

Under "Fixed and Variable and Discretionary" all together would be:

YOU/FAMILY
a) taxes....................buy
b) insurance.............protect
c) energy..................feed
d) decoration...........furnish (clothes)
e) fixing....................fix


HOME
a) mortgage..............buy
b) insurance..............protect
c) energy...................feed
d) decoration............furnish (decorations)
e) fixing.....................fix

CAR
a) car payment/replacement....buy
b) insurance...............................protect
c) energy....................................feed
d) decoration.............................furnish (car washes, accessories)
e) fixing.......................................fix

FUN (no other sub-categories needed, it includes everything else: dining out, movies, vacations, gift-giving, etc.)

Within those 4 major categories, maybe it would be useful to separate out a sub-category for the items shown but basically it is: Buy, insure, feed, furnish and fix.

The four major categories have 5 areas. For example, for you/family the sub-category called: Energy (for family it equals "food", but under home it equals "utilities" and under car it equals "gas"),

And another sub-category "decoration" (family = clothes, jewelry; home = pictures, carpets; car = car washes, etc.)

Spending Challenge

http://www.themint.org/owing/spendingchallenge.php

Here is an interesting website. Try it out.