Our nation and the world face a significant challenge, and we hope everyone is managing OK during this time. Many people are dealing with disruption to work and, in some cases, to their income. Many conversations we have these days with clients, prospective clients, and friends are related to improving their basic financial habits and building effective budgets. With this being Financial Literacy Month, we thought this would be a timely topic to address.

Track Your Spending

According to a survey done in December 2019, 49% of respondents had a New Year’s resolution to save more money. Understanding where your money is going is the first step to building wealth. Once you track and see where your money is going, you can make better decisions about adjustments that are more aligned with your longer-term goals.

At PSWA, we leverage our technology partner MoneyGuidePro to give clients AI-powered spending and cash flow tracking tools. You can setup a free account here and do a quarantine trial (90 days). Whether you use our software or free online tools such as Mint, once you start linking accounts, the system should pull historical data for the past few months.

Essentials vs. Discretionary

As you start to examine where your money is going, you want to break it down into essentials vs. discretionary spending. Essentials are items such as housing costs and utilities, taxes, and necessary living costs. Discretionary would be things like recreation and entertainment.

Basic Cash Flow Planning

The Certified Financial Planning Board guideline for emergency cash depends on household income sources. If the household has a single income, the CFP board recommends six months of savings, if the household has multiple sources of income, three months of savings are sufficient. The goal of these guidelines is for people to have 100% of essentials covered by savings, and ideally, you also have some of the discretionary spending covered as well. However, that is where you will be looking to cut back if there is a loss of income situation.

Crisis Cash Flow Planning

So how can you use these concepts to improve your financial fitness and attempt to get some positives out of a negative situation?

If you are like me, your spending has changed, examine your spending and see how you are adjusting. While you are probably not spending as much on entertainment or social gatherings, has your online shopping increased? Are the changes for the better or worse?

Set a goal for the month of April. Track it, see how you do, see how the adjustments feel and adjust as needed in May. Small measurable habits are the key to building better systems.


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