Skip to Main Content

Everybody talks about how to save money, but nobody teaches you how to spend it. Knowing how to use your money is an overlooked essential ingredient to financial success. It’s not only necessary but empowering. No matter whether you’re a Baby Boomer, GenX, or a young adult, you must understand where your money is going. Luckily, you have the ability to decide where it goes. This is where a conscious cash flow plan comes in.

Some people spend more than they have, while others hoard money and are afraid to use it. However, with a solid plan, you can make the most sense of your money and get to spend it on the things you enjoy while saving for your future.

The problem: bad spending habits

As Tony Robbins says, “energy flows where attention goes.” This is not always the case with money. Money often flows wherever your commitments and habits have been established – and it can get out of whack. People will waste money on one thing while struggling to come up with enough for another, more important thing. Or, they don’t spend anything at all. Basically, their budget has not adapted to the current environment and evolved priorities.

People often establish a pattern of spending or saving and stick to it. The patterns are often established from a set of circumstances or priorities. Someone may have been saving for their kid’s college for 20 years and find that they are still following the same saving techniques long after their child has graduated.

Conversely, some people are wealthy and don’t spend a penny on things that could make them happier. They’re either content with where they are, or they don’t have a plan of action to spend their money. The problem arises when the pattern does not adapt to the new circumstances or priorities. Here are some common spending patterns that can be detrimental to your financial health:

Icon No or Dismiss

Spending in the wrong places. Once upon a time, you may have established that life at the country club was of utmost importance. It could have allowed your family to spend time together, relax, and establish great memories, so spending 10% of your discretionary income on that made total sense. Fast forward ten years, the kids are in college, and the family is no longer benefiting from the country club. Yet you continue to be a member because you’ve become accustomed to the lifestyle and habit.

Ironically, you are short on cash flow, and you aren’t financially able to meet your current priority of providing your children with a great college education. The solution on paper is easy – just suspend or cancel your country club membership and reallocate your money to pay for the kids’ college. Instead, people will often attempt to do both and end up stressed about their lack of funds. Or they will reduce their savings for retirement, exchanging one problem for a worse one.

returning customer iconOverspending. Another example could be how some people spend over 20% of their budget on a fancy vehicle that provides little benefit to them, then complain about how they don’t have enough money to travel. Travel is their number one passion in life, and they don’t travel as much as they’d like because they can’t “afford” it. However, if they hit pause and develop a conscious cash flow plan, they would realize that they could downgrade from a Lexus to a Honda and use the extra monthly income to travel instead!

asset management iconFailing to adjust withdrawals. When the markets erode 20% of your life savings, you should adapt and reduce or suspend your portfolio withdrawals. Otherwise, what was a 4% withdrawal might now be a 5% withdrawal, which could exacerbate the decline in your balance or limit the recovery of the balance.

The solution: a conscious cash flow plan

The solution to the spending problem is to create a conscious cash flow plan of how you’d like to allocate your funds ahead of time. This way, you can be unapologetic about spending on the things you love, stop spending on the things you don’t care about, and stop dipping into retirement funds to pay for current spending. This can be fun! Write down all the things you love to spend money on, and cut costs mercilessly on the things you don’t really need or enjoy. A good rule of thumb is to pay yourself, pay your bills, and put any leftover money into a “guilt-free” account.

Going forward

In short, you can’t take it to the grave. People quickly lose sight of their intent behind saving and get into a routine of saving and never spending. They don’t pause to revisit where they are spending, especially in retirement. However, people ultimately save money to spend it, and with a conscious cash flow plan, you can make the most of your funds and have a “guilt-free” fund to spend on the things you truly enjoy in life!

Creating a conscious cash flow plan can be overwhelming on your own. Consider working with a certified financial planner who can help you determine where to allocate your funds so you can get the most out of your money without ever running out.

This article was written by Mark Colgan from The Street Retirement and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].