Blog | 5 P’s of Life
Has the pandemic caused you and your spouse to re-evaluate your personal finances?
Whether it’s a result of shifting priorities or decreased income, take action by following these three steps to improve your personal finances.
Step 1: Write down why you want to make a change.
When you write down your “why,” it reinforces your desire to improve your personal finances. Your outcome becomes a reality instead of an idea that drifts away with time.
Your “why” can be one reason or multiple reasons. There is no right or wrong answer. It is truly customized to what you and your spouse want to achieve.
Here are some examples of “why”:
We need an emergency reserve of money to support our lifestyle if one of us loses our job.
We decided our children need more parental attention, and one parent will stay at home.
We want to provide for an aging parent who can no longer live independently.
Now that you have your “why,” it’s easier to focus and implement changes.
Step 2: Examine where your money goes.
Unfortunately, many people spend more money than their take-home pay. They overspend without realizing it – mainly due to the ease of using credit cards.
Take-home pay is money deposited into your bank account. It’s your income less taxes and payroll deductions. In other words, it’s money you actually have available to spend.
Segment your spending into the following ten broad categories to gain an overview of where your money goes.
This category includes your mortgage or rent, property taxes, home or renters’ insurance, home repairs, home maintenance, utilities, household supplies, home furnishings, and other expenses relating to your home.
This category includes your car payment, car maintenance, car insurance, fuel, rideshare charges, parking fees, tolls, public transit, and other expenses relating to transportation.
This category includes travel, movies, concerts, streaming subscriptions, and any other spending on fun activities.
This category includes dining out, groceries, food delivery, and any other food-related expenses.
This category includes all expenses for dependents such as your children, elderly parents, and pets.
This category includes all health-related expenses not paid for by your health insurance. It includes co-pays, deductibles, fitness centers, and any other expenses you have relating to your health.
This category includes charity donations and gifts for family and friends. These gifts could be for special occasions such as birthdays, anniversaries, holidays, weddings, graduations, and other milestone events.
This category is for spending you do without your spouse or kids. It could be personal care spending such as a spa day, or it could be your hobby, such as playing golf.
It would also include spending you incur when you go out with your friends, whether for a weekend get-away or local get-together.
This category captures all expenses that do not fit into the other categories. It could include bank fees, job search expenses, non-reimbursable business expenses, and debt repayment.
This category is your spending in the future. It could be for a home renovation, an upcoming milestone event, or your children’s college education. It also includes saving for long-term goals such as your retirement.
Step 3: Identify where you can make changes.
Once you have this high-level breakdown of how you spend your money, drill down on where you can make changes to improve your personal finances.
For example, if a large portion of your money is spent in the food category, then figure out why.
Are you over-spending at the grocery store? Or are you relying on food delivery services too much?
Could you reduce spending in the food category by cooking at home and using a grocery list when shopping?
By reducing your spending in the food category, you can cut your overall spending or shift that money into the savings category.
Evaluate each category and identify how you can make changes to help you achieve your “why.”
Tailor Step 3 to meet your timeframe and personality. Some people would rather make changes gradually. While others prefer to make drastic changes to accomplish their “why” quicker.
To successfully improve your personal finances as a couple, sharing common goals is essential – your “why.” Also, it helps to develop and implement a plan of action together – working as a team.
As you embark on this journey to improve your personal finances, remember to stay PEF (positive, enthusiastic, and focused)!
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, RICP®, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing spending plans, comprehensive financial plans, divorce financial reviews, retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature, and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”