In our practice, we like to focus on cash flow when we do financial planning with our clients. My belief is that when you know where you spend your money, you are able to make choices that will give you more value in your life. Consistently, when I get spending budgets for clients, there are key missing items. These missing items are what cause people to increase their credit card bills or to have to take out home equity loans. In most cases, the missing items are ones that do not occur monthly. These tend to be harder for people to plan for. An emergency item is one that cannot be planned for. The following items are ones that can all be planned and should not require you to dip into your emergency reserves.
- Home repairs – You may not know what will break, but you know something will. Every year, you need to budget a specific amount so that it is set aside for these items.
- Auto Repair – Every year your auto will likely need some service. Don’t forget to estimate that annual cost.
- Vacation – If you want to take vacations, you need to plan for those annual costs. Leave money available in your monthly spending to set aside for these very important trips.
- Medical – Our deductibles continue to go up. It is not unusual to have to pay $3000 before insurance pays any medical costs. Make sure you are setting aside these dollars from your monthly income.
- Gifts – Christmas is a big gifting area that becomes difficult to plan for monthly. If you are able to assign how much you usually spend each year, you can set that aside each month, so it is available for the end of the year.
Once you add up all your one-time annual costs, you can divide by 12 to know how much you need to set aside each month. See – No emergency!
This commentary was created by Aspire Planning Group and is for informational purposes only.The commentary herein does not constitute investment advice, tax advice, or legal advice. Past performance is no guarantee of future results.