How To: Solving the Classic Money Dilemma of Unlimited Wants and Limited Means
THE BIG THING I WANT YOU TO KNOW:
For the majority of us, we have to manage our pie in the sky wish lists with limited resources. Tossing money around based on your desires or gut won’t help you build momentum. Here’s what I see makes a financial plan work and build traction.
but seriously, where does our money go?
Just because I’m a financial planner by trade doesn’t mean that I naturally have the discipline required to spend the money I earn in the most appropriate ways ALL of the time. Here’s a peek at my wish list:
Go to Disney
Take a Disney cruise
Take kids to Disney on Ice
Go to Disneyland
Go to Euro Disney
I live for all things Disney, but even if you don’t know Buzz Lightyear from Simba, I’m willing to wager that your wish list is never-ending. I could spend all of my money and gradually cross off everything on my list, but I know I can’t (because my wife would be really mad) because there’s A LOT of competing priorities for our dollars.
Between college savings, groceries, car payments, emergency funds, school tuition, student loans *GASPS FOR AIR* mortgage payments, medical bills, home repairs, saving for a vacation (because we all need to live a little), IRAs, 401ks and Roths, it’s overwhelming.
The question of HOW we should spend our money nags at all of us.
My Advice: Create A Grid To Prioritize Your Spending & Give Yourself Flexibility
Instead of flying blind or making arbitrary decisions, create a grid for yourself on WHERE and HOW money should be spent. The grid will put your plan to the test and challenge it to be dynamic.
Think of the grid as sequential blocks to fill in an order that gives you purpose, direction, and flexibility.
Here’s where your flexible grid planning starts:
Priority #1 - Load up an Emergency Fund
Wait — you’re only allowed to roll your eyes IF and ONLY IF you have a flush emergency fund.
Before the plan gets put into motion, take a regular savings account and load it with three months worth of expenses. Let it sit there until, well, an emergency.
(And to the eye rollers, I will live and die on the emergency fund hill because IT IS THAT IMPORTANT. So, I don’t give a rip if you’ve heard it before. #sorrynotsorry)
Priority #2 - Open a Roth IRA
Not to overstate the dominance of the Roth, but it’s God’s gift to the financial planning world. The Roth is designed so you put in after-tax money and it grows tax-free forever. If you ever need to pull out what you’ve put in — not the growth — you can do so penalty-free.
Oh and a Roth can be used for college tuition savings too! See, I told you it’s great.
Priority #3 - Max out your 401k
If you work at a company that offers a 401k match and you’re not hitting that contribution amount every year, you’re leaving free money on the table. If you can swing it, I highly encourage you to max out your 401k and let your employer pick up the check.
Priority #4 - Enjoy Your Freedom!
After you’ve paid off debts, stocked that emergency fund, created a Roth IRA and went full-throttle on your 401k, all the money that comes in is guilt-free cash. I like to call this an opportunity fund because it’s up to you to decide if you want to sock away more money for savings or give a little bit more to a favorite charity or stay a little bit more liquid because that money isn’t earmarked for anything.
You’ve earned this so enjoy!
life isn’t black and white and isn’t easily DIVISIBLE into neat little boxes, so make sure your savings has multiple uses.
live DELIBERATELY. live intentionally. live with a plan.
Trust us, throwing an extra $50 on to the minimum of your credit card bill isn’t going to help get you out of debt any faster.
If there’s never been intentionality to where you’ve put your money or how you’ve spent it, that’s what we’re here for. We LIVE for this stuff and we’re pretty good at it too. If you have any questions about how to arrange your grid and give your money purpose, please ask our team anything to help you feel financially confident.
You can do this. You have direction. You really can do this despite your income. We promise.
What would you do if you weren’t tied down by debt?