Kevin Michels, CFP®, EA
Every so often we like to highlight a recent experience we had with a client who benefited from financial planning. It's a way for us to show how great our clients are and the significant difference planning can have on a financial situation when the planner and the client work together.
We never use names or identifying information and we always check with our clients before highlighting their experience in the Newsletter.
November 1, I came to the office, fired up my computer, and opened up my emails. The first email in my inbox was from a young couple I had been working with for the past month. They were struggling with their cash-flow and needed help. The subject of the email was “October Recap” and included an attached spreadsheet with their detailed cash-flow for the month. I was ecstatic, because regardless of the results (whether or not they spent less than they made in October) they did exactly what I asked, they simply tracked their expenses for the month instead of trying to live on a budget.
Rewind to when I first met with them in September. They reached out to me because while they had a combined income of almost $250,000, they were struggling to pay their bills and were racking up more and more debt.
As I got to know them it became apparent that their issue wasn’t a desire to live a lifestyle more expensive than they could afford, they just simply didn’t have a solid grasp on where their money was going. They had done such a great job of advancing their careers and income at such young ages that I knew fixing their cash flow would be easy for them. I advised them to not start with a fixed budget but to just track their expenses on a daily basis. I had a feeling that as they began to develop a better understanding of where their money was going they would naturally make changes to their spending habits.
So, we set a goal for them to track their expenses each day for the whole month of October. Instead of using an app like Mint, we designed a spreadsheet that would require them to manually input their daily transactions each night, and while it only took them a few minutes each night to do, it required them to review their spending each and every day.
The week before they started the exercise, we put together an estimate of what they thought they would spend for the month of October (not a budget, just an estimate). They were slated to spend $2,000 more than they were going to earn that month. When I opened up the spreadsheet on November 1, I saw that they had actually spent $600 less than they earned. A $2,600 swing!
When we met to go over the spreadsheet, they confirmed my initial thought. They had no intention to live a lifestyle more expensive than they could afford, they just needed to pay a little more attention to where their money was going. The simple act of paying attention naturally helped them trim expenses that were unnecessary.
Now that they’re confident they can easily spend less than they are making we’ve been able to create a plan to accelerate payments toward debt and eventually eliminate it all together. From there, they can increase their savings as well as have more discretionary money for vacations, home improvements, etc. Our projections show them being financially independent at a relatively young age with the ability to live an excellent lifestyle.
Below is a link to the spreadsheet template I used with this couple to track their expenses. If you’re interested in doing this exercise, reach out. We’ll give you a quick tutorial on the spreadsheet, help you customize it, and set up a plan to improve your cash flow.