By Jason D. Nickerson, CFP®, EA
I don’t know about you, but with being “locked-in” during the pandemic, I had more time for things. What things? Well, I am not much of a TV watcher, mainly because I often regret the time I spent and start thinking of all the other things I could have done that may have been more productive. One of the initiatives I took on was looking at our family cash flows and where money was going. It certainly was not going to travel, gas for the car, etc. I would label our family as the “adventurous type.” We like to get out of the house in our free time and experience things. One of the values I have tried to instill in our kids is that “Life is for Living.” I define this as PUT DOWN THE PHONE, TURN OFF THE TV AND LET’S GO DO SOMETHING! Well, doing something became a lot cheaper last year – Hiking doesn’t cost much!
Where am I going with this ramble, you might ask? During the pandemic, many of us needed to take on a similar initiative and put our spending under the microscope. It might have been for the unfortunate reasons of loss of job or income, or because, like me, we had the time, and the next Marvel movie release was not coming out for a while. Was this you as well? It’s okay to shake your head yes or no. If you have not done this, I would certainly encourage it.
Understanding cash flow is one of the foundational projects of prudent personal financial management. The fact of the matter is, with technology and our “busier than ever” lifestyles, we are paying less attention to it. Does this mean you need to spend 3 hours on the weekend pouring over receipts for the past week? No, thanks to technology, that can be done for us. My point here is to implore you not to let your cash flow take a back seat. As we return to “normal,” the likelihood is that it will.
It’s easier now than ever to sign up for a streaming service or a product subscription that shows up every month. It’s harder to manage it and even cancel it as we return to everyday life. If you are in the situation of returning to the workforce or getting back lost income, be mindful not to return to previous levels of spending.
One of the early exercises we do with clients is a cash flow study, which is not meant to be a budgeting exercise. Still, it often turns into one, and not because we, the advisor, pushed for it. The intent of us working on this with a client is forward-looking. Our process identifies what it costs to run the household. Then we move on to major events that are coming at us (college education, retirement, etc.) and what adjustments are needed now to prepare.
What this turns into is “Holy (insert expletive here), I didn’t know we spent that much on X!” You see now where this turns quickly into a budgeting exercise? In today’s world, you don’t need to get to this point where you need to use such sour language. There are some simple steps you can use to keep cash flow from getting out of control:
- Spend your money from one source: Using multiple credit cards and debit cards will only make your spending look better. It’s a false perception of smaller amounts spent in a larger number of places. Instead, find a credit card that gives you the rewards you find most useful and put everything you can on it. Pay it off every month. Then use the technology that the card company has in place to help you review your spending. They provide reports and categorizations. You can review this in about 15 minutes every month or in 5 minutes each day.
- Stop subscribing to things: Yes, I know, the 5, 10, or 15% savings is enticing if you get your favorite chewing gum by the box every month. Then you look in your desk drawer and notice you have five boxes and that you don’t chew that much gum (yes, this is me). Order it once. If you find that you use it and NEED it, order it again. By the third or fourth time, then subscribe. Behaviorally, we are not good at remembering to turn these things off and often find we have more than we NEED.
- Review TV Streaming services: I think at one point, we were subscribed to every streaming service on the planet. Streaming versus cable is great. I can just log in and turn it on, then turn it off and reduce the amount that I have, it’s so easy. The mistake I made, was asking my family first. Now, I believe in keeping a happy home, so don’t just go and turn everything off. Observe, then act. I noticed my wife defaults to one service. My kids prefer one or two. So, I went in and turned everything else off. I heard nothing – no complaints, no “why can’t I get on this?” In that quick action, we saved about $100 per month. Now is such a great time to try this because it’s spring and most people spend less time watching TV.
Those are my simple tips. Notice that in #2, NEED is capitalized? One of the great mysteries of the financial universe will be answering what is WANT versus NEED. I think “the meaning of life” will be answered long before this one. I believe in something a mentor taught me, which I use personally and apply to clients: Live for today, plan for tomorrow. The line of NEED versus WANT can get blurred if we aren’t honest with ourselves.
Again, purchasing is so much easier with online shopping, and more of us adopted this over the last year or so. We can do it from our phone and don’t have to enter a store. Here is my final tip to help manage spending going forward; when you are about to buy that product and have a hard time defining it as a want or need, put it in your cart and walk away. Don’t hit the purchase button today. I tried this on myself and then with my family. In about a week, we had about 50 items (no joking) in our cart or “save for later” function that never ended up showing up at the house. Before you make a purchase, though, make sure you empty the cart or all 50 will show up. No, that did not happen to me. Want to try something even more fun? When you know your family has been trying this strategy, go in and empty the cart. Then run and hide!
In the end, whether you are forced into better spending habits or proactively want to get a handle on things, these exercises and tips can be used by anyone. In a year full of “negatives,” we can find positives. I likened my exercise in this area to spring cleaning. Remember that feeling of deep cleaning your house or cleaning out the clothes you don’t wear anymore? This, to me, felt the same way. Remember, I do this for a living and still fell into some of the same traps because it’s more behavioral than mathematical.
If you want to discuss these tips or others I have, please reach out to me. I would be happy to help you get started.