Once you’ve identified your values and created a vision, it’s time assess your current financial situation. This step may be the most daunting since it involves accumulating past and current financial data. Sure, you could pull up old bank statements, save receipts, and write down all of your spending on a sheet of paper or in Excel, but it doesn’t have to be that difficult. There are several online tools for tracking your money; and mint.com (including their app) is one of my favorite financial weapons of choice.
Mint is a fantastic free and secure (!) site that offers personal finance and budget software, online money management, and budget planning. Mint brings all your financial accounts together so you can see the big picture in a single click. My husband and I have our checking and savings accounts, credit cards, mortgage, and 401(k) and investment accounts all feeding into our Mint account. We also have the value of our home and cars included as assets.
With your assistance, Mint categorizes your transactions so you can see how much you’re spending on rent, food, entertainment, shopping, etc. It also monitors income, loans, and investment transactions. Nerd alert: I also love seeing how our net income and net worth have changed over time.
Once you’ve compiled your financial data, it’s time to take a look at how your saving and spending habits align with your values and vision. I recommend looking at the largest bucket first and then go down the list. And it’s OK if your values and vision changes over time.
We first started using Mint when preparing to buy our first home about five years ago. Before using Mint, I had no idea how much I was spending on lunches or coffee during the work week. My husband was much better about bringing his lunch to work. I thought that the couple of dollars here and there wouldn’t make a difference until I saw the grand total at the end of the month: $130 even though we bought lunch food at the grocery store.
At the time, this was a large sum of money considering we were saving for a down payment on a house. Now that we have the house and I see through the lens of “financial independence,” this spending was an investment in our future. On the surface, I was going out to lunch and grabbing coffee with my coworkers. In hindsight, I was building my professional network.
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50% Needs, 20% Savings, and 30% Wants (per Daily Worth)
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Save to spend budget: 60% Monthly Expenses, 10% Retirement, 10% Long-Term Needs, 10% Short-Term Savings, 10% Fun (see Daily Worth)
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35% Housing, 25% Living Expenses, 15% Debt, 15% Transportation, 10% Savings (see Jean Chatzky)
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Dollars per day for play (see Pete Mockaitis)
- 70% Essentials, 15 – 20% End Game (retirement, sweet vacation, investing in yourself), 10 – 15% Extras (lattes, purse, etc.) (from Nicole Lapin’s episode on The Lively Show podcast)
How much you spend in each particular area is up to you. Is shopping your thing? As long as you’re automatically saving for retirement, have an emergency fund, and can pay off your credit card bill each month/pay in cash; who am I to judge if you buy expensive purses?
Maybe you’ve realized that your income doesn’t support the lifestyle you desire. You now have a choice: you can spend less, earn more, or a combination of the two. I recommend the hybrid method where you can get the most bang for your buck: negotiate a higher salary, start a business, pay down debt, refinance your mortgage, negotiate lower monthly bills, and don’t sweat the small stuff (like driving out of your way to save $0.05/gallon). In the long run, you can only cut expenses to a certain point. Earning more is more sustainable and will give you more opportunities to invest the surplus into your career, a new business, and/or retirement accounts.
