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Hello, <<First Name>>:

 
It's time.

This task is your financial Super Bowl and it's more annoying than the rest of your tasks combined: 


PROJECT YOUR ANNUAL SPENDING

 
LET'S GO!
 
If you only do one annoying adult task per year, this is it. Knowing how much you expect to spend is the linchpin to just about everything about your financial life. Knowing this number lets you make decisions -- right now -- about:
  • The size and funded status of your emergency savings account.
  • How much you can save in workplace savings accounts, IRAs, 529s and/or any other account or purpose.
  • Whether you can afford wants like vacation, a new TV to watch Tom Brady in February, or anything else that isn't a need.
  • Changes to make sure you're on track to meet your spending needs now or in the future.
  • Quite literally nearly every other financial decision, because they all connect to spending in one way or another.
OK, it's a Really Big Deal, but how do I actually do this? 

We start by using the recent past as a baseline. What you spent last year should be a pretty good proxy for what will happen this year. There are always unpredictable one-time expenses that will muddy the waters, but every year brings a new set of one-time expenses. The most important things to remember when projecting your spending:
  • Be honest. This is not budgeting. It's just taking stock of what you expect to spend. Don't treat this as what you'd like to spend given changes in your behavior or reactions to seeing the numbers on paper. 
  • Always round up. Not sure if something is $20 or $30 per month?  Assume the higher amount. $30 it is. 
  • You don't have to be perfect but you need to be in the right ballpark. No one can predict their spending down to the last penny.
  • Don't forget inflation. It's fair to assume a yearly 2-3% increase in price for most goods and services, all else equal.
Step 1: Decide how you'll record the numbers. 

You can use the options I've created, your own spreadsheet or paper, or one the many other online options (like the option in your
client siteYNAB, Mint.com, etc). 

Here's the (clickable) one-pager I've created, and you may have already seen: 




You can also use the digital version of this one-pager by creating your own copy in Google Sheets - tap here to do that. 

Step 2: Go to the sources.

Wherever your money is spent - via credit card, debit card, ACH bank withdrawal or a traditional checking account - log in and start poring over last year's statements or annual summaries provided. (And most of the digital spending trackers will help you automatically categorize spending via account aggregation) If you use the one-pager above, just work through each category starting at the top, and work to compile an estimated monthly or yearly amount in each category. Some categories you'll already know off the top of your head, but others will be hard to calculate, like "Dining Out." 

Special note: The "Other Spending" category should be one of your biggest line items. This is where you add all of the things that couldn't be categorized, but it's also for the random one-time expenses you can't predict. I recommend this amount be set to at least 10% of your spending if it ends up blank. Random, unpredictable spending really is that significant.

Step 3: Is it realistic?

Once you come up with an expected spending number, does it make sense? If your expected spending level is predicting you will be able to save an abnormally high amount of money then maybe it's time to double-check your numbers. Or if you're projecting to spend more than your income, but you are normally a good saver and nothing major has changed in your financial life, then maybe you got a little too aggressive on rounding the numbers up for conservatism. 

Step 4: Share it with me if you want to update our projections.

As I mentioned above, knowing your expected spending will help everything else fall into place. We can use this number as an important factor in all kinds of decisions and recommendations. 

Good luck!  

 
Also...
 
Q4 Advisory Fee Statements Available

You can view your statement in the Vault of your client site.
Tap here to log in
 

Mark your calendars...
 
Next month's task: It's Tax Time
 
And don't forget...

  • Want to bust out some annoying adult tasks faster than once a month? Try tapping on the cheat sheet to the right. 
  • And if you know someone else who needs to be annoyed, sign them up or send them for some Annoying Adult Tasks here. 
 
If you have questions about a certain topic, or would like to chat about anything else, please don't hesitate to reach out
Copyright © 2019 Alder Cove Capital, LLC, All rights reserved.


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