Struggling to keep track of where your money goes? Watch to discover how breaking down your expenses into simple categories can transform your approach to budgeting. From handling daily costs to planning for long-term goals, get the insights you need to make every penny count.

Topics Discussed:

• Past spending: Fixed expenses like mortgage and insurance
• Present spending: Variable daily needs like food and transportation
• Future spending: Savings and investments
• Best accounts to use for each spending type

Transcript:

Hi everybody, I’m Paul Sydlansky, and welcome to episode five of The Build, our 24-part series that takes you through the life of a financial plan. In today’s episode, we’re going to talk about cash flow. And specifically, we’re going to talk about the structure that you can set up to help you be successful in managing your own cash.

There are many systems that do a really good job of looking back in time and telling you what you spent your money on. However, that’s not really a good way to affect change going forward. So today, we’re going to talk about a simple way that you can break down your spending into three different buckets that allows you to really organize and get a good idea of where your money’s going. At Lake Road Advisors, we think of our spending in three buckets. All spending either falls into past, present or future spending.

Past spending is going to be spending on things you’ve already committed to in the past – think of a mortgage, think of a lease, think of insurance payments – these are those monthly payments that you’ve already committed to making. These are often also known as fixed expenses.

The next bucket when we think about breaking down your spending is your present spending. Now, these are the things you’re going to do every week. You don’t know how much you’re going to have to eat every week, but you’re going to eat out or you’re gonna go to the grocery store, you’re going to travel, you’re going to take the subway or you’re going to take an Uber or you’re going to drive your own car – there’s going to be costs associated with that. That second bucket is those present types of items, transportation, eating, social, those things that are going to happen, but we just don’t really know in what exact dollar amount.

The third bucket of spending that we want you to be able to break your monthly spending down is future expenses. Now, this is putting money away for your future self. Think about things like your 401(k) plan, automatically setting money up and moving into a savings account or an investment plan – any type of money that goes to you or to somebody in your family for the future.

Having your spending broken down into these three buckets allows you to get a really good understanding of if you’re spending in line with your goals.

Now, once you organize your buckets, what we suggest is breaking your spending down using different ways to spend. So for example, your static expenses, we think those should all come out of a checking account and should be done on a monthly basis through a bill pay system.

For the control account, we like using a debit card and setting yourself up with a fixed monthly dollar amount that gets sent over in weekly increments that allows you to better manage your cash, the idea being that on a monthly basis, you have a total dollar amount. However, that amount is given to you on a weekly basis. And you only have that amount of money to spend each week. That’s a debit card. So you’re limited to the amount you can use. We don’t like credit cards because sometimes that can really exacerbate bad habits.

And then the third bucket is your future spending – that should be automated and that can go to all different types of accounts. Like we said before, whether that is savings, investments, 529s, you name it, that type of spending should be automated and should automatically come out of your account on a monthly basis.

This is just the tip of the iceberg when it comes to cash management. If you have any other questions on this or you want to talk about your current cash management system, feel free to reach out. We’re here to help. Thanks and have a good day.

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://lakeroadadvisors.com/

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.