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How to Successfully Live Within Your Means & Reach Your Financial Goals

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning, Goals, Saving.

You’ve probably heard the old adage, “live within your means.” But what does that entail? In the most simplistic terms, living within your means involves spending less money than you earn. Ideally, this allows you to invest more money and reach your financial goals sooner.

Unfortunately, in the U.S., this isn’t a very popular approach. According to CNBC, the average American has $90,460 in debt, which is usually a combination of credit card debt, a mortgage, personal loans, and student loan debt. The truth is, most Americans spend more than they earn.

Now, I’m not against taking out loans altogether, especially if it’s a mortgage or for higher education (with the goal of increasing your earnings). But it’s worth asking yourself: what if you started spending less than you earn, instead of taking out loans or accumulating credit card debt? Would it leave you more money to invest?

Ideally, I recommend saving at least 20% of what you earn and investing it toward your future goals. This can be challenging to do at times, especially when you’re first starting out. But, if you can aim for 20%, you’re more likely to experience success. Out of the hundreds of clients I’ve worked with at Lake Road Advisors, the ones who are most successful save at least 20% or more.

However, I know that living within your means isn’t always easy. It requires a total change of mindset, and sometimes, a shift in your lifestyle too. But if you’d like to spend less so you can have more in the long run, here are 5 helpful tips for doing so.

5 Tips to Live Within Your Means

  • Don’t try to keep up with everyone else. It’s tempting to try to keep up with the Joneses, but it’s not worth the effort. Don’t accumulate credit card debt trying to appear wealthier than you are. Instead, before making a purchase, remind yourself of your financial goals. Visualize your future. Your long-term goals are more important than “having more” today.
  • Save for large purchases instead of using credit. It’s okay to delay a big expense instead of using a credit card to buy something now. While you save, you’ll have time to carefully consider your purchase and ask yourself, “is this something I really need?” For example, you may realize your kitchen doesn’t need a pricy renovation, and your older car still drives fine.
  • Avoid impulse shopping. Amazon and other websites make it too easy to accumulate “stuff.” Instead of clicking checkout right away, leave items in your shopping cart for a few days. After some time, if you still think you need these items, go ahead and buy them. This approach helps you avoid emotional spending, also known as “retail therapy” and accumulating items you don’t really need. Unfortunately, retail therapy doesn’t make you feel better; it just distracts you from whatever issues you are experiencing and creates clutter in your home. Worst of all, it can set you back financially.
  • Create an emergency fund. Life can bring sudden changes, even if you’re living within your means. That’s why it’s so important to have an emergency fund to dip into if you need it. I recommend saving enough to cover 3 to 6 months of your typical expenses. If you have an emergency fund, you won’t have to use a credit card or home equity loan in an emergency, and you’ll avoid accumulating debt.
  • Cut up your credit cards and use your debit card instead. If you don’t want to cut them up, try hiding your cards for a little while. Using a debit card forces you to make sure you have the funds before making larger purchases (novel idea!). Taking the little extra time to check your balance encourages you to think carefully about your spending.

Above all, living within your means is about shifting your mindset. It’s about asking yourself what you really need versus want. And it’s about scaling back today to achieve financial goals in the future. When you’re spending, always ask if what you’re buying aligns with your financial goals. Does it get you closer to where you want to be?

Remember, if you forgo a few material things now, you may be able to live a better lifestyle in the years ahead. Ask yourself what’s more important to you: extra stuff or living a more secure and goal-oriented life? When it’s put this way, it’s easy to say, “no” to extra purchases.

 

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.

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.

The Lessons We Can Learn from Times of Financial Crisis

Written by support@seostats.com on . Posted in Cash Flow, Financial Planning, Kiplinger Articles.

It’s time to step back and take a look at how you weathered the coronavirus crisis. Did your cash hold up? Does your job feel secure? Your answers could reveal the need to make some adjustments for the future.

Learn more in our latest Kiplinger article, “The Lessons We Can Learn from Times of Financial Crisis”.

If you have any questions or comments please let me know and as always, don’t hesitate to share with those who you feel may find this helpful!

Regards,
Paul

Your Most Common Questions, Answered: We Have a Lot of Cash in the Bank, Now What?

Written by support@seostats.com on . Posted in Budgeting & Money.

As part of my initial meeting process with new clients, I always ask, “Why did you reach out to me today?”

Understanding people’s motivations and primary concerns helps me know what’s most important to them, and it helps guide our planning process. But it also allows me to see how universal some of our questions and concerns around money are.

In asking that question, what I’ve found is some of the same topics come up time and time again. Throughout this year’s blog posts, I’ll address some of these most common pressing questions to share the framework we use to solve these challenges and take advantage of opportunities.

Up first: let’s look at how to deal with having too much cash in the bank.

 

“We Have a Lot of Cash in the Bank. Now What?”

At first glance, this might not seem like a challenge or issue at all. Who’s complaining about having too much money?

While it’s a good problem to have, it does create a lot of questions that are hard to answer. Once you establish yourself, take care of obvious problems (like repaying credit card debt), and start earning more money, the question becomes, “now what?”

What’s the best thing to do with your money now that you actually have enough of it to make complex decisions around?

Not knowing what to do often leads to people amassing large amounts of cash with zero plans for utilizing it wisely. If you find yourself in this situation, here are some things to keep in mind to help you determine a strategy for the best ways to leverage this money in the bank.

 

Paying Off All Your Debt Might Not Be the Smartest Move

Commonly, people who have managed to save up a lot of money will start wondering if they should use that cash to repay all their debt — including their mortgage.

It’s natural for people to want to be debt-free and some pundits (see Dave Ramsey) feel getting out of any and all debt, regardless of what it is, is the only way to go.

But we advise people against rushing out to pay off loans like mortgages with low interest rates. While getting rid of high-interest credit card debt is probably in your best interest, hanging on to your mortgage and using your cash to build wealth in other areas could make more sense.

If you have a mortgage that is around a 3.75 percent interest rate, that is historically “cheap” money. Rushing to pay that off requires you to throw your cash into an illiquid asset — and takes away the opportunity to use those dollars on goals like building up your retirement accounts.

Not only that, but avoiding contributing to investments now means losing out on the compounding opportunity that comes with investing for the long-term. If you could be earning 7 percent in a 401(k) or IRA versus having a forced savings rate of 3.75 percent paying down debt, which would you pick?

If you want to build wealth, you may need to focus on building up your assets first rather than funneling all your cash into your house.

 

Building Up the Right Amount of Emergency Savings

You may have heard that you need to build up a rainy day fund, and that’s good advice. How much should you keep in that emergency fund, though?

The rule of thumb says to build up 3 to 6 months’ worth of expenses and keep that amount in cash in a liquid savings account. But I feel this guideline is much more of an emotional decision than a financial one.

You do need emergency savings. But how much depends on factors specific to your situation. Before determining the precise amount you should keep in reserves, consider things like:

  • How risky is your income stream? Is your work vulnerable to seasonality, layoffs, or economic downturns?
  • How reliable is the pay you receive: do you get a steady paycheck or does money ebb and flow depending on external factors?
  • Do you own any risky or expensive assets, like an older home that needs frequent maintenance and repairs?
  • How many people financially rely on you?

I find that, for most people, the “right” answer comes down to a number that provides them with a sense of comfort and security.

For example, does it feel okay to only keep $30,000 in the bank after you’re used to keeping a stash of $100,000? If the answer is, “no,” then don’t feel pressured to reduce your emergency fund to what the rules of thumb suggest is all you need.

If you are going to be up all night worrying, it’s just not worth it. Prudent financial management is not always about getting the highest return. It’s also about being confident in your plan and being comfortable with who you are.

 

Achieving What Matters Most to You, Now That You Can

Once you establish how much cash you truly need on hand to protect against emergencies and establish an investment plan that puts some of that extra money to work, consider turning to your goals and priorities.

Many of us get so focused on saving that we don’t even realize when we’ve hit the point at which we actually have enough cash available to use on things we’ve always wanted.

If you’re funding your retirement and investment accounts appropriately and managing your ongoing expenses well, actually using some of that cash to achieve your goals is not a bad thing. It might be time to consider taking the trip you’ve been dreaming of, or enrolling in cooking classes, or finally upgrading your 15-year-old car.

Spending money isn’t always the answer — but using your money wisely on things that matter to you or to achieve long-held goals may be a good way to go.

2 Critical Ways to Hold Yourself Accountable to Better Financial Decisions

Written by support@seostats.com on . Posted in Behavioral Finance, Budgeting & Money, Financial Planning, Goals.

There’s a lot that goes into developing smart money habits, making the right moves with your finances, and consistently taking the best actions to grow wealth over time. Not only do you need to know what to do, but you also need to have the skills to apply that knowledge to your situation.

That takes a lot of effort, which requires motivation to keep going… and perhaps most importantly, it requires some sort of accountability to stick to the plan and take the appropriate actions to meet your goals.

Accountability is one of the best tools you can use to make better financial decisions and take the necessary actions after you decide what to do. Unfortunately, it’s also probably one of the hardest parts of achieving financial success.

I have seen many people with the knowledge and desire to be successful, but who ultimately lacked the accountability to follow through.

So what should you do to stay on track and make progress toward your goals? Try one of these two tactics for more accountability to make the right financial choices.

 

Tactic 1: Create Your Own Accountability System

There’s nothing that says you can’t hold yourself accountable, and there are countless ways to do this.

It could be as simple as writing down your goals and putting them in a place where you see them every day. The visual reminder can keep you accountable to making the kind of financial decisions that will allow you to reach those goals.

Or you could partner with a family member or friend, and keep each other accountable as you both make progress toward a better financial situation. Plenty of people do this with workouts or running groups; there’s no reason you can’t form your own kind of accountability partner with your money, too!

Specific financial exercises can keep you honest and accountable, too. I recently read this article about the power of tracking every cent you spend for a period of time, and tried it out myself.

I found that simple exercise was very helpful when I did it. This included going back to review everything at the end of the period of time where I tracked everything. It’s not a sustainable practice over the long run, but it is a great way to check in with the reality of your current behaviors and actions

This exercise, which we also recommend to clients, helps show where we’re spending in ways that don’t align with what’s important to us. It also allows us to see where we might need to make changes.

Spending is a zero-sum game, which means you can only put one dollar in one place. I find framing purchases in a binary way (either “does this get me closer to my goals or does it take me farther from them?”) really helps make the decision easier.

When you see your dollar going toward something else and also taking away from your goal, it makes it easier to make the right decision that aligns with your goal.

 

Tactic #2: Rely on an External, Existing Support Structure

Of course, the above exercise only works if you actually sit down and do the work… which brings us back to the point of this post: it’s not easy to hold yourself accountable to doing that work!

Without some kind of external force or existing structure that you can plug into, you might find it hard to know what to do and how to do it, as well as actually take the steps necessary to move forward once you understand the “what” and “how.”

You’re 100% responsible for pushing yourself when you take the DIY route. If you ask for help, on the other hand, suddenly you’re not alone. You can focus on one thing at a time, knowing you have someone on your team who is going to push you, coach you, and guide you along the way.

People hire personal trainers in the gym for a reason: it’s hard enough to put in the work. It’s really hard to motivate yourself day after day. If you have someone holding you accountable, you’re more likely to show up and get things done.

 

The Potential Cost of Skimping on Accountability

It’s the same with your money. And that’s part of the value of a good financial advisor. Not only can they give you knowledge, information, and advice, but the serve as an accountability partner to make sure the necessary actions get done.

I recently started working with a client who, over 5 years ago, had a large sum of money ready to use as a down payment on a home. The funds were moved out of investments into cash, but plans changed and the home wasn’t purchased.

In this client’s situation, a move was off the table so it should have been back to business as usual… but the cash they took out of their investment portfolio never went back into the market.

The money just sat in cash because no one held them accountable to going through the process of reinvesting the money. And as it sat in cash, the client accrued a major opportunity cost because that money was not in the market working to grow even more wealth.

This person knew they should do something with the money… but knowledge is not enough to spark action.

Once we started working together, I was able to serve as not just his advisor but also his accountability partner. With a few much-needed nudges, we finally got that money reinvested and back to working toward growing wealth.

2 Simple Ways to Better Manage Your Cash Flow

Written by support@seostats.com on . Posted in Financial Planning.

Everything starts with cash flow. It’s time to get financially organized! Where do you even start? It’s the core of how you allocate your limited resources. Unfortunately, it’s an area I see many struggle.

A simple but often overlooked truth is that you shouldn’t expect to build wealth if you are consistently spending more than you make. That being said, you should expect to build wealth if you can rein in your spending habits and establish a working cash flow management system that allows you to prioritize every dollar you earn.

 

The Basic Framework

At the end of a past blog article: Why Budgeting Doesn’t Need to Be a Dirty Word we started to talk about breaking down how you allocate your money into spending buckets. You can name these buckets anything you want, but fundamentally they all represent past, present, or future spending.

As a refresher, the three major spending categories or ‘buckets’ for managing your cash flow are as follows:

1.    Fixed Spending. Past commitments that you need to pay back monthly. This can include your mortgage, car payments, credit card debt, as well as fixed household costs.

2.    Variable Spending. Present day-to-day expenses like groceries, coffee, drinks, and gas. These tend to be a bit harder to monitor because there’s so much variation in the amounts you spend each month.

3.    Future Spending. The funds you want to use in the future. It can be money that protects you from unexpected financial challenges, allows you to fund our retirement, or for a shorter term goal like a home improvement or family trip.

 

Where Most Fall Down

Knowing how to allocate your money isn’t the same as actually doing so. The good news is that most households, with the help from apps like EveryDollar, Mint, and Pocket Expense, can understand how your finances fit into these buckets. The bad news is that while these tools allow you to better understand your past spending habits, they don’t do anything to change them.

I see most people struggle with their variable spending. Typically, most pay past commitments first and then spend their remaining income on variable expenses, leaving nothing for future needs.

 

How Do You Fix It?

In order to give yourself the best chance to maintain a successful cash flow management system, put these two controls in place to help keep variable spending in line:

1.      Spend Only the Money You Have (Crazy Idea, Right?): All variable spending should be done from a debit card. I know people love points but ditch your credit card. If the money is not in the account, don’t spend it. Make the decision of whether you should or can buy something much easier by allowing your checking account to be your barometer. If the money is in the account, you can. If the money is not in the account, you don’t.

2.      Automate (Weekly) How Much You Have Available for Variable Spending: Instead of trying to plan out expenses a month in advance like you do with your fixed spending, automatically fund your debit card via a transfer on a weekly basis, so you know every Monday morning you will have funds in the account. It’s much easier to plan for a week of eating and going out than it is to plan for an entire month.

 

Conclusion

The above will probably be tough at first, but stick with it. You will have weeks where you overspend, (and pull out the trusty credit card) but it’s a marathon not a sprint. Vigilance is the key. Experiment with the days you pay yourself and the amounts.

Effective money management is crucial to financial well-being and the accumulation of wealth. If you don’t have a system in place that lends itself to good habits you are likely to struggle getting ahead.

Want to learn more? Watch Episode 5 of The Build below for a short tutorial!

 

 

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 (XYPN).

3 Crucial Tips For Living Within Your Means

Written by support@seostats.com on . Posted in Financial Planning.

You’ve heard of it, but you’re not sure what it means: “living within your means”.  And now, because you want to reach your financial goals (or because you’re forced to)… you want to learn how to live within your means. Here’s an easy to follow guide to getting started. 

To get richer, you’ll either have to make more money or spend less. Preferably, you’ll find a way to do both and really come out ahead. Since so many of us are over-extended (financially as well as every other way), there’s always room for doing better at living within our means.

Here’s your quick guide for doing that, one step at a time.

 

How to Live Within Your Means

1. Prepare yourself for a total change in mindset. Changing the way you live and spend takes, of course, a sea of change in behavior. When trying to implement change first focus on your values and what is important to you. Remind yourself of the long-term goals you’ve set for yourself, and understand how every behavior change you can manage toward that goal is going to improve your life a great deal.

2. Learn how to delay your purchases for careful consideration. Living within your means entails learning how to avoid all unnecessary spending. The best way to accomplish that is to carefully consider everything you buy. Naturally, what that means is that you should not be allowing yourself any impulse purchases.

This will help you in other ways, too. Far too many people find shopping to be a form of therapy – “retail therapy” it’s called. The harsh reality of retail therapy is, however, completely bad for you in many ways. It’s bad for your wallet, of course, because you spend money on things you don’t need.

It’s also bad for you because it only distracts you from facing whatever issues you’re experiencing, causing you to need the retail therapy in the first place. What could/should you be doing with all that time you’re spending at TJ-Maxx?

Finally, it’s bad for you too because inevitably, you’ll end up with a whole lot of clutter in your home. Trust the experts (and the minimalists): you’ll feel worlds better if your home wasn’t crammed full of stuff you don’t need!

3. Use cash. If you’re a little rusty with the implementation of tips #1 and #2, try forcing your own hand. Get rid of the credit cards (or at least hide them away and only use them when absolutely necessary) and pay for everything with cash. It will save you from going (further?) into debt, and it will force you to consider whether you can really afford something. At the very least, you’ll have to delay your purchases simply because you have to visit the ATM to access your cash. That’s right: don’t even use a debit card!

 

Conclusion

If you scan the list of tips you just read, you may notice that we really went to town on one of them: Tip #2, which addresses retail therapy and impulse buying. There’s a reason for that. Americans seem to have a terrible time with this problem, and we’re not getting any better. We shop too much, we buy too much, and we own too much stuff. Our homes are cluttered, our wallets are empty, and our credit cards are maxed out.

If you’re only going to follow one bit of advice on your quest to live within your means, stick with Tip #2. Work hard every day to slow down with the shopping, question every purchase, and spend wisely. If you do that, you’ll soon be shocked at how much more money you have!

Why Budgeting Doesn’t Need to Be a Dirty Word

Written by support@seostats.com on . Posted in Financial Planning.

If you’ve ever had that unpleasant money conversation with your spouse, significant other, or even children about how much things costs and where money is getting spent, you’re not alone. Whether it’s a discussion or an argument, proactively getting on the same page with your family unit about spending is a topic that tends to get avoided.

Even just the word “budgeting” can trigger a range of negative emotions depending on how a couple chooses to approach the conversation or implementation. If you’re like most couples, one person is often labeled the “saver,” while the other is coined the “spender.” The saver can make the spender feel bad about spending and the spender can make the saver feel bad for saving.

Budgeting, which is typically a backwards-looking approach to estimating future spending based on past spending, can be incredibly uncomfortable for all if it involves accusations, criticisms and finger-wielding for past spending decisions.

But what if budgeting didn’t need to be a dirty word in your household? Here are a few ways to change the conversation about budgeting into a positive and effective experience for everyone involved.

 

Schedule a conversation instead of having an argument

Rather than having the conversation as a reaction to a bill or upcoming large purchase, schedule time on your calendar to meet with your spouse to talk about money. By scheduling a money conversation while you’re both in neutral, this can allow you to talk openly about what you’d like see happen in the future rather than focusing on past missteps and frustrations.

Both of you need to feel you can talk openly and honestly about money without being attacked or judged. Proactively scheduling a money conversation where you can meet in the middle and address any range of topics that are important to you. Both of you should come prepared with a list of things you want to discuss and be as equally prepared to listen as you are to engage in the dialogue. Consider having these conversations monthly or quarterly so you remain on the same page and keep the lines of communication open.

 

Track your spending with automation tools

One of the most painful parts about traditional budgeting is that it requires you to look back a month and recalculate everything you spent. While it’s important to know where you’re spending your money, there are plenty of applications available to you that can automate this part of the process so that you don’t have to. Mint.com is one such example that allows you to safely connect all your financial accounts and will organize your spending categories for you and send you a report. After as soon as two months, you’ll be able to observe spending patterns and see which categories gets the largest portion of your income.

 

Focus on values

Rather than nit picking expenses and how expensive life is, focus your attention on what you and your spouse want and what you both value most. Regardless of what you are spending money on at the moment, what would you like to spend your money on? Maybe it’s more time together, taking a vacation, making improvements on your home, getting a different vehicle, saving more for your children’s education.

Now, look back (for just a minute) at your past spending over the last two months. Where is your money going and does it align with your values? If it doesn’t, now you can quickly look forward again and make some decisions about which areas consume a lot of your capital that you’d much prefer it didn’t and explore what you can do to change that.

 

Take action, together

Ultimately, the most important aspect of any budgeting exercise is coming together to agree on some action steps to get you closer to where you’d like to be financially. One of the best ways to move forward and better understand your spending is to break it down into non-discretionary and discretionary buckets.

Non-discretionary items are your fixed, must pay bills, such as: rent or mortgage, insurances, utilities – this monthly spending tends to remain constant every month.

Discretionary spending breaks down further into savings and variable buckets. Savings include: retirement, education saving, project saving, emergency fund, vacation fund – whatever it may be for you. These tend to be future planning type accounts so you can save the money necessary for you to accomplish something that is important to you later.

With the money that’s left we allocate toward the discretionary variable spending on categories that fluctuate monthly depending on the market or season, such as gas, groceries, gifts, meals, etc. These are the monthly expenses you always have, but they range in amount depending on other conditions. Some of these expenses can be limited if necessary if you are trying to put money towards other things instead. Maybe you limit how often you eat out for the next couple of months so that you can save more money for that upcoming vacation as an example.

When budgeting is approached as a way to help you better manage your cash flow, it offers a much better application for your life that can lead to greater financial fulfillment all around.