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January is the time to review household expenses

January 20, 2019

Now that we’re a few weeks into 2019, it’s time to plan the year. Let’s get the tough stuff out of the way first: household expenses. When was the last time you reviewed them?

Since I always want you to be thinking about retirement security, no matter your age or financial circumstances, let me share some insights gained over 25 years of working with the high net worth and their families.

First, everyone, no matter how rich or poor, needs to review expenses. As Paul Sullivan of The New York Times wrote last week in “‘Deciding How to Decide’: Even the Rich Need Advice on Budgeting”: “If you’re worried about your credit card bills from the holidays, you’re not alone: Even the wealthiest Americans, who have little chance of running out of money, are concerned about their spending.”

Second, January is the best time to review expenses. Last year’s spending is complete. You have to prepare for filing your 2018 tax return. And it’s the start of a fresh new year.

Third, the review will give you the ammunition you need to plan not only this year, but also the future. You’ll be able to see where money has gone over the past year, and you’ll be able to set up rules to follow for this year and the future.

By rules, I mean you will be able to judge, by looking at last year, how you want to spend your money this year. A simple but not too exciting example is planning to pay for the annual homeowners insurance bill when it comes due later in the year. Or equally as important can be planning your summer vacation. In either case, the rules should allow you to budget for what you want or need in your life, based on what you can afford.

Basically, I’m talking about seeing your household as a cash flow business that requires you to know what expenses are coming up and how you will pay for them. If you have not attempted this sort of exercise, especially if you are living paycheck to paycheck, there are tools that can help.

One program that I found of interest is YNAB at youneedabudget.com. I like the four rules and the process beyond using a budget to avoid the risk of running out of money before the next paycheck comes in:

Rule 1: Give every dollar a job (be intentional about what you want your money to do for you before you spend it).

Rule 2: Embrace your true expenses (decide what you want your money to do for you and put some of it aside to pay for large expenses in the future).

Rule 3: Roll with the punches (change the budget when you need to).

Rule 4: Age your money (spend money you earned at least a month ago).

Awareness is the key. The reason is simple: Knowledge is power. In fact, it’s more than power — it’s control. Out of all of the factors that affect financial security, from the stock market, to choosing investments wisely, to knowing when to sell, to finding the right investment adviser, there is one thing that you can control: how you spend money and what you want your money to do for you.

Let me add two more insights from billionaire investor Warren Buffett that also apply to money: “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” To me, that means your system does not have to be perfect. And, “Money can’t change how many people love you or how healthy you are.” Money does not buy health or happiness. Remember that no matter how big or small your budget is, managing your expenses is an essential first step to financial independence and retirement security.

On another note, if you live in Fairfield County, join me for a class I’m teaching at Norwalk Community College on Feb. 2 at 9:30 a.m. The subject: “Managing Retirement Wealth.” To register, go to norwalk.edu/extended-studies/#registration and search “FIN D5008” or call 203-857-7237.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2018 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.

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