In working with hundreds of families, I’ve learned that managing cash flow is often a number one concern. What I’ve heard from them, especially as they’re getting closer and closer to retirement, is they feel like they’re not saving enough along the way. Often, they feel like they might have to continue working a little bit longer than they had hoped. Worse yet, in retirement, they might have to live off less money.
What I want to cover today is on a couple of points as to why that is, and in future posts and videos, how to avoid falling into that trap.
What I’ve drawn out here is how most people will manage their finances. Income often gets direct deposited into their families checking account, and all of their regular monthly expenses will flow out of there, like their mortgage, rent, gas, groceries, and utilities. Most people will then have a low limit, or buffer, in that account that as money starts to get closer to that limit, people tighten up and stress, anxiousness, and nervousness often begins to creep into their life until their next paycheck.
The flip side is also true. If they see a lot of money in that account, maybe they get a bonus, what do you feel most people do when they get a bonus? They spend more that month! That’s just the normal reality of life and then people will bounce between these two limits (a high limit where they spend more and a low limit where they have to tighten up) overtime.
Next, everybody always knows that they need to be saving money, so they might wait until the end of the month and move over whatever is left so they’ll have this savings account. What I’ve found overtime for 90% of people is that their savings account actually turns into a save and then spend account.
If there’s not a lot of money in savings, they start to feel like they’re getting behind. If there’s more money in savings people tend to spend more. That’s where the third car, the boat, jet-skis, vacation home, or once in a lifetime European vacation that people might go on. Most people live in this system.
Money comes into checking, they move some to savings, and then something comes up. Then, they must finance it, which impacts how much now needs to flow out of their checking account, or their savings account takes a huge hit and people begin the feel stressed again. If people are lucky, they will also have this other account which could be a 401K or a house or investment account.
However, the big reason money makes its way across this dotted line is because it’s automated. Think about your 401K for a second, that money gets automatically taken from your paycheck and moved in that account. If that money went to your checking account first, do you think most people would move that money, or as much money, over to their 401(k) consistently every month? No way!
This system is very reactive, don’t you agree? Most people, when they get to retirement, have these two assets, but only one of them actually provides an income stream. It’s their 401K that is the only thing they can call on for income.
If all of this sounds like a system you’ve fallen victim to, you are not alone. The great thing is I can help, and you can fix this issue. In my next blog, I’m going to talk about how to save more money than you have ever thought possible. We’ll cover how much you should save, where you can save, and how to make sure you have more confidence and clarity around your finances moving forward., so be on the lookout soon!
Don’t want to wait for my next blog, send me an email at [email protected] or check out my website at www.mblakemiller.com. If you found this helpful, please send me a note and if you want to learn more, we can get together in the next month or two. We will make it happen!
Thank you for reading!