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Clean Your Financial Closet: Week 1

Cleaning a closet is not my favorite activity.    

However, when it’s done the feeling is wonderful.  I find clothes that I forgot I owned, I get rid of clothes I don’t want (donating them makes me feel even better), and it’s easier to get ready each morning.  A clean closet brings a smile each time I open the door.

Most of all, I get a sense of “zen”. Everything is organized.  In its place.  A little oasis of calm.

Wouldn’t it be nice to have the same feeling with your financial situation?  A clean financial closet?

Let’s do it!  I have a 4 week path to a clean financial closet.  Work with me once a week, for maybe a few hours or so, and in a month, "financial zen"!  Here we go...

Week One:  Clean Up Your Spending & Saving

Take a look at your cash flow.  It may have changed over these past few months.  Even a better reason to clean up your spending and saving.  Just like you look at all of the items in your closet, take some time to determine what you spend and what you save.  Track it and monitor it.  There are many ways to do this - Quicken, Mint, Excel or paper and pen.   Go through your last several months…  Then compare your cash flow against the 50 / 20 / 30 Rule:

50% goes toward Needs

20% goes toward Savings

30% goes toward Wants 

Now I realize everybody’s situation is different, but nonetheless, it’s a good check on where the money is going!  Here’s a little more about each category…

Needs (50%)

These items are your essentials. There is not much you can do to change what you spend here, unless you are willing to make lifestyle changes.  A less expensive house or apartment, a cheaper car…  Needs include:

  • Housing (mortgage, rent, taxes, insurance)
  • Utilities
  • Health insurance (if not already deducted from paycheck)
  • Transportation
  • Insurance – life, disability, auto, etc.
  • Groceries, etc.
  • Childcare and other kids’ expenses                                                                                                                                                                                    

Savings / Debt Repayment (20%)

Start with saving in your retirement plan at work – at least enough to get  the “match” from your employer, if available.  Your next bucket of savings should go towards: 

  • Building a three to six month reserve of monthly “needs” spending (a rainy day fund)
  • Paying off any credit card balances.                                                                                                                                                                                          

Then use your savings allocation for:

  • Large purchases
  • College tuition (open 529 plans – very effective)
  • Retirement (IRAs, Roth IRAs, investment accounts)                                                                                                                                                                   

Wants (30%)

The fun stuff!  These are discretionary items, and you have more flexibility here.  Wants include:

  • Dining out / entertainment
  • Travel
  • Luxury purchases (jewelry, art…)
  • Hobbies and collecting...                                                                                                                                                                                                                       

Matching Spending with your Core Values

Take a look if your spending is line with your Core Values.  I’m reminded of clients who valued flexibility, but were tied down by two homes, the related maintenance, real estate taxes, etc.  Double everything.  They made the tough decision to downsize, but now travel more, and don’t feel as much weight on their shoulders.

Another client had a big birthday coming up.  She was turning 80.  She had 12 grandchildren and wanted to give each grandchild a check for $1,000. She encouraged each grandchild to give $200 to charity of their choice and buy something special with the other $800.  She felt she was passing on her values of family, charity and community to her grandchildren.  

My Father Dante Greco's Famous Quote

I know... you’ve heard me say it before...  but when I ask someone if they can reduce their spending, I always remind them:

“You can have anything you want… but not everything you want!”

I’ll check in next week with another item to clean up in your financial closet.  Happy Cleaning!


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The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.