As back office support for a financial planning firm sometimes I have to create cash flow projections for clients.  The projections can be as simple or as complicated as the financial planner needs/wants it to be.  Today, I had a very interesting discussion with a planner about a particular client and this is not the first time this type of conversation occurred.

Do You Actually Know Your Monthly or Annual Budget?

What happened today:

  • The planner tells me that the client claims to spend $48,000/yr
  • The planner provides me with the client’s tax return which indicates a net income of $111,000
  • Let’s me know they save about $20,000 in qualified accounts throughout the course of the year
  • No non-qualified savings schedule but they don’t think they are saving anything outside of the qualified accounts.

Anyone figure out the problem yet? They are spending $48,000 + $20,000 in savings = $68,000, but they are taking in $111,000 net.   When the client was provided with the information they simply bumped up their monthly need instead of taking the time to just sit down and figure it all out!

While I read a lot of pro-budget personal finance blogs, I am not a huge “budget” kind of guy.  The structure of it all just makes me feel like I am trapped; in my opinion life is more than did I spend my allotted $27.50 in beers this month?  Notwithstanding, it is beyond important that you at least know and understand around what you are spending per month.  How else are you going to plan your life?  So back to

So how much is the client really spending per year? Do you know how much you are really spending per year?