When the Rolling Stones sang, "You can't always get what you want, but if you try sometimes, well, you just might find, you get what you need," they described our personal search for acquiring more. With those lyrics in mind, let's dedicate this edition of the Prosperity Wealth Planning newsletter to Spending and some of the issues that can affect our unique buying habits.
Specifically, there are four aspects of Spending to ponder -
1) What is a "need"? What is a "want"? How do we identify the difference?
2) Inflation – how/where to spend when everything costs more?
3) Budgets – are they really necessary?
4) Minimalism – what is it, and where do we start?
We will break down each area individually, but in the end, you'll be able to see how they might all work together for your personal and financial health.
Needs versus Wants
At Prosperity Wealth Planning, our primary focus is to create a roadmap to help guide you to your unique financial destination in life. A big part of that financial plan creation process is spent discussing your expenses and your goals – and breaking down those expenses into needs or wants.
A need, in the context of this article, is something essential for human survival. Needs are necessities - fundamentally important to sustaining life (e.g., food, shelter, etc.). A want is something desirable, a "nice-to-have," but not essential. Unfortunately, thanks to mass media and modern culture, (think about the idea of the American Dream or even Keeping up with the Kardashians), it can be difficult sometimes to sort out the difference between needs versus wants. Many people have become conditioned to believe they need a house with at least four bedrooms, a master bath, and a backyard big enough for a pool. However, let's remember that basic shelter is a need; a McMansion is not.
One of the great benefits that come from creating your own unique financial plan is a clear delineation of your needs and wants, with a breakdown for each, specific to you and your goals. We keep your needs front and center – to make sure they are both prioritized and achievable. Once your needs have been addressed and accounted for, we will turn our focus to your wants and add them in – and determine which are feasible.
To provide some peace of mind, we'll also stress test those needs and wants against major threats – like market corrections, higher interest rates, or inflation – and show you just how achievable all those desired goals are for you throughout your lifetime. After your roadmap has been created, we will set the wheels in motion by suggesting where to come up with the funds to satisfy your needs (and your wants). In many situations, we recommend using pension, Social Security, and other guaranteed income sources to satisfy your needs, and then using other retirement assets and Required Minimum Distributions (RMDs) to take that long-awaited vacation or to pay for a major home improvement (both of which may cost more now than ever before, unfortunately).
The most recent inflation data, as measured by the Consumer Price Index (CPI), showed that prices increased more than 7% over the same period one year ago. Increased prices in the areas of housing and used vehicles were the largest contributors to the uptick, with the higher cost of food also helping to drive inflation upward. The initial analysis predicted prematurely that rising prices might only be a temporary situation, but we at Prosperity Wealth Planning feel like they may be here for a while.
So, the challenge now becomes how to handle the increase in prices. As much as we might not like to hear the b-word, it may be time to consider our budgets and where we spend our money. Last week I went out to dinner with a good friend and spent over $40 on a fish dinner! While it was good, it was not great, and I now know to examine the prices more closely on the menu and to choose more wisely in the future.
Inflation can create a "buy now" mentality, to "strike before the price goes up again." The reality is that the opposite is true. It is good to delay our wants until prices are once again more reasonable. Inflation also provides a good opportunity to continue honing those cost-cutting skills by using lower-cost items. After all, during the pandemic, many of us gained a lot of experience preparing meals at home. Even if you are not confident with your own ability to meal-plan and prep food, there are alternatives. I belong to a food delivery service whose prices have been and continue to be very reasonable.
Is there a silver lining to inflation's dark cloud? Well, for one, Social Security payments went up by 5.9%. Another benefit - Series I Savings Bonds. Issued by the U.S. Treasury Department, these bonds offer a fixed base rate plus a rate that adjusts with the CPI. They are quite attractive right now. The Fed will also continue to raise the Fed Funds rate this year, which will offer some welcome news for savers in the form of higher interest rates.
Yikes! Do we have to?!? Ok, how about if we call it a "Spending Plan" instead. It sounds so much nicer and rolls off the tongue a little easier, wouldn't you say? All joking aside if you've worked with Prosperity Wealth Planning long enough, you know we ask for your Spending Plan at least once a year. We understand that it may be the most challenging homework assignment you get from us. Still, in the end, it is the most important and accurate way to check your current situation and make sure you are ready to meet those spending benchmarks (needs and wants) that will lead you to a fulfilling future.
There are many methods that can be used to develop a spending plan, but the best one is the one you will use - that is, one that works for your situation, and, most importantly, that you can stick to. Try using a spreadsheet, downloading an app, or even creating your own handwritten budget to get started. Don't forget to account for savings too! Here is a link to a checklist you can use when reviewing your cash flow.
|What issues Should I consider When Reviewing Cash Flow?
As you look back on the progress made during the prior year and take an inventory of all that you have, it is always an excellent exercise to consider whether all your prized possessions are contributing to your overall level of happiness. This "separating the wheat from the chaff" is a great way to decide what is important, to figure out what matters to you, and to let those thoughts guide your future purchases.
The last area we'd like to make part of our Spending Newsletter is the topic of Minimalism. Now, I realize that a visual may come to mind of a room with a single plant on a table, a lone chair, and white, unadorned walls. Throughout history, there have been many examples (some extreme) of leading a minimalistic life, but the underlying theme is acquiring less and doing more. Less stuff, more experiences.
The Minimalism movement started to flourish over ten years ago but seems to have grown exponentially during the pandemic, as many of us finally had the opportunity to "clear the clutter" in our homes. Reducing the material goods in our homes freed us up to be able to focus more on pursuits of greater worth (however we choose to define them). Another way of looking at it: owning less stuff means we have more money, more time, more focus, and more energy. It also means less stress, less worry, and less distraction.
The topic is quite challenging to summarize in just a couple of paragraphs. So for more information, click the link below to open an article that helps explain the benefits of Minimalism and how it might just help your financial outcome -
Prosperity Wealth Planning is excited to present our new client education video series, "Supercharge Your Finances," a quarterly webinar designed to inform you about financial planning and investment-related topics. It is our firmly held belief that the more informed our clients are, the more effective we will be when it comes to working together to help you achieve your financial goals.
Episode 1 of Supercharge Your Finances features our very own Carolanne Chavanne, CFP®, discussing "The Top 5 Reasons to Consider a Roth IRA Conversion". This presentation offers quick tips on potential tax benefits, protecting your estate, and taking advantage of downturns in the market. Click above to watch the video or see it on our website at prosperitywealthplanning.com.
Welcome, Jenny Molnar!
Prosperity Wealth Planning takes great pride in announcing the addition of our newest team member, Jenny Molnar, who joins the team as our Client Services Associate.
Jenny joins the team with over eight years of experience in client service in the financial planning industry. She also brings a bit of an entrepreneurial flavor to the group, having helped several startup businesses create and implement marketing campaigns. She believes that this experience has helped her to develop a strong understanding of the importance of communication and teamwork, and a drive to develop comprehensive, supportive professional relationships.
Jenny began her career in Asia working with various automotive brands, including Peugeot and Kia, where she was responsible for their marketing events, including international auto shows, business development strategies, and client relation programs. After several years there, she relocated back to her native Southern California to focus on a career in the financial services industry. A self-described "foodie," Jenny relishes experiencing new cuisines, traveling, and spending time with her family.
Jenny looks forward to meeting many of you at our upcoming client appreciation events in Texas in October and Southern California in November. Until then, you will be able to get to know her through emails, telephone calls, and the next "Coffee with Carolanne" events.
Mid-Year Planning Session – "Time for a tune-up"
As many of you know, Prosperity Wealth Planning has created a set of checkpoints to help keep you on track throughout the year. These checkpoints, called Prosperity Planning Sessions, are planned as three meeting sessions throughout the year that allow us to take a holistic view and address all aspects of your financial health. Our mid-year planning sessions will focus on the topics below. Plan ahead and book your Mid-Year Planning Session between May 1st – and August 31st. Items to be discussed include -
- Revisit goals & objectives
- Analyze budget and cash flow needs
- Calculate emergency cash reserves
- Discuss debt and mortgage levels
- Evaluate insurance coverage – health, life, property, and long-term care
Articles of Interest
|6 Ways to Stay Financially Fit
|Tips for Eating for Less
Let us know about the ways you’ve adjusted your spending during this current price spike. We look forward to an enjoyable and memorable year ahead, filled with many experiences with those we hold near and dear in our hearts. And we hope the same for you!