CPA and Financial Planner Emmanuel Miller is very familiar with cashflow concerns. New clients walk in the door for the first time, and it’s a common source of pain and confusion. They are working harder than ever, the practice is seemingly profitable, but home life is, well…tight. Emmanuel offers advice on steps to take to help ease the strain and normalize personal spending.
Through his experience, there are typically three main reasons why your personal accounts may be lower than you’d like.
1. You are saving for retirement or siphoning money for short-term goals or debt repayment. This is a good reason—and one you do not want to change, even when things are feeling tight. Stay the course. Saving money for your long-term goals is a priority and one you should be proud of, reminds Emmanuel.
2. The ebbs and flows of the business are making distributions inconsistent. Perhaps you are living the high life when business is busy in the summer months, but the budget isn’t sustainable year-round.
3. You have fallen victim to “lifestyle creep.” Emmanuel says, “Human beings are natural consumers. Without boundaries and accountability, anyone can fall into the cycle of over spending.” And, although it’s the most difficult—this is the reason we can control the most.
Steps to getting back on track
Are there solutions to these common challenges? Yes, says Emmanuel. The first step is awareness of the situation and normalizing your numbers by fixing your income and lifestyle budget. Set your take-home income with the proper payroll and distributions to cover your pre-determined fixed lifestyle.
Second, it’s important to keep within your fixed lifestyle and do not take any more (or less) regardless of how your business is doing that month. A smart plan is annualized, meaning it accounts for the ebbs and flows of both busy and slow months to allow for a consistent lifestyle all year. This is intended to bring peace of mind, but also requires discipline not to overspend. Expecting a busy summer? Rather than spending the excess on lifestyle, which comes with additional tax liability, look into other ways to leverage excess income.
Finally, have confidence in your plan. You are not just working toward a comfortable lifestyle today—you are saving for your future goals and retirement. It can be difficult envisioning how a sacrifice today can lead to a more comfortable tomorrow. Finding ways keep track of progress against your goal or treating yourself when you hit milestones can help you keep focus on what you are working toward.
Emmanuel acknowledges that determining the right fixed budget and then keeping to it is hard—especially when it may change each year due to market and tax law changes or a shift in practice or personal goals. Your financial planner is a great resource to help you readjust your budget annually while still maintaining your saving strategy.
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