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Financial Planning 101: controlling your spending

The Financial Planning Association of Mississippi held its annual symposium May 3 in Jackson. The Mississippi Business Journal was privileged to be a sponsor of this year’s meeting, and while breaking bread with the attendees, I enjoyed the company of old friends and had an opportunity to make a few new ones, too.

Arranging our financial affairs is something that we do whether we want to or not. All of us get money and spend it. Some folks get more than others and either live comfortably or not. Some manage their spending pretty well, others don’t.

The technical aspects of financial planning have to do with wills, trusts, estate taxes and such. However, if people don’t have enough money to make it from one month to the next comfortably they need not be troubled about how they’re going to dispose of their fortune. There won’t be anything to dispose of.

Attitudes about making money and accumulating wealth vary markedly from person to person. Most people believe that if they could just earn more income everything would be fine.

That is usually not true. It’s been my experience that if someone can’t live happily on the income they have today, then they also wouldn’t be any better off with a salary increase.

In the paraphrased words of former President Bill Clinton, it’s the spending, stupid. It doesn’t take a genius to figure out how to spend every dime that’s available plus some. It really is quite easy. Living well on the financial resources available, now there’s a challenge.

At this point, it’s important that everyone decide his or her own definition of living well. Sadly, too many people spend every nickel they can beg, borrow or steal and constantly harp on how much better life would be if they just had more money. Far too few people realize that money is just one aspect of living well and that, in addition for financial matters, they need to balance their lives to accomplish what is really important to them. That’s the secret to not just financial planning, but life planning.

What is important? Everyone should be concerned about their spiritual faith, their health and their relationships. What about money? The answer is disgustingly simple. Either we arrange our lives to have cash in our pocket at the end of the month or we don’t. Either we are concerned enough about providing a comfortable retirement or we’re not. Each of us has to make these choices for ourselves.

I’m a firm believer in watching what people do rather than what they say. If someone tells me they just can’t make it on their salary, I look at where they’re living and what they’re driving before I offer my sympathy. That’s right. If you’re carrying a big mortgage and a car note that’s half as big as the house payment, you have chosen to be flashy and broke. You may be spending all your money trying to impress people you don’t even like. You’ll get no sympathy from me.

Since we don’t control our income, we have to control our expenses — or we’ll control nothing at all.

Here are some spending principles that I have developed over a lifetime that will help you have a little money in your pocket at the end of the month.

• Don’t buy the most expensive house that your income will justify. Choose a less expensive home, put the mortgage on a 15-year term and have some reasonable expectation of getting the thing paid off before you retire.

• Take some of the savings from the less expensive mortgage and start an automobile replacement fund. Vow to reach the point where you never finance another car. If you can’t pay cash keep driving what you have until you can.

• Shred all credit cards and get a debit card. Debits offer all the conveniences of paying with plastic but eliminate the threat of impulse spending. It’s a proven fact that people spend more money when charging a credit card than when they pay cash. If you can’t pay cash, don’t buy it.

• If you’re self-employed, for goodness sake set up a separate tax account and put money in the account every time you get a check so that April 15 will be just another day rather than a traumatic experience. Once self-employeds get a year behind on their taxes it’s extremely, extremely difficult to ever get caught up.

• Here’s a tough one. If you’re young, commit a minimum of 15% of your income to a retirement fund. Once you reach middle age, it’s likely to require setting aside 25% to get caught up if you got a late start. Take a close look at the statement of your account that Social Security sends every year and imagine living on just that amount. That should be a wake-up call.

If you don’t get control of spending, you’re doomed. No amount of additional income will solve your problem because money’s not the problem, you are.

Thought for the Moment

Other people attempt to live their lives backwards; they try to have more things or more money, in order to do more of what they want, so they will be happier. The way it actually works is the reverse. You must first be who you really are, then do what you need to do, in order to have what you want. — anthropologist Margaret Mead (1901-1978)

Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.

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