Show me the cashflow!
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When it comes to managing finances and building wealth, there’s one key conversation I have with all my clients – spend less than you earn. It seems so simple, yet for many it can be difficult and for some, just impossible. Others, however, may just think it’s impossible…
Sometimes knowing what you spend is half the challenge. Maybe it’s difficult to track because of how your cashflow moves. Perhaps your income and expenditure is volatile year to year. Or maybe it falls into the ‘too hard’ basket and gets ignored.
Whatever the reason, here are some ways to keep track of your spending and get that extra piece of clarity.
- Calculate your income to the last cent – work backwards. It’s easy to determine your exact income by reading through payslips, bank statements or tax returns. Once you have this figure, let’s say for the purpose of this discussion it’s $100,000 net of tax, think about how much you’ve saved over the last 12 months. If your savings grew by $20,000, it should be fair to assume the remaining $80,000 was spent on maintaining your current lifestyle.
- Spend some time completing a budget – this is a tedious task, but also one of the most important and powerful when it comes to spending less than you earn. There are an abundance of free budget tools out there to make it easier, including the one on our website, which you can access here. As I said before, sometimes knowing is half the battle. If you can see where your money is going, it will be much easier to make changes to your lifestyle, if they are required.
- Take advantage of technology – Given the age of technology in which we live, we have access to amazing resources that weren’t available as recently as five years ago. Many banks already track your spending for you through online banking. There are also many apps you can download that do the same thing and can even send you reminders for bills or warnings when you spend more in a given period than you had budgeted for.
- Take advantage of professionals – in the same way technology has developed, so have the service offerings of many finance professionals. You can now outsource the responsibility of tracking your spending to your accountant or financial adviser as another way to ensure your spending is matching the overall plan to achieve whatever is important to you.
But all this is only the beginning. The kicker is what you decide to do with this information once you’ve gone through the effort to obtain it. Some things will be obvious. For example, you may not realise how much you spend on certain parts of your lifestyle that can be easily reduced.
Things will get interesting when you start running your own projections on how you are tracking towards achieving your goals. Below is an example of some types of ‘Lifelong Cash-Flow Modelling’ available to you with the help of a professional, which can give some insight into if you are on track or if spending that extra $100 per week will be unaffordable.
As you can see, spending that extra $100 per week could be the difference between a comfortable retirement or having to live off Government support payments sooner than you may have anticipated.
Before you can get to this point though, it’s critical you have a deep understanding of your cashflow requirements. Otherwise it’s impossible to know whether you are on track to achieve your objectives, which, for most, will involve spending less than you earn during certain periods of your life.
Chris Giaouris, CFP®
Chronos Private Wealth
Fitzpatricks Financial, Australian Financial Services Licence (AFSL) 247429. http://www.chronosprivate.com.au/
“I believe financial planning is not solely about investments or strategies, but more importantly, it is about helping people make smart choices with their money so they can focus on things more important than money.”
I have been providing wealth management and holistic financial advice to like-minded clients since 2008. This was initially with a boutique firm called Heraud Harrison who were one of the founding firms that later merged to create the Shadforth Financial Group (SFG). I was fortunate enough to create a number of fantastic relationships with clients and colleagues alike, many of those still being in my life today. But in 2016 I decided to leave SFG to build my own boutique practise which would be (and still is) focussed on a client centric and evidence-based approach.
I co-founded Chronos as I wanted to create a fun and vibrant environment for our staff and clients alike. Sadly, for many Australians, planning for their future is something that either finds its way into the “too hard basket” or gets neglected as everybody is so time poor. My goal is to help clients find their ideal lives, whatever that may look like, whilst at the same time simplifying those things that the world loves to overcomplicate for us. Clearly that involves providing clients with advice but not to be forgotten is also providing clients with education – this is equally important in my view.
I hold a Bachelor of Commerce from Deakin University, am a Certified Financial Planner (CFP®) and member of the Financial Planning Association of Australia. CFP® is an internationally recognised mark and is currently the pre-eminent representation of professional Financial Advisors around the world. I am also a proud member and accredited advisor with the ‘RIAA’ or ‘Responsible Investment Association of Australasia’.
As we all know though, life isn’t just about money! I’m a passionate fan of most sports and love to live an active lifestyle, be that in the gym, on the golf course or futsal pitch. I’m also lucky enough to hear so many amazing travel stories from my clients so as you’d expect the travel bug is regularly spreading through my household. I’m always looking to plan that next adventure!
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