Spending Like a Boss (Financial Wellness Quickstart)
spending, shopping

Define Your Spending Strategy

Financial Wellness doesn’t just happen by accident. It requires a strategic plan. You get to define that plan. First, you need to identify your financial profile. This includes setting smart spending limits based on your current income. Next, you need to prioritize your spending activity. Finally, you need to have a clear vision of your goals. Make your intentions known.

Know Your Limits

The first step in any self-improvement plan begins with knowing your numbers. If you can count calories or steps, you can count dollars. Your dollars. Just like no one else can burn calories for you or reduce your blood pressure, only you can control your cash-flow. Stop looking for someone else to cover your needs.

Here are the numbers you need to know:

  • YOUR actual monthly net income (what you deposit in your account, after taxes and other deductions) – do not include money from anyone else
  • Your list of financial obligations, organized by category such as Housing, Pet, Insurance, etc
  • Full details of every loan, credit card, borrowed money or line of credit. Including start date, interest rate, monthly minimum payment, number of installments and current balance
  • Calculate your personal Living Expense Ratio: Total your minimum monthly spend (all bills and personal care) – this is the absolute sum of what you have to cover each month to maintain your current situation. Divide your minimum monthly spend by your monthly net income. Move the decimal two spaces to the right for the percentage.
  • Example: $2,400 all monthly bills/obligations / $3,000 monthly net income = .80 = 80% Living Expense Ratio
  • Calculate your Debt to Income Ratio: Total your minimum monthly debt payments (include your rent or house payment). Divide by your monthly net income. *** Housing payment must be included in knowing your numbers*** Move the decimal two spaces to the right for the percentage.
  • Example: $1,600 minimum debt payments/ $3,000 monthly net income = .53 = 53% Debt to Income Ratio
  • Calculate your Spending by Category. Follow the same formula to calculate how much of your net income is being spent on each category. You might be surprised by where your money is going each month.

Recommended Spending Limits

Now that you know your numbers, here are some spending limits to keep in mind for optimum financial health.

  1. Living Expense Ratio should be no more than 70% of your monthly net income. The less you need for monthly expenses, the more you have to invest in your goals, dreams and adventures. It also gets you closer to experiencing financial freedom, where you are able to cover your monthly expenses/needs with alternative income sources.
  2. Debt to Income Ratio should be no more than 35% of your monthly net income. Your rent/house payment should not exceed 30% of your monthly net income. That’s why it is critical to include your rent payment. This is where lots of folks get messed up with their debt. Always include your housing.
  3. Spending by Category should be tracked on a regular basis so you can quickly adjust any trends that don’t fit your current situation. It’s not so much about how much you earn, rather what you spend your income on.

Know Your Priorities

Every strategic plan includes goals. Your spending strategy is no different. Determine what is most important to you at this point in your life, your work and your relationships. These priorities should define when, where and how you spend your resources. If a purchase or investment does not align with your current priorities, then walk away. It’s not for you at this moment in time.

Your spending strategy needs to allow for some flexibility. For example, if your priority is to reduce your debt load, be open to reducing spending in other areas during this time. That will help free up money to pay down your debt quicker. Again, it’s not forever, it’s about putting first things first. Look for alternative solutions to replace things that cost money for similar options that are free. Sometimes I’ll work from the local library instead of paying for a coworking space membership. Sometimes I’ll work out at home or in the yard instead of paying for a gym membership.

Protect your time and money from distractions. There are a ridiculous amount of marketing schemes and people that will bombard you daily with distractions. This is not for you at this moment in time. You are on a journey to live your best life. Stick to your plan. Track your numbers relentlessly. Go after your dreams.

Know Your Why

One of the greatest challenges in sticking to a plan are the people around you. It can feel like you are being selfish or self-centered at times. It is natural to seek approval from others. Our endorphins light up when we get approval or positive vibes from others. Here’s the fork in the road. Unless you focus on being the best possible version of yourself, you won’t be able to fully contribute to the lives of those around you.

There is no glory in overextending yourself and getting burned out. Take the time to discover how your unique skills, experiences and interests can make a positive contribution. Be intentional about how you spend your time and money. Make sure it aligns with your spending strategy and priorities. Experience the peace that comes from running your own race, at your own pace.

You Are Not Alone

Any type of personal growth can be challenging, whether it’s becoming more active, eating healthier or being more productive. There are lots of tools and resources online and in person to help you succeed. We’ve created several free tools to empower your financial journey.

Once you see what consistent tracking can do for you – for your unique situation, challenges, and goals – the changes in your financial health will be positive. Instead of feeling incompetent or guilty about your finances, you will be empowered to make better intentional choices.

Acknowledge the actions, beliefs and decisions that got you to where you are today. Commit to building consistent financial habits for a stronger future.


Leave a Reply

%d bloggers like this: