Know Your Spending Plan in 2009

As we enter December 2008, we’re amazed at how much has happened in such a short time. In September we held our 2nd Annual Client Meeting, only a few months ago, yet it seems like ages since that day! During these months, we’ve experienced extreme market volatility and extraordinary declines in asset values, testing clients’ patience and ability to endure the pain of maintaining discipline. It is indeed difficult to remain steadfast, especially when the media so eagerly feasts on the endless barrage of negative news.

As we’ve reached out and listened to our clients during this challenging time, two questions have been asked again and again. The first question has been: “What is Truepoint doing to help me through these times?” Such a question is understandable in an environment like this. At Truepoint, we continue to focus on the long-term goals of our clients: adhering to the long-term strategic asset allocations while opportunistically rebalancing portfolios. We’re also ensuring that clients who rely on their portfolios for living expenses have enough cash on hand to meet their near-term needs. Aside from these major themes, we’re listening to clients’ concerns and addressing them on an individual basis.

The second question has been: “What should I be doing during these times?” In addition to engaging Truepoint as their professional wealth advisory team, these clients would like to do everything in their power to help navigate through these uncertain times and maintain their financial security. We provide the same advice to these clients that we do to our own families and friends: give yourself the gift of knowledge. Know your cash inflows and know your cash outflows. We believe awareness of these fundamentals is imperative to making informed financial decisions.

Know Your Inflows

Our clients generate income from a wide variety of sources: wages, self-employed business income, pension benefits, social security benefits, and investment portfolio withdrawals, to name a few. It is important to step back and assess your current income sources:

  • Do these sources enable you to fully maintain your current lifestyle?
  • If so, are there any excess funds available at the end of each month?
  • If not, where do you find the additional funds to supplement your lifestyle?
  • Are there risks that any of these income sources could be discontinued?

Gather a working knowledge of your cash inflows. Keep in mind that the amounts of these inflows may fluctuate from year to year, depending on your circumstances. Note any anticipated gaps in income.

Know Your Outflows

Assessing your case outflows will likely be the more difficult and potentially unpalatable task. With the ready availability of electronic bill pay systems and the regular use of check, ATM and credit cards, it’s very easy to lose sight of where your funds are spent. Do you sometimes wonder how the cash from your most recent ATM withdrawal has already vanished from your wallet? Have you received a credit card bill at the end of the month, only to have forgotten about charges made weeks earlier? How much over-budget did you go on your last vacation? Did that kitchen makeover end up costing twice as much as the contractor had estimated? These are very real examples of cash flows that can be a challenge to assess.

We are firm believers that every household should have a spending plan regardless of income, total net worth, or family circumstances. And frankly, we recognize that it’s easy to dismiss such an exercise as an unnecessary waste of time. However, having an understanding of how much you spend monthly and the key areas where you spend your money helps your household (and us, as your advisors!) to better plan for future years and unexpected life events.

As we prepare for 2009, we encourage you to generate or review your household spending plan. Analyze standard monthly bills (mortgage, utilities), cash and credit card expenses (groceries, clothing, entertainment), as well as other significant cash outflows (cash gifts, travel, insurance premiums). To understand the reality of your spending behaviors, create the current spending plan using actual figures from your 2008 statements. Categorize and subtotal your expenses and determine the overall total. Is the total higher than you imagined? Are there certain categories that surprise you? Our personal experiences tell us that this may very well be the case.

While we do not dictate that clients stick to a detailed budget, we emphasize the advantage of knowing the amount of your outflows. Knowing how much you’re spending and where the money is going allows you to make better decisions about your money.

Making Your Knowledge Work for You

As 2009 draws near, arm yourself with a clear knowledge of your current cash inflows and outflows: don’t dismiss it as an unnecessary exercise. Will you be making any changes during 2009? Have you determined any new goals for the New Year or the years ahead? Share your spending plan and any new thoughts, concerns or questions with your advisor. We look forward to working with you in the coming year and helping you achieve a complete understanding of all aspects of your financial life.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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