Broker Check

Spending Alternative to Budgeting

December 26, 2017

When we discuss base lifestyle spending assumptions with clients, most people take a stab at coming up with a number, but there is a wide degree of error and inconsistency. My recommendation is to become aware of what you spend by looking at bills and records after year-end and come up with suitable categories to track year-to-year in order to increase the accuracy of financial planning forecasts. Note…spending awareness is not necessarily the same as budgeting.


After establishing an awareness number… then budgeting may come into play to free-up additional investment funds if you are still accumulating wealth…or, reduce lifestyle spending if you are feeling pinched financially while you are distributing your wealth. Use your financial planning software to test savings and spending assumptions…then adjust as needed


Below are several examples of choices we may need to make at the kitchen table to reduce lifestyle spending if necessary. For example, we can eat at home or at Denny’s, or splurge and go to Morton’s. If we splurge…how often…weekly, once a quarter, etc.? People at all economic levels may benefit from a rational spending discussion. A good grasp of your own spending awareness, with a dose of needs vs. wants dialog thrown in, may enable you to save more and spend less as needed.


How do we distinguish your needs as distinct from your wants? Here are a few examples of how we might distinguish between needs and wants:






Primary Care Physician

Trip to Mayo Clinic


2,000 sq ft house

Million-dollar mansion


Cook at home/use of coupons

Eat out at Morton’s Steakhouse





Bus or used car

BMW, Tesla


Community college or state university

Private school – e.g. Stanford


What follows are useful categories for building your lifestyle spending awareness profile:

  • Housing (Rent, mortgage, property tax, property insurance, home maintenance)
  • Utilities including cable package, etc.
  • Food/groceries…eating in
  • Eating out
  • Clothing
  • Automobile expenses
  • Insurance (auto, medical, life, disability, etc.)
  • Education (children, grandchildren)
  • Travel/vacations
  • Entertainment (e.g. sporting events, movies, concerts)
  • Hobbies (e.g. golf, needlepoint, club memberships)
  • Gifts
    • Family
    • Charity
  • Other


Isn’t this fun? While it takes a little energy to set up a lifestyle spending awareness model, it is an invaluable process to help you and your advisory team stay on top of what it takes to create and maintain financial independence.

Investment Advisor Representative offering advisory services and securities through Cetera Advisor Networks LLC, a Broker-Dealer and Registered Investment Advisor, Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.