Do you know how much you spend each month?
Many people don’t. Here is why this is important. In a time of crisis, you will want to have as much cash as possible. Knowing where to cut expenses so that you can generate cash is key. You may experience a reduction in pay, you may lose your job, or you may be in retirement and want to reduce spending in order to lower withdrawals from your investment accounts when values are down.
Whatever the reason, everyone should know how much they spend each month. It’s your most important number!
None of us knows how long the current crisis will last, and none of us knows the impact it will have on our economy and families.
If you prefer a quicker, less detailed estimate of annual spending, try this: Locate your 2019 W-2. Subtract the following from “Wages, tips and other compensation” (Box 1): Federal income tax withheld (Box 2), State income tax withheld (Box 17), Local income tax withheld (Box 19), net savings of any type other than 401k (which is already incorporated into Box 1). The result will be the amount you spent in 2019.
This is an ideal time to understand where you are spending money so that you can begin to align spending with your goals, which most likely will need to be updated as a result of COVID-19.
And you certainly don’t want to run out of fuel while in a holding pattern.