Smart Budgeting and Planning for Financial Freedom
When it comes to financial success, cash flow is the foundation. It’s not just about tracking every dollar—it’s about making intentional choices with your income, expenses, and savings so you can live comfortably today while preparing for tomorrow. In this discussion, PCM’s financial planners share practical strategies for budgeting, tackling big-ticket expenses, and avoiding the common pitfalls that derail financial goals. From managing taxes to setting spending “hacks,” this conversation offers insights that can help you take control of your money and build lasting financial stability.
Lesley: [00:00:00] Welcome everyone to our podcast. Today we’re gonna be talking about budgeting, cash flow planning, how to spend your money wisely. I’m joined by Christopher Mallon, certified financial planner here at Pennsylvania Capital Management, and Andrew Randisi, certified financial planner here, take it away, guys.
Chris: All right. Thank you, Lesley. So, I’m gonna bring up this one slide we have prepared today. So, a lot of different ways to go about budgeting. I’d say two different ways to really look at it. We’ll have clients come in and say, Hey, this is what I spend. They fill out a nice lifestyle expense overview, and we’ll take a look at it and categorize everything for them and then look at, okay, are you spending a little bit too much here?
Maybe could afford to do a little bit more in this area? And one of the questions we get is, okay, what is the right amount to spend in each of these various categories we look at? And this is something we came up with, again, this is rule of thumbs. At the end of the day, as long as everything adds up to less than a hundred [00:01:00] percent of income.
You’re trying the right direction. It’s just making sure that we are filling up the right buckets in the right orders. And this helps us give us, a range for clients to look at and be like, Hey, okay, you’re spending a little too much on rent and housing spending almost, half of your income there, which really just takes away from some of the other buckets.
If I don’t know, Andrew, if you wanna run through some specifics and here are some instances we’ve seen with clients where we can, we’re able to adjust some things that might be helpful.
Andrew: Oh yeah, for sure. One of the main things that we do with one of the budgeting processes, we want to find where your money and it’s really, it’s a good reflection point of saying, where does my money fall through the cracks? And is that housing, is that necessities, is it discretionary or is it debt? ‘Cause what we don’t want you to do is you, as Chris had stated, everyone forgets. One part, a big part, a big chunk of the pie is going to taxes.
Oftentimes, we have a lot of clients say, I’ve spent this amount of money and now [00:02:00] I have a huge tax bill. What have we forgotten the budget for? Uncle.
Chris: Yeah. Yeah. I’d say that taxes, especially for those who are not W2 employees, usually those first few years of really like an income increase or, hey, you’re getting a lot of income now and maybe it’s employee stock maybe all of a sudden you’re getting, K1’s from work, or you got different investment income coming in, and then your, your taxes aren’t withheld for you and all those circumstances.
So then, like Andrew said, you go and file your taxes hey, your CPA account says, Hey, yeah, you need to cut a check for $20 – $30,000. And the client’s like, wait a minute, I don’t have this just laying cash around what what went wrong. So again, it’s something we’re always working on with with everybody.
Make sure the buckets are being filled up. It same thing with the retirement savings. That’s a big one. If you’re paying yourself first, that really can help you meet your long-term goals. I’d say with younger clients this is an important one we try and focus on because a lot of the times, saving more earlier can help you a lot more later [00:03:00] on.
Where, you can talk to somebody in their forties with a good income and if they’re really throwing a good chunk of money at the retirement accounts, then retirement probably won’t be a concern for them unless their expenses are really, really high versus later on, if we’re working with retirees, maybe the rent and housing number is a lot less because mortgages are paid off, and that frees up some spending that can go in other ways which is, not atypical for what we see either.
Lesley: Yeah. I’ll mention one thing too that I, as we get into this, that. It’s really important to know what you spend.
And we do, we find that with clients that, we will ask some clients, what’s a ballpark? What are you spending on car insurance a month? Or, what’s your car payment? And some clients have no idea, literally no idea what the, what they’re spending money on. And other clients know it off the top of their head, they’ll say, yep, my car insurance is this, car payment’s that my mortgage is this.
I think it’s really hard to have a solid budget if you don’t have your head wrapped around [00:04:00] what you’re spending, so that, that would be my recommendation for first step. Make sure that you are completely aware of what’s going out the door every month and where it’s going.
Chris: Yeah, and I think I say one thing we fall back to a lot is it’s usually, and I say this to a lot, but it’s not always the case, but a lot of the times it is the larger expenses which can crowd out all the smaller things. So really if we’re looking at its housing and that it’s really, where you, what you drive and then where you live, right? So it’s a car in the house. If those two things are, typically within a reasonable band, then a lot of people are able to stay out of trouble because then it’s more meaningful.
It’s like, Hey, look, we are doing a lot of these things. We need to cut back a little bit. There’s just more room to actually cut back on discretionary spending versus if you’ve got, maybe there’s two houses and you reached a little bit too far for that, that second house. And then, okay, instead of the $40,000 car, we, jumped up to the $70,000 or $80,000 car.
It’s like [00:05:00] all of a sudden then there’s not that much room to cut back on, the day-to-day stuff. Because the large things are just crowding it all out. So we try to focus the clients, it’s like, Hey, let’s get these, the big numbers, right. And then that frees up a lot more room in your day-to-day life for, travel, getting Starbucks, like little things like that where it doesn’t feel like you’re constantly like having to, deny yourself like small day-to-day pleasures and things.
So those things don’t stress you out if you get the big stuff right. However, if the big stuff’s wrong, then you know, there’s only so little you can eat in a week, right? There’s only so little you can, spend on whatever for kids and family. So that’s a, yeah, we try and focus on the big stuff, working on mortgages, making sure the debt picture is serviceable and reasonable over time.
Same with the taxes too, right? That’s a huge piece of the pie here. Making sure that is, as low as it can be based off of incomes.
Lesley: Anything to add, Andrew?
Andrew: I, the one thing also to add and Chris mentioned it. It is the big ticket it is the big ticket [00:06:00] items where a lot of the spending goes to. I know oftentimes there’s the Starbucks coffee often gets brought up, make my coffee from home or the muffin. But it’s more so if you’re spending $10, $20, $30, $50,000 a year on vacations and you’re only making $100, $120, that $5 muffin is not the problem.
It’s your discretionary spending.
Chris: Yeah. It’s always the big stuff. Even, in our house when we’re talking about things, it was like, Hey, what’s the oh, we have to cut down on stuff. What is it? It’s we’ve got, daycare for kid, that’s a huge chunk of money and the house and the cars and student loan or this and that.
And then it’s yeah, we’re not. Living large in things, but a lot of dollars are accounted for already, right? So it’s okay, look at what’s already accounted for and then what’s actually left over. ‘Cause even if the income number is really strong, you can get yourself into trouble because it’s like, hey, a, say your net income a month is $10,000.
There’s a realistic circumstance for more than half of that can be accounted for between student loans, mortgage, daycare and different [00:07:00] things. Am I projecting my own scenario here? Yeah, that’s, different things.
Andrew: We know.
Chris: You better realistic.
Andrew: We know.
Chris: Yeah. It can be anything.
It can be, yeah, it can be, vacations a big one too. It’s yeah, month to month everything is fine and it’s oh, you go on, two trips in a month or something. You got some weddings and this and that, and then you have to, reorganize.
Andrew: Yeah. And the one thing to keep in mind with the sample budget, it’s not gospel, depending upon where you live.
A client living in San Francisco or New York, most likely the rent/housing budget is not gonna be 20% of their gross income. It’s probably gonna be 30% to 40%. It’s just because it’s just the high cost of living. So where do we where do we want to have to think, okay, if we’re gonna allocate more percentage points to our rent and housing, where do we need to cut back?
And either that’s having less overall debt. Credit card debt, car loans, stuff like that, or trimming back some of the necessities ’cause the taxes we know can’t necessarily cut the taxes too much, especially if you’re a W2 [00:08:00] worker. The taxes are the taxes fed, state, the FICA, the Medicare and social security tax that just gets taken.
That gets taken out every two weeks you get paid. But what you really don’t want to do is have that lifestyle creep or as your income keeps going up you are increasing the rental, the rent, increasing the mortgage, you’re increasing the lifestyle, you the discretionary spending, but you’re forgetting about that savings chunk and that gets smaller and smaller portion of the pie.
It’s good to try and maintain that or expand that as much as you can.
Chris: Yeah. One fun little kind of savings. I hate to say a hack, ’cause that seems silly, but we’ll call it like a savings hack is if you have a big like one, a big expense, right? So say it’s like, Hey, there’s a, we gotta fix something at the house.
It’s $2,000 to fix this. It’s okay. Or there’s something, maybe not something more of a one. It’s Hey, we want to go on this trip for a weekend, it’s gonna cost $2,000. Okay, how about instead of us if we wanna do that, let’s also put an extra $2,000 into [00:09:00] either emergency savings or the brokerage account to invest and grow for the future.
So do a matching program for discretionary spending items. It can be even smaller too, right? It’s Hey, there’s this sweater I like, it’s a $200 sweater. All right. Put $200 in a brokerage account and then $200 to buy the nice outfit and then, match it up. Okay. So this thing is actually $400 of spend, but then you can also be more guilt free in your way of spending, saying it’s okay, look, I’ve already matched up and put money to grow for the future as well, it’s a fun little way to look at it.
Lesley: So if you’re if you wanna splurge on something, you have to you have to pay the savings account the same amount you splurged on.
Chris: Yeah.
Lesley: Nice. That’s good.
Chris: Yeah. It’s a little trick. Trick of the trade there. Yeah. Yeah. But you feel Yeah. I like feel less guilt free about it if you put money in there.
Lesley: Yeah.
Chris: Also holds it back too. It’s oh, this isn’t $200, it’s $400. Okay, now it’s a little less… now it seems more frivolous, so maybe we won’t do it.
Lesley: Yes. Yeah. One of my little hacks too is I have, I think probably a lot of people do this, but like my [00:10:00] credit card is the slush fund, for the month.
But I keep an eye on it and if it gets to a certain point, then I know, oh, I gotta stop. Nothing else can go on the credit card this month. Yep. So that’s my little hack of not getting into a overspending per month. Yeah. Set a credit card budget and when you hit it, then you gotta stop until your next month cycle flips over.
Chris: Yep. Exactly. All right.
Lesley: All right, thanks guys for chatting about cashflow planning and budgeting and, to our audience out there, if you have any questions please feel free to reach out to any of us here at PCM. Happy to talk about this topic or any others. See you.