How to optimize your savings, spending, and investments for your dream life

Welcome to today's episode! I'll be addressing a common question I frequently receive: How much money should I be spending, and how much should I be making based on the lifestyle I desire? Many of you seek guidance on whether you're managing your finances to align with your long-term goals and if you’re actually making enough money to achieve it. In this episode, I am going to help you find the answer for yourself, enabling you to have confidence in your financial decisions and ensuring they contribute to the life you envision.

I'll provide straightforward formulas that you can use to calculate these figures, granting you a greater sense of awareness and helping you determine whether your current financial approach will lead to the desired outcomes. Enjoy!

Key Highlights

[00:00:00] Holistic Money Podcast intro

[00:01:00] Introduction to today’s topic

[00:02:04] Personal desires and money

[00:03:42] How much money do you want to be spending?

[00:04:58] Calculation: What your lifestyle should consist of

[00:09:20] Factors that determine savings

[00:11:14] Creative ways to retire

[00:13:29] Holistic Money Podcast outro

Notable Quotes

• Before we dive into calculating your numbers, I will first offer you that there are no shoulds with your money. One of my favorite mentors always used to say, “Stop shooting all over yourself because there's not a magic formula, or one way to live your life, or one amount of money you should be spending, or one amount of money you should be earning, it all comes down to your desires.”
• Adjusting your lifestyle to get closer to the ideal numbers isn’t perfect; your personal finances are simply about getting more and more intentional with your money over time.
• Look at your number and compare it to what you're doing. If you are far off from your number, realizing you’re spending a lot more than the recommended percentage so that you can save and invest, start to think about some adjustments you can make in your lifestyle to get closer to the ideal numbers.
• You can retire well in several ways without having enough money in your savings and investment accounts to support your life. And I'm not saying this to suggest it's not something that you don't want to prioritize now. Still, I'm saying this because most people don't have enough money saved and invested in feeling comfortable in their retirement years, and they spend so many years of their life worrying about this time when they don't have to. There are many options and solutions for your retirement years that don't always depend on you having the amount of money in your savings and investment accounts.

Apply here to be featured on the "Behind Closed Wallets" Series of the Holistic Money Podcast

Listen on Apple Podcast

Start your “No Budget” Money Plan

Learn more about our signature Program: Holistic Money Program

Connect with Whitney:

LinkedIn: LinkedIn

Instagram: @holisticmoney

Email: Info@holistic-money.com

Transcript

0:01

Hello and welcome to the Holistic Money Podcast. I'm your host, certified financial planner and money mindset coach Whitney Morrison. Over the past seven years, I've taken myself from credit card debt and no savings to a seven figure net worth. I did this without a budget or a restrictive money plan, but instead, smart, sustainable wealth building strategies combined with changing my relationship with money. In this podcast, you'll learn the ins and outs of my no budget philosophy, practical wealth building strategies and key mindset shifts to make it happen. There is no shortage of information out there to tell you what to do with money, but teaching you how to think and feel about money. That's my secret sauce. If you've been waiting for a podcast that gives you actionable strategies to not only build wealth, but also feel really good while you're doing it, then you're in the right place. Let's get started. In today's episode, I'm gonna answer a common question that I get asked, which is, Whitney, how much money should I be spending? Or Whitney, how much money should I be making given the lifestyle that I wanna live? now, most of you may not say, given the lifestyle that I wanna live? but you do want some help understanding if you're doing the things that you quote unquote should be doing with your money. In order to achieve your long-term goals. So in this episode, I'm gonna help you understand how to answer that question for yourself so you can be confident in the way that you're using your money and make sure that it reflects the life that you actually wanna build for yourself. I'm also gonna help you look at this from the opposite side of the coin, which is, given the amount of money that you want to spend on your lifestyle, ideally, how much money should you aim to be making in order to support that lifestyle? And prepare yourself for your future goals. I'm gonna give you some simple formulas to calculate these numbers for yourselves, just to give you a sense of awareness to help you understand if you are actually using your money in a way that's gonna get you the financial results that you want for yourself in the future. So without further ado, let's get started. The first thing I'm going to offer you before we dive into calculating your numbers. Is that there are no shoulds with your money. One of my favorite mentors always used to say, Stop shooting all over yourself because there's not a magic formula or one way to live your life, or one amount of money you should be spending, or one amount of money you should be earning. it all comes down to your personal desires. How much money do you want to be spending on your lifestyle? What kind of life do you want to live? How much money do you want to be making? There are some of you that are gonna be listening to this episode who wanna have a really nice home and take nice trips and have a nice car, and those are wonderful ambitions to have for yourself. But there are other people who are also gonna be listening to this episode. Who have a simpler version of a life that they wanna live. They wanna be able to take care of their family, have more free time, not work as much, not have to make as much money. And so your personal finance decisions are personal. You get to decide. Based on the life that you want, what these numbers can be for you. Now, I know looking at the life that you wanna live and how much money you wanna be spending is a really big question to answer, maybe even an existential question for you to reflect on. So in order to make this exercise a little bit more relevant for your life today, we're actually gonna start by just looking at your current lifestyle. We're gonna look at the amount of money that you're currently spending and the amount of money that you're currently earning. And I'm gonna give you a framework to start to look. About what you're currently doing versus ideally what you want to be doing in order to not only be using your money to take care of your present needs, but also to make sure that you're building the financial future for yourself that you really want. So let's answer the first question. How much money not should you be spending? Because you get to spend however much you want. But how much money do you want to be spending? Given the fact that you also want to make sure that you have money going towards savings and your investing goals. so the way that I like to help my clients approach this is to look at their gross income. Your gross income is the amount of money that you make before your taxes and any paycheck. Deductions are taken out. Now out of your gross income, 50% of that ideally should be going towards your lifestyle. This leaves the remaining 50% of your income to go towards three places. Number one, taxes. Number two, savings And number three, investing. This recommendation is based off of the assumption that your tax bracket is in the 25% range and you have an additional 25% left over for savings and investing. In the event that you're making less money and your taxes are somewhere in the 10 to 15% range, you can add an additional 10%. Onto your lifestyle, or if you're making a lot more money and your taxes are somewhere in the 40 to 50% range, then I suggest you reduce your lifestyle by 10 to 20%, given where you fall with your current tax bracket. So now that you know how much money you want to be going towards your lifestyle so that you can save and invest in, pay your taxes. Let's start to break down what your lifestyle actually consists of. I like to break your lifestyle down to two categories. Number one, your bills. So think your mortgage, your cell phone, your internet, your utilities, your subscriptions, anything that is automatically being paid for out of your account. Your lifestyle, however is also inclusive of your discretionary expenses. In my world, I like to call them your habits, and these are those one-off purchases that you have throughout the month. That you make in order just to live your life. So that would be your groceries, your gas, your hair care, your clothes, your entertainment, your present day lifestyle is really just made up of everything that is not a savings contribution or everything that is not an investment contribution. Assuming you're in the 20 to 25% range with your tax bracket, the way you would calculate your ideal monthly lifestyle spend is you would look at your gross income and you would divide that by two because that would have 50% of your gross income going towards your lifestyle expenses for the year. And then if you wanna break that down on a monthly basis, you would simply divide that number by 12 to look at your ideal lifestyle spend on a monthly basis. So if you're making a hundred thousand dollars, that would be about$4,166 towards your lifestyle every single month. You can quickly and easily do this calculation for yourself by looking at your own gross income for the year. If you're a business owner or you have varying income, my suggestion is to just look at last year's numbers and get a rough estimate about how much money that you expect to make this year. Remember, you wanna get familiar with your tax bracket. If you're in the 10 to 15%, your lifestyle needs to be about 60% of your gross income. If your tax bracket is somewhere in the 40 to 50%, your lifestyle needs to be somewhere in the 25 to 40% range of your gross income. Remember, this doesn't have to be absolutely precise. We just wanna give ourselves an idea of approximately how much money we wanna be going towards our lifestyle so that we can have 25% of our income going towards savings and investing. So look at your number and compare it to what you're actually doing. If you are far off from your number, realizing, Hey, I'm spending a lot more than the percentage that is recommended so that I can save and invest, start to think about some adjustments that you can make in your lifestyle to get closer to the ideal numbers. This isn't about being perfect. Your Personal finances are simply about getting more and more intentional with your money over time. So that you can actually build the life that you want with your money. You can also use these suggested percentages to look at ideally how much money you want to be making. You could look at how much you're spending on your lifestyle every single month. You could multiply that by 12, and then you could multiply that number by two, to Be able to understand your ideal. Income given the amount of money that you're spending on your lifestyle. So let's say you spend$10,000 per month on your lifestyle, that's$120,000 per year you are spending on your lifestyle. If you multiply that by two, that would mean that your ideal income for that lifestyle would be$240,000. Once again, this is based off of the assumption that the recommendation is 50% of your gross income is going towards your lifestyle and that. Is only the recommendation if your tax bracket is somewhere in that 20 to 25% range. Like I said, if you're making more, then you'll need to adjust your recommended lifestyle, and if you're making less, you'll need to adjust your recommended lifestyle to get closer towards your ideal numbers. But the thing that remains consistent across every single recommendation here is the fact that we want a static 25%, ideally of your gross income going towards your savings and investing. And Now, I want to help you understand why that is the general recommendation for your savings in your investing goals. How much you should save and invest really is based off of a few key things. Number one, your age, how much money you currently have in savings and investing, and what you want from your future, like how long you wanna work or when you want to retire. These are all things that contribute to how much money you should be saving and investing for your future. Saving and investing 25% of your income is a general recommendation for you to begin putting money aside for those short term future you lifestyle goals that you may have, like buying a home or saving for a trip. And it also accounts for those mid-term and long-term future U expenses like. Potentially when you wanna retire and stop trading your time for money and going to work every day, or when you want to take a sabbatical from work, but still have income to support your life. If you're in your mid twenties and you start investing and saving for your retirement and your future, the general recommendation tends to be around 15% consistently saving and investing year over year to hit the retirement goals of replacing at least. 45% of your retirement income through your personal savings and investing. The rest hopefully will be supplemented by social Security in your retirement years. If you're a bit older in your life and you haven't necessarily started your savings and investing journey, then you're recommended percentage to save continues to increase over time. So as you get closer and closer to those retirement years, depending upon how much money you do have in savings and investing. It will determine your ideal savings rate. But when it comes to these ideal savings rates and these recommendations, it's all based off the assumption that you're going to want to live a similar lifestyle in your retirement years that you are currently living right now. And for a lot of you that may be true, but I also wanna offer that there are a lot of creative ways to retire, whether it is moving somewhere where you reduce your lifestyle expenses. Or taking on part-time work to supplement your retirement income through your savings and investing and social security. There are several ways that you can retire well without necessarily having to have enough money in your savings and investment accounts to be able to support your life. And I'm not saying this to suggest it's not something that you don't want to prioritize now, but I'm saying this because the reality is most people don't have. Enough money saved and invested to feel comfortable in their retirement years, and they spend so many years of their life worrying about this point in time when really they don't have to. There are a lot of options. There are a lot of solutions for your retirement years that don't always depend on you having the amount of money in your savings and investment accounts. That you need in order to supplement your full lifestyle that you're living today in your retirement years. So a big part of the work that I do is I help you get educated so that you actually understand your numbers a little bit deeper, so you actually start to understand what it is that you're working towards. But I also help you understand that there are a lot of creative solutions to any financial issues that you have in front of you. The last thing that I believe that you wanna do is spend your entire life worrying about money and believing that you don't have enough in feeling behind, because that is just a miserable way to live. So instead, I wanna reinforce empowerment and positivity and 1% growth and improvement. To help you get closer to your financial goals and help you understand your own resilience, your own personal empowerment, and your own unique and creative path to live your best financial life. All right, y'all, I hope you found this video helpful, and if you did, please leave me a comment below. I'm happy to answer any questions that you have about this episode. You can also share this episode with a friend if you think they would also benefit from this information. All right everyone. I hope you have a good week and I will see you in the next episode Have you ever built a budget but within weeks felt exhausted by the spreadsheets, the upkeep, or the restrictive spending categories? If so, you are not alone. Budgeting has never worked for me, so I created a new way, money mapping. Money mapping has all of the things you need to be successful in your wealth building journey. It's simple, organized and automated, but most importantly, it offers a completely new way to relate to money and manage it in your life. If you're ready to kick off your no budget strategy for building wealth, sign up for my Free Money Map training at www.holisticmoney.com/money map. Here's to building wealth with ease.