Spending Money

When someone tells me they want to stick to a budget, but they have never been able to, and they don’t know what they are doing wrong, they are usually referring to their day to day spending budget. This budget is pretty hard to manage. It consists of many small transactions that seem insignificant at the moment of the purchase, but when your bank is flooded with them, it’s actually pretty detrimental. 


Most people don’t even see that and they wonder where all their money goes every month. That’s why every year I like to do a no spend month. You can read more about what that is in my last blog post. Jump in with the rest of us and finish out our No Spend February. It’s totally worth it and very effective even if it’s just for two weeks. Having a reset every year is a great way to start the new year and really gets your mindset and habits in check.


Some people say “no spend months” are like “crash diets.” Like crash diets that are unrealistic, hardcore, and short-term, no spend months won’t get you to really change anything besides the one month you do them. After a no spend February people will go into a “Willy nilly March” and spend all the money they saved on all the things they wanted in February. They go right back into those old spending habits and stop the progress that was made, because they actually have not changed the way they manage their money. There’s no new plan or system to do things differently.


However, the way I see it, our no spend month isn’t meant to be long-term or make a drastic change in our money going forward. It’s actually supposed to be short-term and challenging and hard. It’s meant to be a reset to wake us up from mindless spending and spending by default, and realize that we need to be more intentional with our money. But having one reset month isn’t what is going to bring lasting change to your money.


So, then what will happen? Where do we go after our no spend month? Well, I’m glad you asked. I’m going to share with you what I teach my clients about spending. Ready? Let’s get started. 


Introducing your new spending account for day to day spending. 

Let me explain. Many people budget by category: groceries: $600/month, gas $250/month, eating out $200/month, etc. I’ve done this too. What I have found in my own life is that the tracking isn’t worth it. When I’ve set a monthly budget on a spreadsheet or an app, I go throughout my month and track where I’ve spent and at the end of the month, inevitably, I go over every budget, every category, every month. This wasn’t helpful to me. Tracking is not the same thing as budgeting. Also, it takes time many people don’t have or choose not to use on tracking.


There is a better way. And this is the way I teach my clients. What if we had a budget that followed us around so we knew how much was in it at all times and we could be guilt free on using every dollar of it? There’s no tracking involved, no categorizing, no sifting through many little transactions. It’s wonderful.


Want to learn how? Here’s what you do. 


Step 1: Determine the amount

Determine how much you need per week for your spending. This spending would include groceries, gas, eating out, Amazon purchases, entertainment, Target runs, etc. You can categorize it out to get an initial estimate and then you won’t have to worry about doing that again for a bit.


Once you get a number per week, you will figure out how much you need per pay period. For example, if you are paid bi-weekly, take this weekly amount and times it by 2. Let’s say my total was $300/week. If I am paid bi-weekly, then my per pay period amount would be $600. 


Step 2: Open a new checking account

Next, I want you to open a second checking account and call this your Spending Account. Every pay period, as soon as you get paid, transfer money from your main checking account to your new spending account. This spending account will have its own debit card and you will use this debit card on all the purchases that are related to those categories that you broke out initially. 


So in our example, once I get paid, I would transfer $600 to my spending account. This is the amount that I can use until I get paid again and transfer another $600 to my account. Make sense?


Why are we doing this? 

Now we have a budget that follows us around and we know exactly how much is left in it at all times. We also only have to manage this amount until the next pay period. We can use every last dollar. But don’t go over! You can check the balance of this account to see how much you have left for groceries, gas, etc for the rest of the pay period. 


Now for those that use their checking account balance to gauge how they are doing financially, this works pretty much the same way. But now you have a separate account just for your spending. And for those that never had a limit to their spending, now you have a limit, but you can feel free to use it all – guilt free!


How does that sound and feel? I think it’s pretty freeing. You have boundaries, but you can feel free to spend within those boundaries. And as a coach, I don’t set this number. I help my clients determine what they are comfortable with spending. We talk about their values, their goals, their lifestyle and we find a number they are happy with while still achieving their goals. 


I would love to hear how it works for you. This is one of the key foundations of the framework that I teach my clients. It helps really get clarity and awareness around our money so we can feel confident and know that we are in control and making progress towards our goals. 


If you are interested in hearing more and getting personalized help with your finances, I would love to talk with you. Click here to schedule a quick call to see how coaching can help you. 


If you aren’t quite ready, please sign up for my newsletter where I share personal money stories and tips on ways to manage your money this new year. When you sign up, you get my free guide to cutting your grocery bill in half!


I look forward to hearing from you and seeing how this impacts your money. 


Verde Capital Management, Inc. is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. Financial Coaching services are only provided to those with a financial coaching service agreement in place.  Investment advisory services are only offered to clients or prospective clients where Verde Capital Management, Inc.  and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Verde Capital Management, Inc. unless a client service agreement is in place.


Maximizing Your Wealth: Tax Strategies for High Income Earners

As the saying goes, “With great income comes great tax responsibility.” High-income earners often find themselves facing substantial tax burdens, but with careful planning and strategic maneuvers, it’s possible to minimize tax liabilities and retain more of your hard-earned money. Here are a few effective tax strategies tailored for those in the upper income tax brackets.


1. Contribute to Retirement Accounts
One of the most powerful tax strategies available to high-income earners is maximizing contributions to retirement accounts such as 401(k)s, IRAs, or Roth IRAs. Not only do 401(k) and IRA contributions reduce current taxable income, but they also allow investments to grow tax-deferred.* Roth IRA contributions also grow tax-free and can be withdrawn tax-free. For those in high tax brackets, this can lead to significant long-term savings.
Bonus points if you’re a business owner – there are even higher contribution rates. Your Verde Advisor can help determine the maximum amount allowed based on your business.


2. Harness the Power of Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. High-income earners can benefit from contributing to HSAs, especially if they have high medical expenses or anticipate them in the future. HSAs provide an additional avenue for tax-efficient savings.


3. Implement Tax-Loss Harvesting
Tax-loss harvesting involves selling investments at a loss to offset capital gains and potentially reduce taxable income. High-income earners can strategically employ this technique to rebalance their portfolios while minimizing tax implications. By strategically realizing losses, individuals can optimize their tax position and enhance after-tax returns.


4. Leverage Charitable Giving
Charitable giving not only benefits worthy causes but can also yield significant tax advantages for high-income earners. Donating appreciated assets, such as stocks or real estate, allows individuals to receive charitable deductions while potentially avoiding capital gains taxes. Moreover, establishing donor-advised funds or charitable trusts can provide additional flexibility and tax benefits.


5. Consider Business Ownership
For high-income individuals with entrepreneurial aspirations, establishing a business entity can unlock numerous tax benefits. S-corporations and limited liability companies (LLCs) offer opportunities to deduct business expenses, optimize income distribution, and potentially benefit from lower tax rates on business income. Proper structuring and ongoing tax planning are essential to maximize these advantages.


6. Engage Professional Guidance
Navigating the complex landscape of tax planning requires expertise and specialized knowledge. High-income earners can benefit from working closely with a Verde Advisor, qualified tax professionals, and estate planners to develop tailored strategies aligned with their financial objectives. These professionals can provide valuable insights, ensure compliance with tax laws, and optimize tax efficiency.
In conclusion, high-income earners have a range of sophisticated tax strategies at their disposal to minimize tax liabilities and preserve wealth. By proactively implementing these strategies and staying abreast of changes in tax laws, individuals can maximize their after-tax income and achieve their long-term financial goals. Remember, effective tax planning is not just about minimizing taxes today but also about building a solid foundation for future financial success.


*Note, IRA contributions and their possible reduction of taxable income are based on several factors, including your modified adjusted gross income (MAGI) and whether you (and/or your spouse) are covered by an employer sponsored retirement plan. Talk to your Verde Advisor and/or a tax professional to learn more.

Verde Capital Management is a registered investment adviser. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Readers of the information contained in this email should be aware that any action taken by the viewer/reader based on this information is taken at their own risk. This information does not address individual situations and should not be construed or viewed as any type of individual or group recommendation. Be sure to first consult with a qualified financial adviser, tax professional, and/or legal counsel before implementing any securities, investments, or investment strategies discussed.