Mindful Money

An Outreach Center of the Sam and Irene Black School of Business at Penn State Behrend

March 2011

Welcome to the Center for Financial and Consumer Outreach's third installment of Mindful Money, brought to you by Penn State Alumnus, Kathryn Nusbaum!

Mindful Money

Feeling Financial Progress

Have you ever found yourself at the beginning of another month and feeling no further ahead than the month before? Rather than focusing energy on tracking where every penny goes, a better approach is to establish mindful saving and spending habits that ensure you will make financial progress. These habits have three components:

Putting money away for future goals
Keeping basic living commitments reasonable and in line with earnings
Having money left over to spend on things that you enjoy

Putting money away for future goals is essential. The best way to accomplish this is to set a savings "target" and then "allocate" and "automate." An ideal savings target is 15% of monthly income. If saving 15% of your income is unrealistic, at least try to save something. Even saving as little as $50 or $100 a month will start a savings habit that can be added to when possible. Allocate your savings to your highest priority savings goals. Along with contributing to a retirement plan or building an emergency fund, eliminating high cost consumer debt and student loans should be considered a form of saving. Most importantly, make these transactions automatic. Transactions that automatically occur without you having to physically write a check or initiate a payment are much more likely to happen.

Keeping your basic financial "commitments" reasonable and in line with your earnings can be the challenging part. Financial commitments are anything that you have promised to pay in the future. Examples are expenses such as rent, car payments, cell phones, internet service and anything else that you pay on a regular basis. The ultimate goal is to keep your commitments to a level that will allow you to have money left over monthly to spend on things that bring extra value to your life. Be mindful that every dollar you spend on housing, transportation and other commitments is one less dollar that you will have left over to spend at your free will, or as your "fun" money. The best way to analyze your commitments is to review your checking and credit card statements. Cash can be hard to track, so consider using a debit card for a couple of months instead of cash. Some items such as groceries and gasoline may not be exactly the same every month, but rough estimates can be useful. Categorize and list every expense that occurs regularly and ask yourself two questions about every category:

Did I receive sufficient utility for the money spent?
Is there any way that I can reduce the expense?

The point of this exercise is to understand your ongoing financial commitments.

Last, but definitely not least, is the "fun money." There really is no need to track where this money goes. The only rule is to enjoy it. If you have put enough money away to meet your future spending needs and have paid for your current financial commitments, then you can feel free to spend this money as you please. Picture your spending as a pie. Your income dictates the size of the pie. The three slices of the pie are "savings," "commitments" and "fun money." Use the pie to monitor your financial state of well-being. If the majority of your pie is consumed by your commitments, you are robbing yourself of the future security you receive by saving today. Also, you are missing out on the opportunity to comfortably make financial decisions that can bring joy to your life right now. An overabundance of commitments will keep you stuck in the feeling that you are never making progress.

Be mindful and use your financial resources to your advantage. Find ways to increase the pie, decrease the commitment and automate your savings. Then consciously make spending decisions that bring lasting value to your life. As the size of the pie increases and the commitments no longer dominate your pie, you'll notice financial progress by the growth of your assets and the smiles that come with peace of mind.

About the Expert

The above advice has been written by the Center for Financial and Consumer Outreach's financial expert and Penn State Graduate, Kathryn Nusbaum. Kathryn Nusbaum, CFP®, CPA is the Chief Executive Officer and co-founder of Middle America Planning, Inc. She is passionate about moving her clients towards a confident and secure financial state of mind. In addition to working with clients one on one, Kathryn speaks regularly to students and adults across the country on effective money skills and aligning conscious, financial decisions with personal goals.