As a financial adviser and coach I've helped about 50 different people with their money, and I saw too many make the same mistake

financial planning

  • I've worked with about 50 different clients as a financial adviser and then a financial coach, and I've seen the same problem over and over: People just don't know what they spend.
  • Not knowing where your money goes makes it impossible to save and invest for future goals, and to take control.
  • I'd tell anyone planning to get financial help to start tracking their spending before their first meeting, because any professional will tell them that's the first step.
  • Need help with your money? SmartAsset's free tool can find a financial professional near you »

I spent two years working as a financial adviser before starting my financial coaching practice in 2017, and over that time I've worked with about 50 clients. There were a lot of mistakes I've seen people make (and I too have made my fair share of financial mistakes over the years!) but the biggest mistake I saw was clear: People had no idea how they were spending their money.

At the start of a working relationship with clients I have them go through all of their income and expenses in order to determine their surplus, if they had one. If they didn't have a surplus, that was a huge red flag that needed to be addressed first and foremost. If they did have a surplus, the next step was to determine what amount was going to be allocated to short-term savings, long term-savings, and protection needs.

You'd be shocked by what people don't realize about their own spending

Right before I gave birth to my first child, I took on a young couple as clients. They had just had their first child as well, and were looking to get their finances organized, plus get a professional recommendation on how to start planning for their future. They were completely stumped as to why they made good money but couldn't get their credit card balance down to zero.

After doing some review, they realized the husband was spending $10,000 a year on video games! That's $833 a month that could have been spent on other discretionary spending or put towards savings. It was no wonder they couldn't pay off their credit card when that amount of money was sifting through their bank accounts without them even noticing!

Unfortunately, not having awareness of where money is being spent is a pretty common problem.

When discussing retirement goals and protection needs these clients were unsure of what their current lifestyle cost them, which made it very difficult to plan for the future. It also made it difficult to understand what their cash flow situation is like, and how much extra money they had to put towards their future financial goals. Future goals such as college planning for kids, retirement planning for themselves, or even just knowing how much money they would need to maintain a comfortable lifestyle in the unforeseen death of a partner.

Needless to say, we made some changes to their spending.

If you're getting professional help with your money, take 3 steps first

If you're heading out to meet with a financial planner, adviser, or coach soon, here's what I recommend:

  1. If you don't already have a good idea of how much your income and expenses are, figure that out first. Go through all of your fixed bills (including all subscriptions that are recurring each month) and tally that amount up.
  2. Then subtract that amount from your total net income (your take-home pay). This amount left over is the amount you have to spend on all of your variable expenditures, such as dining out, groceries, and entertainment each month.
  3. If you don't already use a tracking/budgeting app or cash envelopes to stick to budgeted amounts for variable spending, I would do that, too.

These steps are important because if you show up to your financial adviser or coach's office and they tell you that you need however-much life insurance, or should be putting however-much towards retirement, but you don't have the cash flow to support either of those goals, then you'll need to go back to the basics.

Might as well get a head start.

Need help with your money? SmartAsset's free tool can find a financial professional near you »

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