From Living High on the Hog to Pinching Pennies: When Your Lifestyle Has to Change

Clients describe the meeting as shocking, even while admitting that they knew it was coming. It’s the financial planning meeting in which we look at their retirement projections to see if they are on track to meet their financial goals.

Some couples have figured it out. They know what they can spend; they live on a budget and have saved enough to be comfortable the rest of their lives. But for other couples, the meeting highlights adjustments they knew they needed to make.

And by adjustments, that can mean dramatic changes in their current lifestyle.

What to do when your lifestyle needs to change?

Get concrete numbers

When you come to terms with the fact that your lifestyle has to change, get concrete numbers. Talking in the abstract about needing to “cut back” is a lot different than knowing exactly how much money you need to be saving every year and what your ending budget number needs to be.

There are important numbers to consider when looking at spending cuts versus retirement dates or goals. If you were to work an extra year or five years, how does that change your financial picture? Often, those changes can have a dramatic effect on what you need to cut back.

Work with a financial planner

There are resources online, but I encourage you to find a financial planner you feel comfortable with and work with them through this process. Besides developing a relationship that aids financial recommendations, they can give you insights based on similar people’s experiences that they’ve worked with. A good financial planner will get to know you personally and offer advice tailored for you and your situation.

A knowledgeable financial planner will also help you identify the other areas in your finances to be aware of, expert advice that will help you should something unexpected happen. One gap in your insurance and an unfortunate incident can destroy your financial plan and everything you are working towards. Obviously, I’m biased, but I truly believe that the investment is worth it.

Identify your values

Knowing your values makes financial decisions so much simpler. It becomes easy to lose sight of what is really important to us, much of which doesn’t require a lot of money, and focus on the extras of life. Living life within your values creates the framework by which you begin to make intentional decisions.

In his New York Times column, David Brooks says it well: “Early in life you choose your identity by getting things. But later in an affluent life you discover or update your identity by throwing away what is no longer useful, true and beautiful.”

Consider Cutting Back Big

Big lifestyle changes are hard. Much of the popular advice you hear these days advocates cutting back on purchases like your everyday latte at Starbucks. While it’s true that small changes can make a difference, those results will be more subtle and long-term.

When you are faced with a lifestyle change, you must put all the options on the table. Some may be painful: downsizing your house, trading in your leased car, looking for another job, moving for a promotion, cutting your annual vacation. However, it’s necessary to consider every way in which you can make a significant change.

Begin Evaluating Every Option

Look at a list of all of your expenses and evaluate every line item. Begin by asking “why”. After evaluating what you money is being spent on specifically, ask why you are choosing to spend money on the items that you are. What are the alternatives? Even when alternative options seem far outside the realm of possibility, still include them. The purpose of this step is not to solve the problem, but to brainstorm every possible solution. Considering options that seem far from what you are willing to do (like trading your car for public transportation), give perspective and bring attention to the luxuries that you have in life.

Below are some examples of line item evaluations:

Car Payment: $650/month

Why am I spending money on this? Because I need transportation!

Why am I choosing my current option? Two cars are more convenient for our family and I’ve always wanted a BMW.

What are the alternatives? Sell it and have one car in the family, sell and buy a nicer car, sell and buy a less expensive car, sell and buy a used car, take public transportation.

How open am I to changing this (or do a scale of 1-10 on how important this is)?

If you were to change, what would be the monthly/yearly cost difference?

Eating Out: $400/month

Why am I spending money on this? Because we need to eat.

Why am I choosing my current option? We enjoy eating at restaurants and it’s convenient.

What are the alternatives? Eating out less, purchasing ready-made meals, personal chef, cooking all meals at home.

How open am I to changing this (or scale of 1-10)?

If I did make a change, what would be the monthly/yearly cost difference?

Begin to make decisions

After you have worked through your line item evaluations and identified what’s important to you, start making decisions.

As with so much in life, these decisions are not easy or clear cut. Every decision is a trade-off. What is right for one family is not going to be right for the next.

Remember to reflect back on why you are making these changes. It takes courage to make big decisions when your lifestyle has to change, but knowing why you are changing can make all the difference in the world.

If you find yourself unsure of your future and aren’t even sure if you need to cut back, I encourage you to consult with a financial advisor and begin the journey to achieving your financial goals.