Home News Money Talk: Personal Spending Is a Mission-critical Piece to Retirement Planning

Money Talk: Personal Spending Is a Mission-critical Piece to Retirement Planning

By Natalie Hayes Schmook, MBA, CFP, CVA

When doing financial planning for OD clients, one of the first questions I ask them is if how much they spend on a personal basis each year. Not surprisingly, most don’t really know and start adding up their mortgage, bills, groceries and travel budget each year to estimate a number. The result is a number that is almost always too low.

Without using a tracking system like Mint.com or Every Dollar, I like to do a quick estimate of annual spending using a very simple formula that anyone can calculate for themselves.

Materials needed:

  • 12/31 pay stub from the prior year or a total of direct deposits for sole proprietorships/single member LLCs
  • $ amount of additional taxes owed at tax time (or the refund received)
  • Amount of annual savings that was not deducted from your pay check such as a traditional IRA or a Robinhood account, including extra payments on a home mortgage

From there, use this formula:

Net pay (from your pay stub)

– additional taxes owed (or + tax refund)

– additional savings

= Annual spending

This makes sense, right? If you’re not saving it or giving it to Uncle Sam, you’re most likely spending it. There is some cushion in this number, such as the principal portion of a mortgage payment or life insurance payments that only last to a certain age. However,  generally, spending doctor’s lifestyles increase over time, so leaving these cushions in allows for an increase in lifestyle at retirement.

So what do you do with this number once you get it? Stay tuned for next month’s look at the 4% rule and how it can put ODs on the right track for retirement.

Disclaimer: This material is for educational and informational purposes only to the best of the author’s knowledge and is not to be construed as personalized financial or investment advice. Consult a financial professional about your personal situation.

Email your questions for Money Talk to mbijlefeld@jobson.com.
Natalie Hayes Schmook, MBA, Certified Financial Planner™, Certified Valuation Analyst™, is the founder and owner of Hayes Wealth Advisors, a financial planning and investment management service for practice owners and their families.

 

 Click here to read the Money Talk August issue.

 

 

 

 

 

 

 

 

- Advertisment -

Most Popular

Rewriting the Future

By Cindy Hui, OD, San Francisco Bay Area OD and writer I was drifting along in my professional life in a state of subacute contentment;...

Dr. Shira Kresch: A Specialty Lens Practice Start

Listen to this 20-minute WO Voices podcast with Shira Kresch, OD, MS, FAAO. Dr. Kresch, winner of the 2023 Theia Award of Excellence for...

Ocular Wellness and Nutrition Society (OWNS) Expands PhDs to its Leadership Team

The Ocular Wellness and Nutrition Society (OWNS), a non-profit organization dedicated to advancing eye health through nutrition and wellness, has announced the next phase...

U.S. Screen Time and Digital Eye Strain Continue to Rise: CooperVision Report

Recognizing widespread digital device use in today’s “always on” society, CooperVision has released a new report to help eye care professionals better understand patients’...