Earlier this year, my wife and I changed how we spend our cash. Historically, we’ve used a debit card to cover all household and family expenses. This was helpful early on in ensuring we didn’t overspend.  Now, decades later our expenses have increased along with limitations with our debit card. The technology tracking our expenses wasn’t keeping pace either. Having to manually track countless transactions to understand our spending was taking too much time.

So, where’s the problem? If we’re only spending what we have, does it really matter where it’s going?

Yes, I believe it does! Why? Cashflow transparency while working is just as important as it will be in retirement. Regardless of how you define retirement, working full or part time, or perhaps being completely done, family cash flows matter. When earned income reduces or ultimately goes away, the spotlight shines brightly on where all the dollars go.

I’ve seen families “test drive” retirement by staging an encore career, retiring early, or working later. This supplies time to adjust to changing cash flows in the early years of retirement. Interestingly, employer provided medical benefits often determine which spouse keeps working while the other calls it quits.

Calling it quits may not accurately reflect what’s taking place. Recent retirees are often picking up work on their terms and exploring new hobbies to fill their day with some level of structure. Controlling your time is a wonderful thing IF you have considered what you are retiring to. Having more time to focus on health and wellness, staying socially engaged, and working on personal projects seems to have many retirees thriving. There is no universal approach, it’s all trial-and-error. Regardless of what you choose, cash flow defines your spending possibilities to and through retirement.

For my family, our cashflows tend to work better by automating and refining a financial plumbing system. What’s financial plumbing? I define this as moving the right dollars to the right account for spending and living each month. This can be done with debit and credit cards, cash, or apps. The key is having a process that’s repeatable (automation is your friend) and simple.

Debit card spending worked great for our family for a long time until it didn’t. It’s a good example that changes in expenses and spending are taking place all the time. Your established routines may need to be adjusted or reflected on at some point. We could have continued with work arounds and other guesses, or just ignored our cashflows altogether. The problem this creates, and compounds, is not knowing where our dollars go.

It’s easy to let this slide with two incomes, a busy family calendar, and simply not paying attention. Unfortunately, the costs are steep and eventually catch up with you. Not having a true sense of how much it takes to run your financial house makes other financial and life decisions more difficult. In addition, this leaves no room for error or opportunities which is where most real-life spending plays out.

The default setting for families, ours included, when we don’t have a sense of cashflow is that “more” must be the answer. This creates stress points and strains around financial decisions. Friction can accumulate which may lead to bigger problems. We’ve discovered a lot of this may be avoided by having transparency in our family spending.

So, here’s what’s working for our family now.

Today, we continue to use a joint operating account to address household expenses and recurring bills. In addition, an autopay account was created to hold active cash reserves along with automatically paying our larger expenses. Currently, those include a mortgage, college tuition, recurring investment contributions, and a single credit card which has replaced our debit card. By isolating our larger expenses into a single account, we know what we’re spending without a lot of difficulty.

Like many families, our credit card charges vary each month. There is a lot of fluctuation in spending based on what’s happening and life in general. Maintaining cash reserves and paying the bill in full each month from a single account is working for us. It’s also been valuable to glance at the high low bills of the past six months. This supplies greater transparency on real life spending and where our dollars are going.

Technology helps efficiently categorize all our credit card spending so we know what’s essential and what’s for fun. We can take this knowledge and put it to work so our financial plumbing system doesn’t spring a leak or leave us flooded out. Keeping a healthy cash reserve supports sustainable spending.

At some point, we’ll begin distributing the 529 plans for the later years of college. New rules arriving in 2024 allow for 529 rollovers into Roth IRAs for individual beneficiaries (our boys). Maybe we’ll do this or some combination of college and Roth IRA, who knows? As the mortgage is paid down and ultimately off, the cumulative monthly burn in our autopay account will lower further. The operating account will continue to pay the mundane utilities and various checks throughout the month. All of this is working together to provide a clearer picture of what we’re spending today and will need tomorrow.

The key for our family, all families really, is knowing what you spend where, as transparency matters. It’s also accepting that some seasons are just more expensive than others. Ultimately, enjoying what you have, both in the present day and through retirement will lead to a happier spending experience.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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