Skip to main content

Are You Overspending?

This five-step plan can help you analyze your spending and create a strategy to help reach your financial goals.

woman with laptop holding a credit card

It’s easy to think of budgeting as a tool only for those who are scraping by financially. But in truth, a properly crafted spending plan can be helpful no matter your level of income or wealth, says Aimee Bauman, CFP®, Senior Wealth Planner for Wells Fargo Private Bank.

“A spending plan is a tool to help you reach your financial goals, whether it’s giving to charity, leaving a legacy for your family, or simply making sure your assets last through retirement,” she says. Without a plan in place, households have a natural tendency to spend all available cash — and then some. A solid spending plan can help you divert unallocated funds to the goals you value most to help you maximize your impact before that money is spent on something else.

The wealth management pyramid

Smart wealth management looks like a pyramid with four layers, Bauman explains. The foundation — the largest section — is the cash flow you need to support your immediate family. The next layer is your assets — investments such as real estate and stocks — that hopefully will appreciate over time and help you build wealth. Estate is the third layer and represents the wealth you want to pass on to your family. The top layer is the portion of your wealth you hope to share through philanthropy.

Graphic courtesy of Hands on Banking

These five steps will help you build a spending plan to support your pyramid and create a long-term strategy to meet your financial goals:

1. Establish your cash flow needs. Determine your typical monthly spending by making a list of your fixed expenses — housing, health care, utilities, gas, insurance, etc. — plus how much you typically spend on discretionary expenses such as travel, entertainment, and gifts. Be sure to figure in additional, easily accessible cash to cover unexpected expenses and periodic large purchases like home improvement projects or a new car.

2. Do a cash flow analysis. Ask your relationship team to run an analysis looking at your list of expenses compared to your current and future sources of income. “The big question is, can your accumulated wealth support your desired spending level for your lifetime?” Bauman says. Your team will consider anticipated investment returns, inflation, taxes, and myriad other factors to determine if you need to make changes to maintain your lifestyle over the long term.

3. Set your goals. Talk to your relationship team about your priorities, including your retirement, legacy, and charitable goals, which play a role in determining whether your spending is sustainable. If you want to retire early, for example, you may need to boost your retirement contributions. If wealth transfer is a top priority, your spending plan may include annual monetary gifts to family members. “Building a spending plan may even help you discover you have the bandwidth to increase your family gifting and philanthropic giving,” Bauman says. “You may be able to make a bigger impact than you thought.”

4. Maintain your spending plan. A spending plan works only if you stick to it, so you need a way to monitor your spending. Wells Fargo online banking tools such as My Money Map can provide the help you need. “The important thing is to pay attention to what you’re spending,” Bauman says.

5. Review your plan once a year. Many circumstances can affect your plan: a life change like retirement or a marriage, large unexpected expenses, tax reform, or a drop in the market. “Check in with your advisors at least once a year,” Bauman says. “They can take a look at where your net worth is and where it’s heading and make sure your plan still aligns with your goals and objectives.”

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

What can Wells Fargo do for you?

Talk to us about crafting strategies for managing both sides of your balance sheet.

Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors is not a legal or tax advisor. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.


Sign up to receive monthly email updates of what’s new at Wells Fargo Conversations.

Please submit a valid email address.

Thanks for subscribing!

You should receive a confirmation email shortly.

Your privacy is important. Read our privacy policy.