If you've been following along with the blog, you've probably figured out a few key themes I like to use when it comes to financial planning. Themes like: Focus on Financial Factors You Can Control, Life Is NOT A Straight Line, Rate of Savings > Rate of Return, Planning > The Plan, etc.

And where your money goes, and why.

That's what we're talking about this week.

No, no, no. Not budg*ting. We've overhauled that one already via our 6-Step Simple Spending Plan. But I do believe it's important for us to know where our money is going…and why. What purpose(s) is hiding behind our spending/saving habits? Are we really living the life, financially, that we want or are we just saying we want it?

For most of you reading this, you're working and saving and walking what can feel like a very fine line between saving for the future while still trying to enjoy and experience your life today. And that makes sense because when you die, you can't take any unspent money with you, right? But the flip side for those of us still working and saving is this: the future will always call your bluff. So if we aren't saving enough today, the lifestyle we want in the future probably won't match up with the lifestyle we have today.

Life choices. Sigh.

So how do we balance saving for tomorrow and living for today? How do we enjoy the life we're living in today while still trying to replicate that life down the road. I think it begins and ends with understanding where your money goes…and why.

Where Your Money Goes, and Why

You probably know I'm a stickler for rate of savings and the fact our rate of savings will always beat our rate of return. And rate of savings is, say it with me here, a financial factor we can control.

Good!

If you're already saving at a 15-20% clip, then balancing today and tomorrow shouldn't be that tough, right?

Wrong. Well, maybe not wrong. Maybe "it depends" is a better answer. Perhaps you don't want to work until 65+. Maybe you want to transition to a job or career that's a little less demanding, gives you more purpose - but doesn't pay as much. Hmmm, now what? Now we have to make some life choices.

If we want to save more money or take a job that pays less or whatever, we likely have to make some choices around where our money goes and why. I'm not saying you need to have a budg*t. Ewww, no. But we do have to know where our money's going…and why.

**Sidebar: I think even if everything in your financial world is going swimmingly, it's still a good idea to know where your money is going, and why. You might find other ways to re-purpose your money towards areas or endeavors that bring you more joy or which you place a higher value on.

Now, finding out what we truly value might not come so easily to some of us. It requires a little leg work. If this sounds like you, here's how you can figure it out:

1) Take a look at the last 12 months, 24 months of your spending habits. I like at least one year's worth because you can see the ebbs and flows of life: holidays, summer travel, etc. Even better, look at 2+ years of spending habits!

2) Next, let's figure out where you're spending your money based on some categories. You can get as specific as you'd like and websites like mint.com can help you organize things.

Okay, we've got our data and we'll start to see some trends - especially if we're looking at 2+ years of spending. Some of these trends might scare you, or appall you. That's okay. We're not judging here. We're trying to find a solution, not point out the problems. We can’t change our past saving/spending habits. We're merely trying to figure out where our money is going.

3) Now that we know where our money is going, it's time to figure out the "why" part. This is where it gets personal. Here’s a sample of some questions you might ask of yourself:

• Are those areas, if discretionary spending areas like dining out, shopping etc, truly bringing you joy?

• Do they provide more value for you than other areas of your life where maybe you aren't spending or saving as much?

• Are you a charitable giver but find you aren't giving as much as you'd like?

• Are there things you'd like to do but aren't actually doing, like travel more or save more for your kids' college fund?

I think it's a good idea to also brainstorm or brain dump as many things as you can think of that you want to do, financially. Doesn't matter if you're doing them already or not. Then sort or rank them based on what's most important to you. And now you can see if your money is going to the areas you deem most important to you. Again, no judging on the past.

Phew, we did it. We figured out where our money is going, and why. Now what? Maybe you want to make some changes. Cool! I have a template that can help you pare down your gobs of data into more digestable categories:

Live - what you're spending on daily buying decisions aka lifestyle

Give - what you want to or are already giving

Grow - what you're saving for the future

Owe - what you owe, obvi

**Sidebar #2: the order of the categories listed above is not the order in which we should be organizing our cash flow. It's just a way for you to see everything from a high level perspective. Plus it sounds cool when you say them in that order. To see how we should be organizing our cash flow for efficiency, get the 6-Step Simple Spending Plan.

The template gives you a high level view of where your money is going, and why - based on the four categories Live Give Grow & Owe. And inside of the template you can also highlight and create buckets for the areas you place a high value on. Maybe things like paying off your mortgage early or setting up a vacation fund. If you want a copy, LMK and I'll email it over to you.

Now we know where our money is going, and why. Hooray.

I want to point out a very important detail here. So far we've highlighted the where and we've figured out the why. It's vital we keep in mind and remind ourselves of this:

It's YOUR money.

Only you can decide what's important to you when it comes to where your money goes, and why. Only you can place the amount of value you derive from taking your family on a big vacation each year or giving 5% of your income to your favorite organization.

It doesn't matter what the neighbors or your co-workers are doing or buying. Maybe they have a higher income than you, thus can more easily afford that [insert shiny new object here]. Maybe they don't and they can't really afford [insert shiny new object here] but it looks like they can. The future will likely call their bluff!

It really doesn't matter. Because that's not a financial factor you can’t control.

Where YOUR money goes, and why…IS!