"It doesn't matter how good a financial plan is -- if daily spending is out of control, it will drain everything," says Pamela Christensen, a certified financial planner and executive director of Sacramento, Calif.-based Financial Disciplines.
Indeed, many people today don't have a clue how much they spend on so-called nonessentials, or how much they'll need to spend on health care in the future.
Americans with incomes of $100,000 or more estimate they spend as much as 14.2 percent of their income on entertainment, travel and other "luxury" services, says a new study by Unity Marketing
, a Stevens, Penn.-based research firm.And a couple retiring today at age 65 will spend at least $175,000 in today's dollars to fund out-of-pocket medical expenses in retirement, according to a Boston-based Fidelity Investments study released earlier this year.
finds those approaching retirement underestimate by at least 50 percent their future health-care costs.Gifts is another category that gets underestimated, she
"It's a very scary area for people," Christensen
starts the process by first showing clients what the typical family in America spends, according to the Web site Practical Money Skills, on housing (30 percent), transportation (18 percent), food (16 percent), clothing (5 percent), recreation (5 percent), utilities (5 percent), savings (4 percent), other debts (4 percent) and miscellaneous items (8 percent).She
then calculates what her
clients really spend in those categories, using a year's worth of bank statements, credit-card statements and checkbooks and compares those figures to actual income, searching especially for the categories in which there may be "overspending."Yet in other cases, she
says pre-retirees are "overfunding" their 401(k) or retirement plan at the expense of their family's standard of living."This can create a lot of stress for a family," she