Parkinson’s Law states that “work expands so as to fill the time available for its completion” a law which I can succumb to when completing the, supposedly, simplest of DIY jobs. This law also extends into financial planning and is known as Parkinson’s Second Law. This states that expenditure rises to meet income.
I have seen Parkinson’s Second Law play out with a number of potential clients where, for a number of years, earnings were in excess of their “supposed” expenditure. Yet on closer examination there was little or nothing to show for this surplus. They were spending all of their income and there was no planning for the future.
Unless you have specifically earmarked and planned to do something with your earnings, in excess of your basic expenditure, you will fall victim to this law making it nigh on impossible to plan for your future in any meaningful way.
Therefore the imperative is to break Parkinson’s Law and this can be relatively straightforward.
Set out a detailed breakdown of your current expenditure, and I mean detailed. This should include fixed/discretionary/luxury costs. This will take you some time but it will be worth it. Going through your bank and credit card statements can be the most efficient way of doing this.
Review these costs and categorise them i.e. basic necessities up to luxury/ discretionary spending
Consider the obvious costs that are not in this breakdown i.e. savings, pension contributions, protection premiums etc. Have these been accounted for elsewhere i.e. deducted directly from salary?
These simple steps will begin the process of breaking Parkinson’s Law. With the expertise of an independent financial planner you will be able to explore ways of prioritising your expenditure and organising your finances to meet your desired lifestyle (See Bellwether Blog: Goals – Set Yourself Free) which is what financial planning is ultimately about.