HomePersonal FinanceIs It Possible People Are This Clueless About Their Cash Flow?

Is It Possible People Are This Clueless About Their Cash Flow?

As part of my daily responsibilities financial planners will come to me to discuss a particular case; sometimes these cases are mind boggling estate planning cases ($20million, $30million, $50million+) and sometimes they are just your run of the mill new family starting out.

When the case has to do with estate planning the planner and I are coming up with strategies and techniques that can be used in that particular client’s situation, however, when it is your new family situation I am really just there to input data and build spreadsheets.

It was during one of the latter new family conversations that provided the muse for this post.  The Facts as presented to me:

  • Married Couple
  • 1 New Born
  • Husband Makes $100Kish
  • Wife Makes $100Kish
  • Spend $80Kish after taxes (includes housing)
  • Save about $6K/yr in qualified Accounts
  • Save about $5k/yr in Non-Qualified Liquid Accounts

What is wrong with this Picture?

Why Don’t People Know What They Spend?

As soon as the facts were presented I knew there was a problem.  Simply put this couple has NO CLUE what they are spending per year and guess $80K because it didn’t make them feel like they were spendthrifts.  Alternatively, they have no clue what they are saving per year and $5K/yr in non-qualified money and $6k/yr in qualified money “sounded” right.

Very simplified Cash Flow Review

  • $200K
  • – $6K Qualified Investments
  • = $194K Taxable Income
  • –  $48,500 Taxes (I used 25% effective tax rate: Understand the difference between effective and marginal tax rate)
  • =$145,500 After Tax Money Left over
  • -$5k savings
  • -$80,000 What they think they are spending
  • =$60,500

We have $60,500 unaccounted for! That is over $5,000 a month in non-accounted for money.

When this happens (and you’d be surprised how often it happens) there are three possibilities:

  1. The Financial Planner didn’t ask the right questions
  2. The Client didn’t understand the questions
  3. The Client is absolutely clueless as to what they spend
  4. The Client is absolutely clueless as to what they are saving

It is shocking how often it is option 3.  So often that I have written about cash flow before:

Given their assets and their age I am going to guess it is somewhere between options 3 and 4.  They are probably spending more than they think but saving more than they think as well.



  1. I cannot fathom making that much money and having no clue as to where it goes. Also, it must the day of the financially clueless because I wrote about a similar topic!

  2. That’s amazing – I dont even make what they cant account for in a year! Sometimes people are very clueless about their cash flow, mainly because they dont like where the money is going.

  3. It’s interesting to see that people in high income groups have these same issues. I work with a MUCH lower-income population… and their understanding of where their money goes is equally dismal.

    I refer to this as the “Leaky Faucet Syndrome” (money just drip… drip… drips… away from people).

    Great post!

  4. I bet this is a widespread issue. It’s a shame, they are in thefirtunate position of enjoying excellent cash-flow. They could eally set themselves up with a little discipline.

  5. This is true with everything, if you don’t ask the right questions, you won’t get the right answers. If I were trying to solve a problem, I would ask a lot of questions.

  6. That is pretty impressive! Maybe people that can live without knowing where that extra $5,000 really don’t need to worry about cash flows…


  7. It’s crazy how spending with credit cards and debit cards have left many clueless about their cashflow. Cash is harder to track where it goes, but easy to know how much you have in your hand. 🙂

  8. It is definitely # 3. The Client is absolutely clueless as to what they spend. My friends who make the same amount as your client are the same exact way. They grossly under estimate the amount they spend. These people can tell you exactly how much they have in savings but give you averages on the amount they spend. It comes from not keeping a spending plan or budget. High income earners face the same issue as low income earners. A budgeting and a money communication issue.

  9. That baffles me… I could never make that much and not know where it went, that said, it doesn’t surprise me that others don’t…

  10. I can’t understand it either. For example in Moneysense magazine they always feature a couple and breakdown their financial picture.
    You see that both husband and wife have these high paying jobs but their overall financial picture is should we say “Bleak”.

    Their in debt to their eyeballs with no retirement savings, credit cards with big balances owing on them. I just shake my head.

    Then you read somewhere in the article that they spent $5000.00 on an 8 year olds birthday party or something similar. Then they truly believe that is a justifiable, necessary expense !

    They have no concept of a budget and think they have an endless supply of money somehow that never runs out.

    There has to be this weird mindset that one gets when their bringing home big paychecks.

  11. Holy crap that’s a lot of money unaccounted for, especially for a $200K generating couple.

    I think that’s why people need to start the habit of writing down what they spend their money on so they know exactly how much they’re spending in a month.

  12. If I don’t pay attention, my money seems to magically disappear out of my wallet. Well, I take that back- I know I went to Target, the grocery store, the vet etc. but the math isn’t a running tally in my head and I forget unless I keep a watchful eye on the money and when bills come due!

    So many have this twilight zone kind of spending plan, where money just disappears as if it’s a plan!

  13. That is insanely scary. I couldn’t imagine making that much money and not knowing where it’s really going.

  14. I am a freak and track everything in a spreadsheet, but especially because I’m self-employed. It’s still amazing how people don’t pay attention to what they are spending if they are “making enough”. And these guys are making more than enough, but it’s clear there wasting the money away. All too common!


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