You are working hard to make money for yourself and your family, so you are probably already well aware of the fact that each dollar you spend or save has consequences further down the line. Yes, decisions you make in your 20s can affect your retirement 40 years later, and yes, that expensive family vacation may eat into a college fund for the kids. It’s a continual balancing act, and if you feel that you are struggling, you are not alone. It can be very hard to see the big picture when it comes to money.

When I work with new clients, I introduce them to the concept of life’s trade-off decisions. Picture having four buckets in front of you. Each of the four has its own label: current living, debt reduction, education funding, and retirement. Each and every dollar that you make is going to go into one of those four buckets, not all of them. This is what is meant by trade-off. My job as a financial advisor is to help you decide how to navigate these trade-offs in such a way that they will benefit you long-term.

Let’s break down these four spending areas.

1. Current Living

This refers to life experiences or consumables that you need to pay for right now. Your bills, your groceries, movie tickets, birthday parties, and even a new snowblower would all fall into this bucket. The average family will need a good portion of their income allocated to current living expenses to cover everything from a Netflix subscription to an emergency room visit. However, it is very easy to over focus your spending in this area, and that can lead to problems later.

Some (not all) of the spending that happens in this category is purely for enjoyment. Now, this is not to say that you shouldn’t spend anything on enjoyable or memorable experiences – you should.

But it is very easy to get carried away. Part of my job is helping you see how to spend wisely in this area, so you can still have these enjoyable experiences without jeopardizing your financial future.

If you want to plan a family vacation, we help you plan for it financially in such a way that it won’t impact debt reduction, education, or retirement.

2. Debt Reduction

The second spending category is debt reduction. The money that goes into this bucket pays for your mortgage, your car, your credit cards, your student loans, and any other situation where you are making monthly payments for money borrowed.

Debt can be an insidious money drainer, especially if it is credit card debt, or an adjustable rate loan. Interest rates can change with very little warning, and your monthly payments might be disappearing into interest, and not making much of a dent in the principal loan balance. In other words, you may be paying a lot more than you need to to reduce your debt.

As a financial advisor, I take a look at all of your debt, and come up with ways to lessen the impact. Ideally, you do not want to carry any debt into retirement, so I often work with people on plans that will allow them to retire without a mortgage payment. For those who are feeling overwhelmed by student loans or credit cards, we come up with a plan to pay these down as quickly as possible, while still leaving enough money for all other expenses.

The quicker we can get rid of your debt, the less stress you will feel, and the less money you will lose to interest.

3. Education Funding

Education funding could mean one of two things: saving for a child’s college tuition, or paying for your own continuing education. There is no denying the fact that education costs are on the rise, so understandably, people want to give themselves the biggest advantage they possibly can when it comes to paying for it.

There are many ways to accomplish this. Special savings or investment accounts set aside specifically for education are quite common, and the earlier we can get you started on one of these plans, the more money you will have when the tuition bill comes due.

Education funding can sometimes be an overlooked or underfunded expense. Parents often have the best of intentions and want to provide enough money for their children to attend school, but they may be putting too much money into the other three buckets to make that possible. A comprehensive look at your lifestyle and spending will help to determine how much money you can save for education – either your own, or your children’s.

4. Retirement or Investment

Many people, especially young people who are just starting out in the workforce, give almost no thought to retirement. On the other hand, people quickly approaching retirement age think about it an awful lot, and would love to go back and tell their 20-year-old selves to set up some kind of retirement account right then and there.

The earlier you start saving for retirement, the better your chances of living comfortably later in life. However, this does not mean that you are out of luck if you are in your 40s, or even your 50s and haven’t come up with a plan yet. Speaking with a financial advisor at this stage is critical, as it will be your chance to come up with a workable retirement plan in the time that you have.

A professional working in your best interest is always a strong ally to have on your side. Between your job, your family, your obligations, and your hobbies, it is very easy to lose track of your spending, and wind up inadvertently hurting yourself financially further down the line.

Each of us makes financial trade-off decisions every day, but are they the right decisions? For a more detailed look at how you’re spending today can affect your future financial standing, download our free guide titled “Living in Retirement.” It’s a good jumping off point to start a larger conversation with a financial advisor about your spending, your goals, and your future financial success.