Surplus Allocation

Surplus allocation is one of the key strategies that we focus a lot of our clients’ financial plans around. Most clients are in their 30’s or 40’s and are what we sometimes call ‘wealth accumulators’. That means that they’re now at the point in their life where the majority of their income isn’t going to basic necessities, and they’re starting to accumulate savings, assets, investments and are working towards their bigger-picture financial goals.

That means when we put together their financial plans, we take the time to first find out what their goals are, and what type of wealth they’d like to work on building. Then, we make sure to provide them with a surplus allocation strategy which ensures that any money they have leftover after their basic needs and essentials are taken care of, is allocated towards the goals that they’ve advised us are important to them.

A key principle of this strategy is ensuring that every dollar has a home. That means having a spending plan where all of your income has a home. Making sure that if it isn’t going into your fixed or discretionary living expenses, it’s going towards your financial goals.

That’s because the rule of the universe when it comes to money is that if it doesn’t have a purpose and is just sitting in your account, it’s going to get spent. And it’s not usually spent in a way that is going to offer you any serious long-term benefit. That’s why it’s so important to ensure that every dollar is budgeted.

To stop money from getting ‘lost’ by sitting in your account until it eventually gets wasted on random, everyday expenses, the goal is to make sure that it’s going into some sort of savings or investment account or being allocated towards a goal. That way, it’s fulfilling a purpose and you aren’t tempted to spend it.   

The end goal is to have most of our clients allocating a total of 20% to 40% of their monthly take-home pay towards their overall financial goals and wealth creation strategy. Over time, as their pay starts to increase and they start to earn more, we take a proactive approach. Rather than just letting these funds start to accumulate, we update their plan and strategy to ensure that all new funds are allocated towards a goal or financial strategy rather than just being spent.  

This works to stop ‘income creep’, which means increasing the amount you’re spending as your income increases. Now we aren’t against clients spending a bit more as their income goes up over time to improve their lifestyle on a week-to-week basis, but we want to make sure that it’s within reason and proportionate to the increase they’ve received, ensuring that the majority of their income is still going towards wealth creation or making progress towards their goals.

The main thing to keep in mind when it comes to planning for your future is that the more you can invest. The more goals you will achieve and the more financial options you will have in the future.

Because if you’re able to work your way up to allocating 40% of your take-home income towards your financial strategy. This kind of allocation towards wealth creation goals over a medium to long-term perspective can change your financial future.  

Ryan Porter is a Wealth Coach at Catalyst Wealth Group. His mission is to help his clients achieve financial success and live their ideal life.

Any advice or information in this publication is of a general nature only and has not taken into account your personal circumstances, needs or objectives. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.