Now more than ever, we live in a time of instant gratification. With the click of a button on your phone, computer, or television, you can buy anything your heart desires at any given moment. We all work hard for our money and deserve to use it to make our lives better. However, sometimes we allow ourselves to think “better” means right here, right now. We’ve all indulged in frivolous purchases, but if we are not intentional about our spending, these costs can quickly add up. It’s important to be mindful about saving some money for a better life down the road, as well.As a financial advisor, I believe the key to more financial freedom lies in creating a realistic monthly budget. While financial planning is a strategic and long-term endeavor, budgeting is a month-to-month habit that takes time and discipline to develop. Allow me to provide some insight about budgeting that could empower you to resist instant gratification in your own life and make a sustainable budget that helps you feel more secure about your financial situation, now and in the future.
Challenges of Budgeting
For many people, budgeting feels like a daunting task. While some monthly expenses are fixed (mortgage, car insurance, subscriptions), other costs fluctuate depending on expected and unexpected life events. Some people also have irregular income, which can make the process of budgeting feel even more overwhelming for these individuals.Additionally, we live in a culture that encourages us to buy, buy, and buy some more. We see advertisements everywhere we go, and now modern technology can cater specific products to us based on our interests, further compelling us to spend. Some people may also feel pressure to spend if they compare their lifestyles and possessions to others. If we do receive an influx of cash – from a raise, bonus, or inheritance – it’s tempting to give our lifestyles a raise as well by buying a new boat, upgrading to a new cell phone, or splurging on a dinner at a five-star restaurant. You deserve to treat yourself, but if these purchases become routine, they no longer feel special, nor do they accrue compound interest. Meanwhile, retirement and investment plans can grow your money over time, but only if you are budgeting for regular deposits into these accounts.It’s never too late to start budgeting and setting financial goals. Let’s dive into some tips on how to set spending guidelines that give you more – not less – financial freedom.
How to Create a Budget
1. Examine Your Spending
Before you create a budget, sit down with your spouse or other accountability partner every month and review your spending. Whether it’s through a mobile app, a spreadsheet, or a notebook, diligently track these expenses for several months. Identify your fixed expenses, then move on to average variable costs. Although the numbers may be overwhelming at first, eventually this eye-opening data analysis will reveal what you value as a person and where you can cut back when you create a budget.
2. Create Spending Categories
Using your average monthly income, create at least three categories: one for essentials, one for savings, and the third for everything else. Add up all your essentials – food, housing, utilities, transportation – according to each average cost. With the remaining funds, determine how much money you need to pay off debt and deposit into your retirement and other savings accounts. Any cash that is left over is yours to use for shopping, entertainment, and other non-essential costs. If you have a career with irregular income, divide your largest earnings to support your budget for the remainder of the year. You can create more specific categories if you’d like, but these are general guidelines to follow as you get started.
3. Adjust Your Budget If Needed
Remember, budgeting is a habit that takes time to develop. It’s also meant to be a guideline to help you manage your money – not deprive yourself of things you enjoy. You will have months where you overspend a little, and that is okay. Life happens, and sometimes budgets need to be adjusted to accommodate unforeseen circumstances. Give yourself grace when this happens, and keep in mind that the most important part of budgeting is consistency.
4. Work with a Financial Advisor
If you feel lost about how to start a budget, or you’ve tried several methods that didn’t work, consider bringing in a professional to help you. Financial advisors like my team members at TruStone Wealth Management are ready to educate you on the budgeting process, determine your goals, and outline a plan to help you achieve them.
To schedule an appointment with an advisor, contact us today!
Jeffrey Risbrudt
APMA™, CRPC™
I'm here to help you feel more confident about your financial future.
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