By Anh Tran, Modern Wealth Advisors, Inc.
What does your budget look like?
While the government can’t seem to get a handle on the nation’s budget, heading toward a potential next round of belt tightening on the debt ceiling, the good news is you make the rules when it comes to your personal finances — so craft them to help you succeed.
First, don’t think of a budget like a straitjacket, tying you to a restrictive set of numbers for the year. Instead, think of it as giving you permission to spend on what’s most important to you. Here are five ways to build a better budget in 2014 to do a better job than the government has with the national budget:
Set small goals to achieve a bigger one. This tip may be simple and straightforward, but not enough of us actually take the time to prepare a budget for the year. It’s easy to have a theoretical concept of your budget in mind, but finding the motivation to put it into practice is critical. Discipline when it comes to your budget is easier to embrace when it involves a reward. Other than keeping your expenses in check, factor in a nice reward for yourself and your family, like a tropical vacation, a down payment on a new house, or reassurance that you will no longer be living paycheck to paycheck. The trick is to budget for the big purchase with smaller goals set along the way. Also, share your goals with someone; it will hold you accountable to meeting each and every goal.
Be accountable to all your expenses. So you know what you spend on a mortgage payment, your car loan and utility bills every month, but do you have a clue what you pay each month on clothing, groceries, or eating out? What about seasonal expenses like holidays and back-to-school shopping or other special events? See the big budget picture by reviewing all of your expenses during the year. Start with a month at a glance by reviewing your bank account and credit card transactions to tally all spending during that month. This will give you, on average, an idea of what money is coming in and going out, in addition to required expenses. A budgeting website like Mint.com can tally all the big expenses that don’t occur every month and help you estimate annual costs. Don’t forget to factor in wiggle room (see the next tip) and unexpected expenses, such as emergency medical expenses or the auto mechanic.
Modern Wealth Advisors, Inc. is a full service wealth management firm located in Irvine, California. With more than 20 years of collective advisory experience, our mission is to help our clients manage life’s milestones. No matter what stage you are in life, our goal is to help you accumulate wealth, protect wealth, and build a legacy so you and your family can pursue your dreams. We strive to achieve this through a combination of comprehensive financial planning, innovative solutions, and cutting-edge technology which are tailored to your individual needs and goals. For more information, please contact us at (949)464-8299 or [email protected]. Please visit us at www.modernwealth.com.
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Leave room in the numbers. If you notice you are overspending your budget each month, you may not have set enough of a buffer in each spending category to prevent any unexpected larger expenses. Don’t let a highly restrictive budget throw off your budgetary goals. Instead, add in some wiggle room in the numbers to provide a pad for those times when more money is going out than in. When you end up spending less than the over-budgeted amount, you can move that to savings or a small personal splurge. Don’t feel like you are locked into your set budget, especially if you end up with a money windfall from, say, a raise at work. Life changes and budgets change, too, just know your budget is flexible.
Keep your commitment. A critical part of budget is to actually check in on your budget and your progress. Schedule a time each month to review your budget. If you wait too long and fall behind, catching up may seem like an ominous task. Like reaching any goal, budgeting, if you are new to it, is a challenge that requires trade-offs. If you find yourself eating out too much, consider trying a new cookbook and making your own restaurant-style meals at home. Bring leftovers from your home-cooked gourmet meals to work instead of buying lunch each week. Take this to the bank: If you spend around $8 on a meal each workday, you could save up to $2,000 a year (assuming you work 50 weeks a year). Making budget-friendly choices may be a pain to start, but will quickly become habit after a while — making you and your wallet happier in the long run.
Benefit from time on your side. Time is your most important ally in achieving financial goals. As you now know, planning takes time to design and maintain an achievable budget. Time is also on your side when it comes to investing well-saved dollars stashed away with a successful budget. Putting your money into interest-earning savings accounts or invested in equities and bonds only grows and compounds over time. The more time you have to enjoy the rewards of compounding interest rates, the higher chance you have of funding that hard-earned vacation or retirement nest egg. Age is also a big factor — and younger people, who have more time to build their nest egg, can invest a bit more aggressively over time than older adults. No matter your age, a financial advisor can help provide a personalized investment strategy to help you plan for big future expenses.
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