Budgets.
We all need them. We all use them. Even if you don’t follow a written one, there probably is a general guideline in your head that lets you know about what you can spend and what you can’t.
How much you listen to that voice is your prerogative.
Budgets are just as important in your wealth accumulation phase as they are in the preservation and distribution phase of your financial life.
Often, we are asked if one has enough money to retire, and of course that depends on how much you have. But equally important is how much you spend. What could be an adequate level of retirement savings for one may be wholly inadequate for another.
Here are some basic necessary steps in assessing your situation.
- The first step is to get organized. Start logging all your expenses.
- Then, figure out what your net take-home pay is after taxes and withholding.
- Assess expenses that may fluctuate month to month.
You could then follow the common budgeting rule, 50/30/20: 50% of income goes to needs, 30% to wants and 20% to savings/investment/debt paydown. This isn’t a hard-line rule, but it can provide a template for keeping your finances in check.
Our goal as investment advisors is to help clients understand their expenses and offer some resources to help cover them. That’s where budgets are handy. You have several ways to create a budget.
- If you’re interested in having a website track and categorize your expenditures, Mint or Monarch Money can help. Mint is free and offers an app for smartphones, while Monarch Money is a monthly subscription service. You will need to provide viewing access to your financial accounts so it can track bank balances, credit cards, loans and investments.
- You can also go to online budget worksheets, where you can enter amounts and have them calculated. To have a record, you can print out the finished worksheet or save it as a PDF. Here is a worksheet from the Federal Trade Commission, and one from Kiplinger, a personal finance publisher.
- Another online option is to create a budget from the monthly budget template in Google Sheets.
At the very least, you can print out a blank worksheet and write in your expenses by hand.
However you get there, having a budget helps. With a greater grasp of spending habits, a clearer picture of your investment needs will develop, which can benefit you and your advisor.
Tom Pappenfus is an investment advisor at Landaas & Company, LLC.