Investment Management

In this article, we will discuss some common reasons why individuals choose to use budgets, and a simple how-to if you’re ready to start.

Umm, I have no idea how much I’m spending each month.

Regularly when I meet with clients, I ask them questions about their income and spending. Income is usually relatively simple to get a firm number, but the questions of how much are your monthly living expenses? or how much do you spend per month? are often met with, “Ummm, I have no idea”.

I don’t like budgets. Here’s why.

Obviously, if a person has a budget, they should know exactly how much they are spending and in what categories. But the problem is, who likes keeping a budget? Keeping a monthly budget requires substantial time to set up the initial budget, and especially to track actual expenses against what was budgeted, identifying any discrepancies. And who has time for that in their daily lives?

But the basic problem remains: to develop a good financial plan, you typically need to know where your income is being spent right now. And frankly, there are other reasons to have a budget as well – like figuring out if any expenses can be cut or redistributed so that your money better aligns with what’s important to you in your life.

So I have developed a few simple ways to budget, which I actually use with my clients. Some of my clients prefer an online tool that can import data from their bank accounts and credit cards, like ynab.com. Other clients prefer an actual spreadsheet that they manage in Google Sheets or Excel. And in some cases, clients prefer to use an old-school envelope system, where the monthly cash gets put into envelopes for each of the expenses. When the money is gone from that envelope, no more spending in that category is allowed until next month.

Ready to start your own budget? Here are a few simple tips.

Here’s one way to get started which can work for some individuals.

First, make three sections on a piece of paper (or in your spreadsheet): Yesterday; Today; and Tomorrow. (I based these categories on an episode of Hilary Hendershott’s Profit Boss Radio podcast.)

Yesterday: In the “Yesterday” section, include any spend that you have already committed to. This will include rent/mortgage/real estate taxes, utilities/cell phone/cable, debt repayment like student loans or credit card, streaming services or gym memberships, car loan or lease payment, private school.

Tomorrow: In the “Tomorrow” section, list out anything you are saving money for. This could include a vacation you plan for next summer, the purchase of a new car or home, college for your kids (or you), home repairs, or a wedding.

Today: In the “Today” section, you’ll include all the day to day things you spend money on, like groceries and restaurants, gas, clothing, and anything else you typically spend money on regularly. Typically, this is the section which is most difficult to complete because it varies so much from month to month and many items are discretionary.

To get a big picture view of your budget, complete the Yesterday and Tomorrow sections first. Compare that to the amount of take-home pay that goes into your bank accounts each month. The difference is your Today spend. Simple, right?

Now, it’s time to fine-tune.

Are you pleased with what you found from this exercise? In other words, is your spending aligned with your life priorities? If not, it’s time to fine-tune.

Carefully examine your last three months of credit card and bank statements. Make sure the expenses are included accurately in your budget. Highlight any expenses that are discretionary, meaning, you can modify them if you like. Can you eliminate some of your monthly subscriptions for a streaming service you no longer use or a gym membership you no longer attend? Can you scale back your eating out by making a weekly grocery run and spending some time meal-prepping to avoid all the casual food purchases? Can you eliminate the impulse walk through the accessories section at Target on your way to buy toilet paper?

I believe knowledge is power. If you have the information, you’re on your way to making informed decisions. A budget can be a step along the way.

If you’d like a copy of the budget spreadsheet I sometimes use with my clients, request one using this form: https://treefortfinancial.com/contact-us/

In this article, we will discuss some common reasons why having a financial advisor might be helpful.

Financial advisors can help organize your financial life.

Financial advisors can help you get your financial life in order. For example, a person may have worked multiple jobs over the years, accumulating 401k/403b assets along the way. A financial advisor can help you get a handle on how much you have and where it’s all located. As part of a data collection meeting, a financial advisor usually asks you to provide details on your personal assets and liabilities, so this is a good time to pull out all those old statements!

Financial advisors can also work with other professionals in your life, such as accountants or CPAs, estate planning or family attorneys, and other professionals to help identify opportunities for saving money, tax efficiencies, or estate planning.

Financial advisors can help identify specific things you can do to get your financial life in order.

One of the best aspects of a financial plan, in my opinion, is that it can act as a roadmap for what you need to do to stay on track financially. A financial plan can provide very specific and practical details like, “save this amount from each paycheck in your retirement account”, or “refinance your mortgage to take advantage of low interest rates”, or “pay down this credit card first by paying this amount per month”, or “yes, you have enough saved to start your kitchen upgrade but spend no more than this amount”. These are just examples and not intended to be specific recommendations to the reader, but you get the idea. A financial plan can provide very specific information about what you need to do to get on track, and stay on track, towards your specific financial goals.