July Financial Planning Tip: Creating a Lifestyle Budget

July Financial Planning Tip: Creating a Lifestyle Budget

July 13, 2017

By Jere Smith, CFP®, CLU®, Financial Advisor at Point Wealth, LLC

A budget is one of the most basic money management tools available to us and can also be the most effective. However, according to a Gallup Economy and Personal Finance Survey, only 32% of Americans, less than one in three, actually uses a budget.

While setting a budget may seem obvious and is fundamental when it comes to retirement income planning, many people are intimidated or simply don’t know enough to have the confidence to do it. Budgets can vary greatly and there’s no one size fits all option, so you can’t download one off the Internet or use a friend’s. Additionally, many people haven’t thought about what retirement expenses they’ll face or what their income needs will be.

Budgets are an essential financial planning basic, and you’ll want to craft one that’s tailored for you. But you don’t have to go it alone. Here are a few tips to help you get started.

Define What a Budget Means to You

What’s your definition of following a budget? For some, it’s simply paying the bills, while for others it’s not surpassing a certain dollar amount each month in spending. Your budget is for you and you alone, so it should reflect your goals and priorities, not what you think other people would be impressed with or what you wish you spent. If you want to spend twice as much on food so that you can eat only organic, do it! It’s your money. Your budget should be a reflection of your reality or it won’t do you much good.

Review Your Past and Anticipated Future Expenses

Take a snapshot of your past financial activity. What has your spending been versus your saving? What are your necessary recurring expenses and what are other bills you could, if needed, eliminate?

Now, consider what bills you’ll continue paying in the future (such as your mortgage, car insurance, etc.). How will your medical insurance change? What bills will you no longer have to pay in retirement? For example, if you currently have a long commute for work, you’ll likely spend much less on gas when you retire. You shouldn’t expect for everything to be set in stone; this is simply to help you start budgeting.

Use Technology

Modern technology has made it easier than ever to budget and track your money. From spreadsheets to online budgeting programs, such as Mint.com and EveryDollar.com that connect with your bank accounts, your budget can now be more powerful than ever. There are plenty of great smartphone applications at your disposal, so spend some time choosing which is best for you.

YouNeedaBudget.com is also a great option as it’s more than just nice software. Their budgeting philosophy takes traditional budgeting and turns it on it’s head. While it does takes a little getting used to, but they offer well-run, live, and free online classes to help you get started.

Consider Trying the 50/30/20 Budget

Not sure how to adjust your budget or what limits to set for yourself? Consider starting with the 50/30/20 budget, which provides a simple guideline for helping you determine where you should allocate your money and what takes priority. As the name implies, your income is distributed into three categories:

  1. 50% goes toward the essentials, including your mortgage, insurance, and any other fixed expenses.
  2. 30% goes toward personal spending and lifestyle expenses, such as eating out at restaurants, taking vacations, and shopping.
  3. 20% toward savings. Depending on your personal circumstances, money in this category may go into your savings account or toward other bills if you want to more aggressively pay off your mortgage or any credit card debt.

For other examples of common categories and how to complete your budget, check out this helpful video: https://www.wevideo.com/view/947766264

Be Open to Change

Your life is constantly changing, so you shouldn’t expect your budget to be static. As your priorities and realities change, so will your budget. If you get a new job that requires more professional attire, you may need to increase your clothing budget. If your son leaves for college, you may get to decrease your grocery budget and start saving the money for plane tickets to see him. Or if your retirement expenses drastically change, you can adjust your budget as needed. The most effective budgets are adjusted on a regular basis.

Enlist the Help of an Accountability Partner

While many people have successfully budgeted and managed their money on their own, too many people don’t get a second opinion from a financial advisor to see if their strategies thus far are working as they should be. They may assume that they’re already doing a good enough job, or that a financial advisor is only needed for someone with no knowledge of planning and budgeting.

Additionally, research shows that most people perform at a higher level when they have outside accountability. From exercise to spending, most people find that having someone to hold them accountable increases their success, not only because they have someone to answer to, but also for the support and encouragement they receive.

Having a financial accountability partner is valuable because you’ll be a lot less likely to cheat on your budget if you know someone is going to be asking about it. One way to find financial accountability is by working with a financial advisor. An experienced professional can be instrumental in not only helping you set up a budget but in adhering to it as well.

Want to learn more about how we can serve as your budgeting guide and accountability partner? Call Point Wealth Management in Wausau, WI at 715-870-2450 to set up a complimentary review.

About Jere Smith

Jere Smith is a financial advisor at Point Wealth Management, an independent financial planning and investment management firm. Serving individuals, families, and privately-owned businesses, he helps great people create great financial success through his services, including financial planning, retirement planning, estate planning, charitable giving strategies, and portfolio management. Along with nearly a decade of experience, he is a CERTIFIED FINANCIAL PLANNER™ professional and Chartered Life Underwriter, two of the most esteemed designations in the industry. He is passionate about education, whether it’s providing it to clients or adding to his own knowledge, and has written an article that appeared on FORTUNE.com. Based in Wausau, Wisconsin, Jere serves clients in multiple states. To learn more, visit http://pointwealthmanagement.com or connect with Jere on LinkedIn.

Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Point Wealth Management and RWA are not affiliated.

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