KNOWING WHERE YOUR MONEY'S GOING
When people think of financial planning they often think of planning for their retirement, investing their money, learning about strategies to save on taxes, etc. These are great topics that I enjoy helping people with, but one of the most important topics is often one of the most overlooked, budgeting. It is important to know how much money you spend and where it is going.
There are many variables in financial planning of which we have little or limited control over, such as how the stock market performs, tax rates, how long we’ll live and others. One area we have more control over is where we spend our money, so it needs to be done responsibly. We’re all familiar with stories of lottery winners or professional athletes who go broke. In their case, it wasn’t a lack of income but a lack of controlled spending.
Below is an example of a pretty typical conversation in my office:
Me: As part of financial planning it’s important to understand how much money you spend, and I’d like to evaluate your expenses. To get started, do you have an idea of how much you spend in an average month?
Client: Um, I’m really not sure, but it’s probably about X each month.
We continue the conversation and I provide details on how to obtain this information. After a week or two and doing some digging:
Client: So, we were a little off. You know that number we gave you, we should probably DOUBLE IT.
It’s amazing how quickly expenses add up. In retirement some things will be different, you likely won’t be saving towards retirement any longer, you may be in a lower tax bracket, if you receive Social Security some of it won’t be taxable, your health insurance and medical expenses will likely be different, you may want to budget extra travel, etc. For this reason, looking at current expenses as well as future expenses is necessary.
Most people really don’t like the idea of living according to a budget, and I’m not saying that everyone must keep track of every penny. If you’ve demonstrated that you can live within your means and save for future needs, you don’t need to track every dollar. However, if you feel financial stress, your next paycheck can’t come soon enough, you carry ongoing credit card debt or you feel like you don’t have control over your money, a budget is probably the best thing you can do to improve your financial picture. It may tell you that you must make some tough decisions such as cutting back on things you like doing, or you may need to earn more income to sustain your lifestyle and meet your goals. Either way, this information will be helpful to you. It may seem painful to sacrifice certain items, but it is less painful than not accomplishing your goals and living with regret.
If you’d like some resources to get started on putting together a budget, email me at advisor@blakegallion.com.
Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557
