I met recently with a group of young professionals who were interested in financial planning. I realized that my colleagues shared a very common bias. Eager to discuss investments and savings plans, they were hard pressed to consider budgeting as a tool for building assets and security. It made me think about how I could put a more positive spin on budgets.
A budget is a financial plan for spending and budgeting is a process used to manage expenses. It is not simply a tool for keeping track of every penny spent. It is a strategy that allows you to prepare for the unexpected. With a smart budget, you will be able to save and invest in your financial future.
Here are some tips for successful budgeting:
- Keep it simple. Don't detail your plan to the penny. Keep track to the nearest dollar or even the nearest five dollars. Such a system removes some of the drudgeries from your recordkeeping.
- Be realistic. Consider all expenses, including vacations, spending money, alcohol, tobacco, and hobbies. If you need a margin of safety overestimate your expenses and underestimate your income.
- Personalize it. Don't expect someone else's budget to work for you. When you see a budget in the newspaper or magazine, realize it is for a particular situation or an "average" or "typical" family. It's important to tailor a spending plan to your individual needs and situation.
- Use teachable moments. Give allowances to everyone in the family. This is particularly useful in helping children learn that money is not an infinite resource!
- Separate wants and needs. Buy what you need first. The wants belong in the "what's left over" category.
- Borrow with care. Remember; you create a fixed expense each time you charge something or pay "on time." Even though it might give you pleasure to own something right now, consider all the interest you'll be paying and ask yourself if it's really worth the price. If possible, use cash for ALL your impulse purchases.
- Most important: Plan for and develop an emergency fund!
If you want more information about budgeting, look for more articles in my resources library. I can help you use smart budgeting as a tool for making decisions about investments.
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Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.