One of the most discussed topics in the financial planning process is budgeting. It seems like everyone cringes when I bring up ‘budgeting.’ For almost all of us, regardless of income or net worth, budgeting makes its way to center stage in personal financial management.
But why do so many of us resist budgeting? Possibly, it can be intimidating. Or confusing. Maybe both. Really, it doesn’t have to be either of those.
Since we’re all still mostly at home, this is a great time to revisit or start a budget. Have you ever heard the acronym K.I.S.S.? Keep it simple stupid. A little abrasive but you get it. Keep it simple.
There are several ways to budget – spreadsheets, app’s, software, etc. I encourage you to use what suits you best. My recommendation, at least at the start, is to do this by hand – on a sheet of paper – you will have a better handle on it if you write it down by hand at the start).
| FIXED | FUN |
Items here usually cannot be changed: mortgage/rent, car expenses (if you have a $1000 Lexus payment, think about including some of that in the next column as per a Lexus is not necessary – a car is, a luxury car is not) insurance, maintenance, utilities, groceries, personal supplies, and ??? you guessed it, SAVINGS. You should include your savings (retirement + non-retirement). Most will say to do at least 10% of your income. I recommend at least 20% if you can. 10 for retirement, 10 non-retirement. | Items here are discretionary and variable: Entertainment (possibly way down the last few weeks), vacations, family support, gifts (my son doesn’t need a mini-motorbike despite his very compelling pitch), dining out, etc. (did you see my last post?) |
List them all for the past 12 months or 2019 calendar year. You can use your bank and/or credit card info or better yet, Quicken or Mint to help understand where you spent your $.
Any surprises?
There is for many of us. Look, almost all of us deviate from the plan. So be easy on yourself and take your time with it.
As Peter Drucker said, “Plans are worthless but planning is invaluable.”
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. There is no guarantee that any planning strategy will be successful. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. Waddell & Reed is not affiliated with Quicken or Mint. (05/20)