Let's talk money.


If you’re a friend of InvestEd, you know that apart from information about investing, spreading the gospel of budgeting is our bread and butter. So much can happen when an individual sets up a budget for themselves and/or household. It prepares a jump off point for which all your future purchases and financial decisions can be made. It empowers the beholder of it because they are in touch with what they have and are realistic about what their income can do for them for now and the future. If this is a practice that is unfamiliar to your daily life, allow us to support you with this critical step in your personal financial well.

Let’s start this off easy by saying if you don’t have a budget, you’re definitely not alone. While you might take some solace in that statement, it’s peculiar considering most people acknowledge that budgeting is a necessity. According to a 2019 survey, 1 in 3 people don’t have a budget but that same survey suggests a whopping 93% agreed that everyone needs a budget. If that’s so, why don’t more of us do it?

Does this sound like you?

  • Creating a budget is too time consuming
  • I don’t make enough to believe I’m over spending, so what’s the point
  • My finances haven’t fallen off the rails yet, so I’m still in good shape
  • I try and fail every time

Whatever the reason, allow us to educate you why a budget is important. The biggest reason is that it will help you create synergy with what you say important to you (true values) and what you actually spend your money on. Too often, without a budget, people allow the smallest most indiscriminate purchases to chip away at money that could be going towards big goals. Those trips to the vending machine for your daily afternoon pick-me up; the quick stop at Taco Bell on the way from work; or even late payment fees, to name a few. When you can create a budget to address your money behaviors, you’ll be relieved by the accountability you’re taking for your future. Budgeting will help reduce the money stress that comes with that ominous feeling things aren’t adding up as they should because in actuality, you will know what is covered and how much space you have to tackle all your areas of spending and saving.

Now that we’ve driven home the “why”, let’s look at the how.

Step 1: Establish your goals- The first rule of budgeting is you have to be real about what you want to get out of it. People who set realistic goals for anything are more likely to achieve them. Ask yourself what is important to you. What do you want your money to do for you? What would your optimal situation look like? These are good questions to start with, but you can get more detailed once your broad goal is set. Ex. How much money will I need saved in order to put down 10% for a used car I want in the next six months? Being specific allows you to be more strategic and create parameters for how much you need to set aside weekly/bi-weekly/monthly in order to reach your goal within your set time frame.

Step 2: Look at your income and allocate- Do you know how much you take home after taxes each paycheck? Start there. Find this out and then take account of your fixed expenses (rent, phone, parking, and internet). Deduct this amount from your salary and see what you are left with. Your fixed expenses, or essentials as we say, should monopolize no more than 65% of your income. If it is, you may want to see which of those expenses can be reduced. Once you have factored in your essentials in your budget, allocate money towards your savings; the most you can afford comfortably. Saving will include money for your short term goals, building an emergency fund, long term goals and retirement. Set up automatic deposits to your saving accounts so you never miss “Paying yourself first”. We advocate for anywhere between 10%-20% of your income, but if you can’t do that much after doing the numbers, any amount is better than zero, just as long as it isn’t a lesser percentage than our next category, discretionary spending. Your discretionary spending, or fun fund, should be the smallest percentage of your budget. If you followed the steps above, you’ll have managed to meet your basics needs, you’ve prepared some cushion for your future through savings, and you can treat yourself in accordance to what you have left over. If you find your discretionary budget is a little low, don’t despair. Consistent good habits will allow you to see what you’re actually able to get by on and will make those treat moments even more worthwhile.

Step 3: Stick with it- One place to start is if you are doing this as an individual, make sure you inform your friends and family of your goals. When you’re vocal about what you are doing, they may be inclined to respect and act with shrewdness before asking you to spend money on outings, gifts and other non-essential items. If you do the finances for a household, it begs the need to have a conversation with everyone so that they all understand the budgeting philosophy. Hiding finances never empowered any relationship. It can be a great way to empower your decisions as a family and create an opportunity to educate children if they are present in the home. This upfront conversation might save countless discussions down the line stemming from disappointment of why things can’t be purchased. The next area is to consult with an advisor. They can review your budget with an objective eye and may be able to help find areas in our budget to increase savings and/or discretionary spending. They can also support with resources to help you stay on track like budgeting apps, supporting with automation of savings and investing. A fiduciary advisor may also be able to run projections for how long it may take you to reach your financial goals based on your current saving and investing. Research the advisors in your area who can help.

If we may, can we circle back to reasons people don’t budget? We hope if you felt like you fall into any of those categories, you now see the benefit and way to budgeting successfully. If you feel it’s too time consuming, allow an app to do the heavy lifting and you just put in the numbers. Apps like Mint, Wally, and Albert are good to use. There many free apps and those with nominal fees. Also, a fiduciary advisor could help you with creating a budget and financial planning. If your reason for not budgeting is you don’t make enough, please know that just means you have less room for financial error and actually could benefit greatly from a budget. If you’re a “I’ve been doing well so far” person, what contingencies do you have in place for emergencies or an entire recession? Have the peace of mind knowing you’re getting by with a plan and not just on luck or perceived stability. The greater level of financial literacy (of personal finances), the greater the chance you will understand that you can always be doing more or improving in a financial area in order to reach your goals. If you’ve tried and stumbled, get back on the horse! You now have the help of a Fiduciary on your side and some basic budgeting information for success. Anything worth having is worth fighting for; are you willing to fight for you financial future? Well if so, let’s get to budgeting!


Lead Advisor, InvestEd.

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