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The "B" Word

No, I’m not talking about that “B” word! I’m talking about that curse word that most advisor’s broach with their clients, BUDGET. Now, I’m not talking about a budget in the sense that everyone has to have an itemized spreadsheet with dollars allotted for each activity, spending countless hours a week micromanaging. Generally its having an idea of how much income is coming in and expenses that are going out every month. To be frank, when you retire not only will you have to know your personal budget but also live within it. Otherwise you run the risk of running out of money. At some point we need to carefully manage income and expenses, so why not start practicing now?

For some, budgets are viewed as tedious and intimidating, but necessary. However, I suggest that having an idea of income and expenses is the foundation that I base many of my recommendations on. When starting a budget there are many questions we’ll explore such as should I start a Roth? What about saving for college expenses? Do I defer more into my retirement account at work? Should I pay down “x” amount of my debt? Unless I have an idea of a working budget it is very difficult to recommend any of the above. My job is to ensure I am putting my clients in the best position possible to be successful. In fact I don't believe a solid financial plan is possible without a budget!

Let’s talk for a minute about balance. There needs to be a balance between lifestyle and savings. That's really all a budget is, understanding if your lifestyle is outpacing your income. It is hard to sacrifice lifestyle now for a reward that will be 10-30 years down the road. That's not how we human beings are wired! Many clients I meet with during the accumulation phase of their life have extra dollars. Which is why I bring the discussion back to budget. Do you know roughly what’s coming in and what’s going out every month? That’s how we know where to start!

“I meant to start saving years ago” is a phrase I hear all the time. What is the solution? Start small and increase savings in small increments. I believe 401(k)’s are so successful because they make savings easy through payroll deduction and it can be marginal saving every paycheck. Few notice $50 or $100 missing from paycheck to paycheck. Before long that account balance is in excess of $50,000, $100,000, or even $1,000,000+ in some cases. Those assets weren’t accumulated overnight. It takes time, patience, persistence, and an understanding of your cash flow. There are many websites and budgeting software tools out there to help assist in developing a working budget. Some are complicated and others minimalistic (IE Mint’s 50/20/30 Rule for Minimalist Budgeting)  “Lifestyle” as it relates to your income is a determining factor in where we start. If you don’t start now, when?

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

This article is written by Kyle Cooper.


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