EFFICIENT BUDGETING:
April 21, 2009 1:00 p.m. PST
Everybody
would agree that this Economic environment has caused the need for
financial action. Whether it's reducing spending, taking on a second
job, refinancing a house, or even returning to the work force if you
were, at one point, Retired. Before one begins the process of taking
action to address these potential issues, one needs to review their
Budgeting process. The most important aspect to this process is to
complete an Expense Worksheet. In essence, an Expense Worksheet will
not only help Financial Professionals to use this data to compile a
plan moving forward, but more importantly, it helps you to see for
yourself, what your expenses truly are. Unless this is a written
document, you will never truly grasp potentially unnecessary
expenditures.
One question as it pertains to the equation is really quite simple;
does my Income exceed my Expenses? If the answer is a resounding
"no," it is obvious that something needs to change. This
involves either an increase in Income (which is not always an easy option), or
a decrease in Expenses (much more viable, but maybe not as easy as it appears). Start by splitting your expenses into two
categories. First, look at all the
required expenses such as mortgage, utilities, food, clothing, medical
etc. Then look at discretionary spending,
this is where real headway can begin. We
all should have some entertainment and leisure in our budget. However, we often spend more than we need to
lead a satisfying life. Rather than dining out so often, do we conserve
expenses by making meals at home? Do we cut the amount we spend on
non-essential items, such as alcohol or clothing? There are probably some
pundits out there expressing some thoughts on these questions, perhaps what I
think are non-essential, others may seem as essential. Maybe purchasing a
new pair of shoes makes you feel good, but the real question is, "do I
really need this, or is it rather something I want?"
Budgeting can come in many forms, 1) from a simple plan to
allocate a certain amount of money per month to food, utilities, credit card
bills, mortgage and entertainment; or, 2) or the
more complex Financial Plan, to address your Income and Expenses, and determine
areas which could use improvement. Personally, I prefer the stability of
using an Expense Worksheet and adhering to the principle of making adjustments
where needed. Speaking from experience, I had put off completing an
Expense Worksheet for quite some time, simply because I did not want to face
the fear of knowing that what I thought was financial independence, would turn
out to be wrong; who ever wants to admit that they've made
mistakes?! Once I finally did complete a comprehensive review of my
Expenses, I was quite shocked at how much I was spending, which could be
reconsidered. As a result, I personally changed several things; 1)
I reduced expenses which were not in line with "normal" spending
habits, and 2) I developed a strategy to ensure a long-term
strategy to address, in order to retire comfortably.
In order to understand the importance of budgeting, it's pivotal to
understand the reasons everybody needs a budget:
- Understand your real reason
and need for budgeting. Is it to live comfortably now? Or be
able to sleep well at night?
- To plan for Retirement or
other goals, such as travel during Retirement.
- Understanding one's budget,
helps to manage one's debt. Adhering
to a program that limits spending to an amount below net after tax income
will prevent unnecessary debt.
- Being able to live within your
means. Savings and investments amounts need to be considered as part
of the process
- Building reserves, balancing
cash flow is all about reducing stress and creating peace of mind.
- It is essential to understand
your Fixed expenses versus your Variable
expenses.
- It's nice to know that there
is money in the proverbial "till" every month, for entertainment
allowing you to do something you really enjoy.
The following are strategies to address your Budgeting concerns:
- Use an Expense Worksheet to
first understand where your money is being spent.
- Track any changes to your
future budget expenditures.
- Identify ways to increase
Income, in order to offset unforeseen expenditures.
- Ask friends and/or family, to
go through the same process, so that you can see a common thread, or something
that is skewed. It may be uncomfortable, but objective advice can be
very beneficial. You may want to
consider the advice of an expert.
- Are there Emergency Funds set
aside to take care of unexpected events?
- Is your spouse involved with the Budget process? If not, there is no better way to get on the same page and live a happier life. For an example of this, see the following news story entitled "Recession-Proofing your Marriage," from San Diego's NBC affiliate, KNSD 39, Recession-Proofing Your Marriage .
Consider making drastic changes. If you can't make your budget
work, consider the following:
- If you're spending too much
on your home/condo, and don't need the extra space, consider downsizing.
- Consdier increasing
deductibles on insurance policies including: homeowners, automobile,
umbrella and health coverage, hence lowering your premiums.
- Consider getting rid of extra
appliances like the refridgerator or spare tv to reduce utility bills.
- Understand the difference
between needs and wants. Many
purchases fall into the category of wants.
- Educate yourself with books
and referrals from friends who have gone through the process.
The bottom line is that everybody needs a budget, the
difference is how one uses it to implement a solid strategy to effect positive
change in one's life. Whether you analyze it yourself, or seek help from
a Financial Professional, you will certainly feel that the creation of a budget
from which to work, will help you to determine a financial strategy moving
forward, and will help to ease some of the worries that are rearing their ugly
heads during this tough Economic environment.
Please share your thoughts and ideas on the topic of this Budgeting. What has worked for you?. I am happy to
respond if you need further assistance.
Attached you will find the Expense Worksheet posted on NBC's website, which
is Interactive and will get you started with the process. I hope this
article has helped others and is shared amongst others in the Blogosphere.
Regards,
Mark Halsey
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