“If you fail to plan, you are planning to fail!” – Benjamin Franklin
Most people tend to feel discomfort when thinking about the future, their plans, their goals, and their purpose. Perhaps a part of us doesn’t want to think about that too deeply because we fear that if we made an honest effort, the possibility of failure looms too large and the undertaking too complicated to even attempt. Instead, we procrastinate because the chance of failure overshadows the potential for good and healthy change in our lives. When we feel this way, we need to remember something: we aren’t alone in this struggle. It is okay to feel uncomfortable. It is okay to have difficulty believing in yourself at times. It is okay to feel lost. Everyone experiences this sometimes. Life is a challenge and sometimes getting started on a new and challenging task requires herculean effort!
Now that the fear is out of the way, it’s time for the good news: Sequoia Financial Group is here to help equip you to take this challenge head on. You can now be dauntless in the pursuit of financial wellness. A previous blog (Read it: HERE) dealt with goals and plans; in this edition, we’ll continue the excitement by taking a look at budgets.
Many people consider a budget as a stuffy system that prevents them from doing the fun things they want to do; instead, think of them as mechanisms that help us stay on track to accomplish what we really want. A budget restricts purchases of the cheap, empty things that are hard to resist because they are “on sale,” “a great deal,” or “only a few bucks a day,” making room for what is actually meaningful (usually later in life). This concept is known as “opportunity cost:” if a dollar is spent on something, then it can’t be spent on anything else. It’s gone. No one has infinite dollars. Spending $5 on a coffee means I can’t give that to my favorite charity. Spending $50 on clothes means I can’t put that toward a house. When we decide to spend money, we are effectively saying, “at this moment in time, this is the best way to utilize this resource.”
Keeping track of our spending and employing a budget would help to identify where money is being spent thoughtlessly. Perhaps we’d find that there are wasteful areas of spending that are not really a benefit; we could find better, more meaningful uses of our resources. Naturally, people are lazy spenders, not purposefully deciding where money should go and what it should accomplish; it ends up going places we don’t actually want it to go. This is why structuring spending and having a budget are vital ingredients in financial wellness.
Here’s a sample process:
- Carefully consider and write down current monthly expenses. Click here for a free, downloadable worksheet to help.
- Write down your most important goals.
Some ideas (for inspiration):
- Purchase a home within 5 years.
- Be prepared to help my future spouse pay down any debt.
- Save 3-6 months expenses for emergencies.
- Give monthly to charitable causes, individuals, and organizations who are doing work I support.
- Research the cost associated with each goal and create an approximate timeline for accomplishing it. Then, calculate the amount from each pay period that needs to be applied toward that goal to accomplish it in the assigned timeframe.
- Compare your current situation to your desired future. What is different? Are you spending money on anything that isn’t adding to your life, making you better, or helping you accomplish your real goals? Do you need to trim, replace, or get rid of any recurring expenses (Netflix, cable, Spotify, restaurants, clothes, car payments, etc.)?
- After deciding how you’ll allocate your resources for future spending, make sure to keep track of it. Keep two records: Projected (budgeted) spending vs. Actual spending. Having monthly projections set to anticipate spending and then updating the actual numbers will help you to be sure that you have an accurate understanding of your actual monthly needs and are staying on track to meet your goals.
Much of this exercise involves speculation, but the purpose is to spend intentionally, not thoughtlessly. Every individual has unique needs and circumstances; therefore, budgets can vary widely. Don’t be afraid to seek help to create a budget that works for you and propels you toward your goals. Consulting a professional may be quite helpful in the calculating and projecting phases.
Contact Blake Pokley for more information on this topic.