Wealth management can be a daunting journey and takes sticking to a diligent, ever-evolving plan to achieve long-term goals. The easiest part, however, is to start! The foundation and first step to any financial plan are to create a budget that allows you to set and meet short-term goals. These short-term wins include allocating to a savings account, paying off debts consistently and in increments, and keeping track of your income. Here are tips for staying on track with your initial budget and setting yourself up for financial planning success from the start.
Know Your Income
Keep a consistent stock of how much you (if you’re single) or your household makes in a week, month, and year. The first step to creating a reliable budget is knowing what you make. From this point, you can create a plan that allocates your after-tax income to different expenditures. This should include necessary expenses like bills, debts, groceries, an amount dedicated for discretionary, non-essential spending, and an amount dedicated to savings.
Regardless of what benchmark you give yourself, whether it’s weekly or monthly, treat saving as your first obligation. Choose an amount to allocate to your savings based on your after-tax earnings that allow you to pay your necessary expenses and, if possible, leave room for a bit of leisure spending. Whatever this amount is, diligently stick to it. If you have direct deposit, you can make this process easier by automating the specific amount to be funneled directly into your savings account.
Review Your Spending Consistently
The happy marriage of budgeting is between knowing what you make and knowing what you spend. This could mean holding on to receipts, reviewing your bank statement, or keeping a written log on a weekly or monthly basis. Creating a routine of checking what you spend can reveal aspects of your spending habits that allow you to make better decisions to work towards your short- and long-term goals.
Eliminate or Reduce Some Leisure Expenses
By keeping track of your spending consistently, it will become apparent if you are overspending on things that can be reduced or eliminated. For example, instead of eating out as often, plan meals and shop ahead to save money by cooking more meals at home. The money you save from recognizing your unnecessary spending can be allocated towards increasing your savings or getting ahead on debt.
Overestimate Your Necessary Expenses
Necessary expenses consist of things like money spent on food, electricity, transportation, and other bills. When creating your initial budget, it’s best to overestimate the total amount calculated by at least 10 percent. Allowing yourself a safety cushion will make sure that you never have to dip into savings or other allocations in the case that your necessary expenses fluctuate.
Make Room for the Occasional Treat
While financial planning may seem like it’s all work and no play, your money is also for you to enjoy. By leaving room in your budget for leisure spending, you allow yourself the freedom to treat yourself responsibly while still working towards your financial goals.
If you never allow yourself to enjoy your money, resentment can build, and you could end up giving up on the positive habits you’ve been following thus far in your wealth management journey.
Work With a Trusted Advisor
Working with an advisor to create and stick to an initial budget in the first steps of your financial planning journey will set you up for success in the long run. At TrueNorth Wealth, our goal is to ensure you achieve yours. Our fee-only financial advisors offer asset management services to help our clients achieve real financial freedom and secure a sound future.
To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.