One of the most important and simple things you can do to keep your finances on track is creating and abiding by your budget. That’s right, it’s that simple. So whether you’re on track, starting to teeter, or stumbling blindly in the dark, I want to share a few budgeting tips with you that will help you take back control of your financial well-being.
Budget & Debt Planning
It’s hard to know where you’re going if you don’t know where you’ve been. So I’ll break down the first part of Crossroad #1 by noting the importance of knowing where every cent is going in getting your financial house in order. After all, a $2 soda may not seem like much at first glance, but what if you were to purchase one every day? $2 becomes $14 a week, $60 a month, $730 a year.
Don’t stop enjoying yourself, but do get any unnecessary expenditures under control. ‘Budget’ shouldn’t be a dirty word because it’s your budget that allows you to allot spending money as well. The trick is understanding the difference between wants and needs.
For instance, groceries may be a need, but do you really need to buy that 12-pack of your favorite soda or those candy bars at the checkout line every time you go grocery shopping? Probably not. Also, it’s good to give yourself a waiting period when you find yourself eyeing that new big-screen TV. In fact, any big or unnecessary replacement purchase should undergo a 24- to 48-hour waiting period.
Some people find using the “Envelope Method” useful in keeping spending under control, especially because food and entertainment can vary in price. You budget out an appropriate amount of money and you place the allotted cash in an envelope. Once that envelope is empty, you’re done for the month. That way, you can choose to eat out at a fast food or sit-in restaurant once a week, or a nicer restaurant once a month.
The Envelope Method doesn’t just work for fun money, either. You can use this for each of your expenses. Find yourself spending too much on groceries each month? Make an envelope. You can use the Envelope Method for any expense so long as you budget the proper amount.
Remember, things change when you retire. The cost of work clothes and commutes goes down, and, if you’re lucky, you’re done paying your mortgage as well. But some costs may increase. For instance, you’re going to be spending more time at home and you’ll want to keep yourselves busy. Hobbies and entertainment may be a bigger part of a retiree’s life than a worker’s. Also, you’ll probably want to do more traveling – checking off all those locations on your bucket list as well as seeing your children and grandchildren more often.
Keep in mind that as we get older, our health changes. With the rising costs of healthcare, you should expect to take that into account in your retirement budget, especially if your insurance payments have increased.
Below are some “Questions to Consider” so that you can get the most out of this Crossroad. These sections are also included in The Five Crossroads book. We have copies available at the office and we’re getting ready to publish a new edition, so stay tuned!
And if you want to get a conversation going with us about putting your financial house in order, protecting it or even adding some additions, then call us today at Eric Scott Financial: 435.773.9444.
Questions to Consider
- Have you taken the time to reevaluate your budget with an emphasis on retirement expenses?
- Are you aware of where every bit of your money is going? How often do you make small purchases without making note?
- Have you defined the necessities in your life? If so, are you able to determine whether a purchase serves as a want or a need?
- Before making bigger purchases, do you give yourself a 24-to-48 hour waiting period to think about how much the purchase will improve your life?
- Have you considered how retirement will affect your budget? Have you allowed room in your budget for more golfing, travel and/or the pursuit of your retirement hobbies?
- Which method of expense tracking will you use? Do you prefer physical envelopes or smartphone apps?