Budgeting Principles for Wealth, Health and Happiness

Budgeting is the first step to financial planning. It contains a series of questions about how you spend your hard-earned money. And being responsible for your inflows and outflows is a healthy exercise for strengthening your ability to save and plan for your future.

Having a budget helps us live within our means and avoid spending more than we earn.

While it may take some work in the beginning, in the long run budgeting will guarantee you the financial stability needed to acquire wealth, and just as importantly, peace of mind.

3 good reasons to make a budget

The importance of budgeting depends on many factors. While not everyone should budget equally, there are essential situations to consider.

  1. Manage your finances. When your financial records are in shambles, you need a budget. You need to understand the inflows and outflows that got you into this mess and start keeping track of where your money is going.
  2. Maintain financial goals. Create a realistic goal by living and subscribing to an initial budget. You can derive a realistic financial plan by learning what is affordable and what is not.
  3. Plan for retirement. Everyone should have a budget for their retirement. The payslips inevitably stop and you have to rely on social security, investments or a pension. The question is, how much do you need to retire? The answer is the amount of your assets it takes to live on each year. And the only way to get that answer is to budget.

Setting a budget is good practice

Making a budget is always a good idea. But being responsible for your finances and spending habits can be daunting for some, while it comes naturally to others.

Keep in mind that not all budgets are created equal, so here are some guidelines to get you started. The goal is to understand why and how to budget according to your profile.

Why You May Need to Make a Budget

In various circumstances, it is wise to make a budget. Some of the top reasons to manage your finances are:

  1. Stay out of debt.
  2. Understand retirement finance.
  3. Save for a hefty expense.
  4. Understand what you can afford.
  5. Keep track of where you spend money.

Those who don’t budget

There are two different categories for those who need to budget and those who don’t. While both groups can benefit from financial accountability, the first group—those who bury their heads in the sand—really need a budget. The second group—those who are considered wealthy—could probably do without it.

Those who feel uncomfortable really dealing with their finances generally have similar concerns. They often have a lot of debt, are ashamed of their lack of savings, may have a spouse who spends too much money, or, as the saying goes, may think that “ignorance is bliss.”

At the far opposite end are the super-rich individuals who don’t have to budget. This group earns enough to save and spend as they see fit, has huge assets or has an inheritance. So they are not concerned with their current finances.

Where to start when making a budget

Creating an effective budgeting strategy mainly depends on the individual. Some create spreadsheets and update them daily with what and where they spend, then realign those spreadsheets monthly to stay on track.

There are also budgeting software programs, such as Quicken or Mint, or proprietary programs created by financial advisors to link credit cards and bank accounts. These services track and categorize your expenses, and while intuitive, they still require the human touch to ensure accuracy.

Some people budget by setting up multiple bank accounts for certain monthly expenses, such as personal, home, and savings. They deposit into these accounts every pay period. Others used the very simple envelope budget method.

Then there is the automated budgeter. This person knows what to set aside for retirement and tuition and stays on track monthly and annually. From there, they spend the rest.

The next step is financial planning

Now that you have a general understanding of the importance of creating a budget, the next step is to create your own budget! You may also want to consider enlisting the help of an experienced financial planner. This person can help you invest the money you save so that you have more money left over over time.

The goal is to live your best life within your means so that when it comes time to retire, you can continue to live the quality of life you did while on the job. The best motto for retirement is to do it in wealth, health and happiness.

President, Partner and Financial Advisor, Diversified, LLC

In March 2010, Andrew Rosen joined Diversified, with nine years of experience in the financial sector. As a financial planner, Andrew builds lifelong relationships with clients and guides them through all stages of life. He has completed his Series 6, 7 and 63 along with property/accident and health/life licenses.

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