Many of you have heard the old adage, If you fail to plan you plan to fail. Your financial planning begins with your cash flow planning – your budget, in other words. This spending plan keeps you focused on working toward achieving your financial goals. The order of operations is this:
Establish and quantify financial goals
Think this through carefully: How much do I need in my emergency fund? How much debt do I have to repay? How much should I accumulate in my retirement accounts?
Your budget – write down income and expenses
Here is where the budget comes into play. Use the budget as your roadmap to make sure you achieve your goals. Empirically I can tell you: after just 3 months of budgeting, 8 out of 10 people say they feel more in control of their money. We have a great budget template that we’d be glad to share with you. Send an email to [email protected] with the request and we’ll send it out.
Budget for the year
The budget should run out a full year, and include all household expenses. My personal rule of thumb is that if it is a recurring expense of more than $10 it goes in the budget.
See where your money goes
Keeping a budget is an exercise in personal awareness. If it’s out of sight, it’s out of mind. If you don’t know where your money is going, this produces stress. So a great way to reduce stress is keeping a written budget. Write down expenses on top and any income at the bottom of a spreadsheet. List your net income, not gross income. That is, income you receive in your checking. When you subtract out the expenses from the income, the result needs to be a positive number – otherwise you’re spending more than you earn. If it is a negative, you have two choices: increase income, or decrease expenses. That’s it.
Important: make budgeting decisions with your significant other
The family is an economic unit, so the decision-makers in the family should agree together on spending choices. Ideally, the budget will fund all the family’s needs. This Includes the accumulation of an emergency fund, retirement savings, charitable giving, education savings, clothing, entertainment, and vacation. What happens when there’s not enough? Then the non-essentials get cut out. Often that means vacation and eating out.
The best things in life are free
With that said, it remains true that the greatest pleasures in life remain free, and with a little creativity and self-discipline a family can live within its means and provide for its needs.
Jonathan G. Cameron is a CERTIFIED FINANCIAL PLANNER™ professional and co-founder of CameronDowning, a Registered Investment Advisory Firm in Miami, FL. He does financial planning and investment management for those nearing retirement, first responders, young professionals, and municipal, state, and federal employees. Jonathan is a fiduciary. This means he follows the highest standard of client care, offering financial advice that is always in your best interests. Please connect with us on LinkedIn, and follow us on Facebook and Twitter. Also, check out the rest of the CameronDowning website as well as our YouTube channel where we’ve created dozens of short videos on this and other financial planning topics.