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Health & Fitness

The Easiest Budget Tool of All Time - A Piece of Paper

Creating a simple budget that anyone can follow.

Spending and saving issues run rampant in our society today. Where we used to be a nation of savers, in the last 20 or 30 years we have quickly become the accumulators of stuff. Whether it be the easy money that allowed you to buy that big home you can barely afford or the BMW that you have to have because everyone else has one, or the golf membership because, “hey you have to enjoy life don’t you,” fiscal sanity in our country goes well beyond just our federal government’s issues.

There is no one left to tell you, “No.” As children we wanted everything, but Mom and Dad were there to move us along. As parents, we very quickly pick up on that with our own children and try to teach them the value of a dollar. But for ourselves, we have a loophole! We discovered a word called “rationalization,” and with properly crafted voodoo logic, everything we spend money on has a pseudo benefit to it.

At age 50, where our firm begins to work with people, you quickly discover that habits have to be broken and new ones formed. If you are going to get back on track during what I call the “catch-up” decade, you will have to quickly identify what you have done to sabotage yourself and create a system that you can follow each month up to and during retirement.

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How do I know if I have a problem? Typically it starts when there is no budget. We’ll get more into that in just a moment. Other signs that you are fiscally unsound can be one or more of the following: 1) You and your spouse do not discuss money. Whether it is fear, apathy or it always ends in an argument, one or both of you are fiscally irresponsible. 2) A number of credit cards that you can’t pay off each month. 3) You don’t save anything because your parents will eventually give you an inheritance. 4) Your savings rate is below 10% a year; if over 50, below 15-20 percent a year. 5) You are always paying fees on your bank account and credits cards. (i.e. - overdraft, returned check, over limit) 6) You take loans from your 401k or early withdrawals from your IRA’s.

So the first step is to create a budget and stick to it, right? Easier said than done as just the sheer thought of gathering information in a detailed fashion and reviewing it weekly is not exactly a fun weekend at most homes. Our industry doesn’t make it any easier with more budgeting techniques that can put you to sleep on a dime. Even sophisticated aggregation and budgeting software that many firms including mine offer investors go largely unused even though it automatically tracks and categorizes all of your expenditures for you. If families won’t even log in to use that, then what’s the problem? Very simply, if it doesn’t work for you, with the way you think, within your schedule, then it’s pointless.

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The “piece of paper”…what is it? It’s what works for me! As I for the most part only get paid once a month, on that day I pull out a blank piece of paper and write down my net paycheck. The next entry is the most important and that is savings. The first money that goes out of my check each month is never less than 10 percent savings. That includes 401k, my Roth perhaps and my reserve funds which I goal a minimum of 6 months. From there I add in all of my monthly expenses that are fixed and start deducting down to the amount that has to hold me until next month. As I accumulate daily expenses like gas or groceries, the occasional trip to Arby’s etc., I write them in next. This living breathing monthly budget is right next to my computer where I sit each day. I can see things developing, I can see where I am spending discretionary items and I never have to log into anything or pull out some spreadsheet that looks very official and pre-done. Once I write my savings check with the very first “act” of the month, my major objective has already been met. Also as I physically write in my fixed costs, it keeps them top of mind for me to see if there are any ways to save on them in the future. Lastly if I see myself running out of money before the month does, that means something has to go. However savings is off limits to reduce the budget and credit cards are off limits to increase it. Purchases can only be made with my debit card.

In closing, this is just one idea. It fits me like a glove. The key to a successful understanding of your savings and spending patterns is based on creating a system that is very simple and works for you. Do you have a unique way of addressing your budget? We would love it if you would share in the comments sections so others may be inspired to act!

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