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February 2021 E-Newsletter: Budget Discussion

Melissa A. Seamon, CFP® 

Financial Advisor 

Have you considered developing a budget and why a budget is important for your personal finances?

Budgeting isn’t just for those on a limited income. Creating and sticking to a budget is a worthwhile exercise to achieve financial success, no matter how much money is being managed. Essentially, budgeting is making realistic decisions about how and where you will allocate your income to cover your needs, wants, debt repayment, and investment goals.

Steps to Creating and Using a Successful Budget

1)    Determine your monthly income.

Begin by adding up your after-tax income from all sources. Be sure to include all extraneous income sources such as alimony, child support, investment income, or rental income. If you are employed, chances are you have automated deductions taken from your paycheck for 401 (k) savings, health insurance, and life insurance. You may consider adding those numbers back into your budget and noting them as expenses to get a clear view of your finances. If you are self-employed or have a side job, you’ll need to subtract any applicable taxes or business expenditures from the amount you bring home.

2)    Review your spending and calculate expenses.

This step will determine if you are spending more or less than you currently earn. As you review your bank and credit card statements, separate your expenses into “needs”—housing, utilities, transportation, and food—and “wants” such as dining out, vacations, new wardrobe, golf trips, and services such as massages or hair and nails. Today, many online banking apps have spending and budgeting tools built into them that show you how you are spending the money in each account. There are also a handful of reputable phone apps, such as Mint or Every Dollar, and software programs such as QuickBooks that pull information directly from linked accounts online and separate them into categories for you.

3)    Evaluate where adjustments should be made.

If you are spending more than you earn, you’ll need to find where you can cut to bring that number back from the red. If you have money left over at the end of each month, you will have to determine where you will allocate those excess funds. If you are coming in even, you’ll have to evaluate if your current habits align with your short and long-term financial goals. Do you want to save more? Pay down debt? Fund a 529 for your child’s education? Accelerate retirement savings? Invest more for retirement? Work with your financial advisor to determine how to best position your income to reach each milestone.

4)    Pick a budgeting model.

There are many different models for budgeting:

  • 50-30-20 Rule - allocate 50% of your income to needs which includes mortgage expenses, 30% to wants, and 20% to paying down non-mortgage debt and savings.
  • Envelope System - physically put cash into envelopes for each spending category. When the money in one envelope is gone, you have to decide from which other category you will detract to cover any further expenditures.
  •  Zero-Balance Model - your goal is to make sure all your expenses (needs, wants, debt repayment, savings, and investments) equal to your income. When you subtract expenses from income, you are left with a zero balance at the end of each month.

5)    Set realistic goals.

The best budgets are those that account for both your fixed expenses and your discretionary spending. Let’s be honest, it is much tougher to mend a bad habit overnight. If you deprive yourself of every luxury you are accustomed to having, you are less likely to actually stick to it. Setting realistic expectations, though, will help you to feel accomplished and continue to develop better money habits over time.

6)    Hold yourself accountable.

Set an appointment with yourself each month to review your budget from the month before. Did you falter? If so, where? How can you adjust your habits to ensure success next month? As your income and expenses change, make sure to adjust your budget to reflect those changes. If you are having trouble reaching your savings goals, work with a financial advisor who can help you manage your cash flow. 


It's Time to get started!  Take control of your personal finances with a budget that works.

Creating a budget that works for you might take a few tries to get right. If one budgeting model doesn’t work for you, consider using another. You can adapt the way you track your spending and saving as you go along. The important thing is to take control of your finances now so you can reach those long-term financial goals.

Important Disclosure Information

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