Budgeting, Diversified Wealth
By: Andrew Rosen, CFP®, CEP®

Whether you are a busy professional, a high powered executive, or a retiree enjoying your golden years, we all need to budget. It’s something which takes many shapes when part of financial planning.  If you are like me, just the mention of the word “budgeting” is draining.  It’s difficult for everyone, even me sometimes. That said, I personally have a very simple budgeting mentality — save what I know is necessary to accomplish my goals (college, retirement, etc.).  Anything else is gravy.

I recognize not everyone can run financial planning models any time they want, like I can.  Therefore, it’s why I want to discuss this topic and hopefully help with some anxiety.

Budgeting falls into three categories: those who want to, those who need to, and those who have to.  I’ll expand below.

Want To!

To start, I find this group generally falls into two sub-categories.  The first are the extremely wealthy (many of our executive clients, for example).  They, quite frankly, don’t need to budget; they have almost zero risk of outliving their money.  There may be some desire for an estate or legacy planning budget, but that still falls into the “want to” category.  They simply want to understand where their money is going, if sometimes for no other reason than self education.

The others in this sub-category are those who can’t adjust anything.  Typically, these people live on a fixed income or can’t lower their expenses further.  Budgeting won’t have any true impact on their lives, and there is very little (if anything) they can do to adjust.  It is why these individuals fall into the “want to” category, despite typically being polar opposites of the extremely wealthy individuals.

Need To!

This is probably the most common type, as most of us aren’t extremely wealthy or can’t control our own destiny.  These are those professionals, executives, and pre/post retirees who need to get a grasp of their expenses to properly plan for the future.  I’ve often spoken about how understanding your true cash flow is the single most important data point to financial planning. Doing that allows us to make your plan work.

If you find yourself fitting this description, you need to start immediately. Get a real grasp of what it takes to live your ideal life.  Whether you do it alone or with the assistance of a professional (like me or my partners), this will determine what it takes to actually make your plan work.

Have To!

Unfortunately, too many fall into this category.  This is reserved for those who are on a one way ticket to catastrophic financial health.  You’ll know if you fit this category; typically you will have mounting credit card debt, don’t live within your means, or are staring down the path to bankruptcy.  These people drastically need to budget so they can get a real grasp on their expenses.  Otherwise, there are only two outcomes: 1) lose everything they have or 2) work until the day they die.  Neither of those options are too appealing.

If you find yourself fitting this budget category, I suggest you start budgeting yesterday.

It will be hard.  I’ve had plenty of very tough conversations with clients and even told them, for example, “Get rid of their housekeeper or get rid of the house!  It’s your choice.”  These are unpleasant conversations and I dread having them.  But, the sooner you start to take this seriously, the sooner we can carefully craft a plan together that doesn’t end in tragedy.

End with the beginning.

Regardless of which category you identify with, the question still looms–where to begin?  Well, there are many different ways to budget.  You could use a very detailed accounting system (or site) like Quicken, or a simple (typically free) version like Mint.  Some people have a lot of success using a simple excel sheet and tracking where they spend.  For the less detailed, you can even just create a simple measuring stick.  Take your paystub and look at the after-tax amount you get paid each month.  Then figure out if you have extra money to spend or save after that.  What you are left with is a simple way to figure out your after-tax expenses.

As an example:  Let’s say your after tax income is $10,000/mo.  You know you put $1,000/mo into various saving and investment vehicles.  You also know your pre-tax medical insurance payments are $400/mo.  Simply take $10,000 subtract the $1,000 and then add back the $400.  Voila! It costs $9,400/mo to be you!

Although this is a painful exercise, it can be liberating.  Understanding your budget is the first step to financial planning and freedom.  So what are you waiting for?!?

Get started today, or give us at Diversified a ring to help get you headed in the right direction.

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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
Find out more about Kyle Hill, CFP®
Find out more about David Levy, CFP®

Financial planning and Investment advisory services offered through Diversified Financial Consultants, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRA, SIPC . Associates of Diversified Financial Consultants are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.