Budgeting is one of the most basic elements of financial planning.
When providing financial planning we ask many questions, such as;
"How much do you need currently to support your expenses?"
"How much money will you need in retirement?"
"How much money will you need if your spouse dies?"
"What would your expenses look like if either you or your spouse needed nursing home care?"
Each of these questions requires a knowledge of current expenses. The smaller or tighter your cash flow, the more detail that will be required. I say this because someone with a smaller cash flow does not have much flexibility for unexpected events whereas someone with greater discretionary cash flow does.
So, what is the best way to figure out your budget?
For some of you, you may enjoy spreadsheets or financial tracking software. That level of detail can quickly create a budget with a great amount of detail. I find however, that most people don't have that level of interest or time. So, for those, I would recommend periodically saving all receipts for 1- 3 months. Keep track of what is discretionary (not required) and what is non discretionary (required). Non discretionary items are things like food, rent or mortgage and utilities. What an individual lists as discretionary or non discretionary will vary as we all prioritize differently. Then from there total up expenses in the categories to get an idea of what you monthly expenses look like. There are many templates available and programs like Quicken have built in budget templates. For those of you who want to keep it really simple, reach out to us and we can provide needed templates and even help out with the basics. Its an important part of everyone's planning, but if it's too complicated or ominous, it's not going to get done.
The next part of budgeting might be to review how much should be spent in each category. In reality, there are no specific amounts that are correct, but a budget should not create negative cash flow. There are also some general rules of thumb often used throughout the financial planning industry. None of these represent a golden rule but each has some merits in providing cost savings, planned savings and the idea of living within a budget.
One key item I always recomend is to pay yourself first. By this, I mean set aside regular savings directly out of your paycheck or immediately when receiving your paycheck, so that the extra money does not feed temptation. Try to save at least 10% of your income. This may or may not be enough for retirement, but it's a good start. From there you can work with Oxford Planning Group to narrow down more detail on what additional savings you may need.
So Happy budgeting!
