Budgeting 101

At the beginning of every new year, one of the most common resolutions is to get one’s finances in order or to start saving for retirement. However, as we all know, resolutions are difficult to keep. Whether it be going to the gym or starting a retirement fund, creating a plan is absolutely vital to converting a resolution into a habit, and a budget is a great way to create a plan that will allow you to implement your financial resolutions and make your goals a reality.

Budgeting can seem tedious and restrictive, but with the right mindset this negative outlook on budgeting can be overcome. If you change the word budget to overhead and view your cash flow management as a business endeavor for you or your family’s own personal business, your outlook on budgeting can change dramatically. So, without further ado, here are a few suggestions we have for creating a practical and implementable budget:

1. Control your expenses: Expense control is one of the most important aspects of any budget. As a rule of thumb, we recommend trying to limit your expenses to 60% of your gross income. Your spending habits have developed over many years, so understand that adjusting these habits may not happen overnight. But take the time to understand what your expenses are and try to find ways to cut back on them. Whether it means eating out less or spending less on ‘toys’, there are a lot of ways for all of us to control our expenditures if we are willing to make the time and effort.
    
2. Standardize your savings: Creating an automatic savings plan is one of the best ways to make sure that you stick to your budget and begin to accumulate a savings balance that can help you reach your financial goals. Saving is a verb, not a noun, so it’s important to remember that it is an action that must be taken. The more you make this an automatic occurrence rather than a conscious decision that must be made with each paycheck, the more likely you are to stick to your budget. Personally, we recommend allocating at least 10% of your income to savings, but it is important to pick a realistic amount that fits into your financial picture so that you can be disciplined and stick to your decisions.
    
3. Use your ‘found’ money wisely: Budgeting allows you to not only begin periodic savings, but it also helps stabilize your expenditures. Therefore, if your budget reveals that you have more available cash than you expected, this is extra money that can be added to your savings and investment accounts. We believe that if you have stable expenditures and a good budget, you should try to save, payoff debt, or invest at least 50% of any extra windfall (i.e. inheritance, tax refund, gift, bonus, etc.). That gives you the remaining 50% of the unexpected cash to spend on a lifestyle choice such as a vacation.

Budgeting can seem like an ardious hill to climb. But if you create a realistic plan, it is attainable and very beneficial. Whether it is your first or fiftieth attempt at sticking to a budget, it's a great chance for a new beginning. We wish you the best on your way to achieving your financial goals! If you need help please don't hesitate to give us a call.

All the best,

Your Fortis Capital Management Team