Trimming your Waste and Fattening Your Wallet

by Flavia V. McCaughey | Business, Finance

Everytime I hear the word budgeting I immediately think of how it reminds me of dieting. Effective budgeting conversations center around defining financial objectives, assessing current financials, and using this information for financial planning purposes. Dieting includes setting a goal, looking over calories, food groups and of course eliminating the “fun foods” for a period of time.

Nobody likes to budget or diet, however we all know at the end of the day both are good for our overall wellness. In any budget or diet no matter how sophisticated or simple it is, we need to constantly review, make changes when necessary and do not become discouraged if we don’t get it right the first time. Our goal with any budget or diet is to develop long term good habits that will help us to pursue our goals. Here are a few easy ways to get your budgeting journey started. 

Counting the calories of your budget: 

When creating or revising a budget one of the most important questions to reflect upon is “how much do you think you spend?” The one question will help you think about your spending habits, consider what is a necessity and what is not as well as have discussions about where some places to reign in spending.

Typically when looking at spending habits most are surprised and then try to rework their budget. More than likely this is not the budgeting practice that will set you up for success. When breaking down spending be sure to also keep in mind your savings and earnings as well to get a better idea of exactly where you stand in that moment. There are ways to accomplish setting up a budget that are both effective and proactive. 

Breaking your budget into food groups: 

Budgeting and goal setting go hand in hand. In order to set an effective budget you need to define what your objectives are. They can be as simple as saving for vacation, reducing debt or saving for a down payment for a house. By setting your goals you are then able to determine whether you need to adjust your long term or short term budget. When setting a short term or monthly budget be sure to think of all your monthly expenses and try to categorize them as specifically as you can. This will help you be able to make effective cuts in spending without cutting areas that are necessary spending.

Some effective categories for budgeting buckets can be, groceries, utilities, loans, credit card payments, alcohol & other recreational substances and entertainment. What you will notice is the items on your short term budget will be more specific than your long term budget. Your long term or annual budget will focus more on retirement savings, housing and some insurances.

Essentially the goal of the short term or monthly budget is to help you reach the overall goal set in your long term or annual budget. Although budgeting can be an effective tool to increase savings and plan out financial goals, life does happen and there are ways to help you from going over your budget. 

Including a cheat day in your budget: 

You cannot spell life without “if” and at one point or another the “if” will pop up. Not all the “if’s” of life are negative, however they can be very difficult or impossible to predict. This is why when budgeting, setting up an emergency fund may be a good idea.

This account should be completely separate from your day to day savings account and inaccessible unless you absolutely need it. By separating this out from your savings it allows the fund to stand alone and will not look tempting. I generally suggest keeping at least 3 months of fixed costs or your salary in this account.

This can provide an anchor that if you lose your job, have unexpected severe home repairs, take a leave, need a new vehicle or suffer an injury you will have a fallback. To help you figure out how much you should have in your emergency account you will need to assess essential spending and non-essential spending. 

Trimming out the excess calories from your budget: 

When assessing your essential vs non-essential spending the easiest way to break it down is what do I need on a daily basis and what don’t I need. This is where some disagreements can arise and definitions can change. Typically the mandatory items that are always essential are food, shelter, utilities, internet, cell phone bills and car/ transportation expenses.

However, since every situation is different that list could be longer. The items that are almost always non-essential spending are entertainment, going out to eat, and items along those lines. The key here is understanding that you may need to be flexible on some of these items.

It is ok to label streaming as a necessity if you have young children or your gym membership. Just don’t go overboard with these items. In assessing these items it also helps to consider your fixed versus your variable expenses. 

We tend to know our fixed expenses and what they will be on a monthly, quarterly or yearly basis. These are easy and you already know how much they cost. Where budgeting can get a little tricky is in the variable expenses. Since they vary from month to month variable expenses can be very hard to predict and quantify. They tend to be non-essential items that can be more or less depending on the month.

The most common variable expenses are groceries, gas, credit card payments, entertainment and birthday or holiday gifts. Although these expenses fluctuate, you can make an educated guess as to a range of where they fall. What will help you with what that range can be is keeping good record keeping of these expenses. 

Keeping track of your budgeting calories: 

In keeping any budget the key is to ensure you are tracking that budget. This can be done through a spreadsheet, mobile app, or even by pen and paper. Online platforms like Google Sheets and Microsoft have calculators that can help with budgeting and are very helpful if you are new to budgeting. Since all the formulas are already inputted all you have to do is insert the numbers and it will calculate the monthly expense for you. There is no one way that is best to keep track of a budget. You will need to figure out what is best and easiest for you to keep track and hold yourself accountable. 

The key to a good budget and diet is being able to hold yourself accountable. Although every month will differ, be sure to celebrate your successes and make adjustments where necessary. There is no cookie cutter way to budget or diet, it is all very individualistic. If you have questions on how to effectively create and maintain a budget, reach out to a financial advisor, think of them as a nutritionist when you need help dieting.

Financial advisors can help you with structuring your budget and sharing best practices with you. It is part of their job to help you pursue your financial goals. Just be sure to keep in mind that in any budget or diet no matter how sophisticated or simple you will need to constantly review, make changes when necessary and do not become discouraged if you don’t get it right the first time. The most important part is creating better financial habits to help you pursue your financial goals. 

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC. 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Flavia V. McCaughey
Vice President at FR Investment Group

Flavia V. McCaughey is the Vice President of the FR Investment Group. Ms. McCaughey earned a degree in Business Administration with a concentration in Finance, and a Minor in History from Boston University in 2020. Having always been interested in business and finance, she began as an administrative assistant at the firm in 2015. She became a Managing Director after two years before working her way up to Vice President. She holds a Series 7 and 66 securities registrations through LPL Financial. Ms. McCaughey is registered to service clients in CT, MA, NY, RI, and VT. In addition she holds a life insurance license and health insurance license in MA and CT, as well as, the AHIP Medicare Certification and Long Term Care Certification.

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