“Put your money in the bank” - this sentence was like nails on a chalkboard to me as a child growing up. After receiving my first paycheck from cutting my neighbor’s grass, cash in hand, I asked my father to take me to a sporting goods store to purchase a basketball. In hindsight, this would be my first budgeting lesson, as my father suggested I save the money for the future. My father’s advice to save versus spend still resonates as a lot of Americans struggle to manage their personal finances, as illustrated by a Bankrate survey, noting that a majority of Americans would struggle to pay an unexpected bill of $500 in cash. While understanding your monthly budget (i.e. cash inflows/outflows) has always been important, during these uncertain economic times, with over 42.6 million Americans filing for initial unemployment claims since early March, it is critical. In this article, we explore how to get your monthly budget started, the benefits of on-going monitoring of your personal finances, and why having a firm understanding of your personal finances can lead to a more fulfilled life.
We recognize that for some the idea of sitting down and creating a monthly financial budget sounds as fun as starting a new diet or workout regimen. A Gallup survey confirms this, noting only 1 in 3 Americans has prepared a detailed financial budget. To help you get started, we would suggest utilizing technology to aggregate your financial data using software (i.e. Quicken) or a free website like Mint. These technology platforms, with some initial input, make it very easy to illustrate your current financial balance sheet (i.e. assets less liabilities), as well as begin tracking your monthly spending by categories. Getting started can be the hardest part, but fortunately, technology can make the initial budgeting process much easier.
Assuming one has utilized technology to gain an understanding of their current balance sheet and monthly spending trends, the power of financial budgeting is not in the aggregation of data, but in the monitoring of the data in order to gain insight into one’s financial habits. When individuals initially review their monthly spending, they are typically surprised at the amount that they spend in certain categories (i.e. entertainment, food and dining, and shopping). Many times, their ‘financial eyes’ are opened. For those seeking to improve their financial affairs, they often become very cognizant of these monthly trends. For motivated individuals looking to improve their financial situation, they typically begin exploring and seeking advice on ways to reduce spending and/or increase income on a monthly basis. This financial awareness, in our view, is the ultimate goal of financial budgeting.
Financial awareness achieved from monitoring and reviewing your monthly budget, resulting in better financial habits and personal savings, has been shown to improve one’s overall happiness. A researcher at the University of Cambridge, in conjunction with a U.K. bank, conducted surveys with thousands of the bank’s customers. The goal was to explore how and why people make certain financial decisions to determine to what extent that money leads to happiness. Their research noted an interesting effect: the amount of money people currently had in their bank account was a better predictor of happiness than aggregate wealth. Their findings concluded that having more money in the bank made people feel more financially secure, resulting in increased levels of happiness.
While initially one may be hesitant to establish and embrace a monthly budget and the on-going monitoring of personal financial trends process, for those individuals looking to improve and expand their long-term financial wealth and overall quality of life, personal financial budgeting is essential.
If you need assistance, or have questions regarding budgeting, reach out to your trusted advisor. If you don’t have one, please call us. We would love to hear from you and provide additional insight on the importance of budgeting and helpful ways to get started.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.