Mastering Your Money: Budgeting Essentials and When You Need Them

/ Fiduciary Financial Advisors/

The findings of a recent survey done by The Harris Poll found that 74% of Americans have a monthly budget. It’s a significant number, and one might assume that budgeting is the key to financial well-being. However, it raises questions about why consumer debt remains on the rise despite so many people budgeting. It’s a fair question to ask. Let’s explore the purpose of a budget, how to create it, and find out if everyone should be following one.

Why Budget?

A budget is a strategic plan to evaluate your income and expenses. People create budgets for various reasons, but they all boil down to effective money management. You might be saving for a vacation, working to pay off debt, or hoping to gain a better understanding of where your money is going. All of these are great outcomes we see from budgeting, and easier said than done. If we had to boil it down to one main reason, I’d say that you work too hard for your money to be unintentional with where your money goes.

How to Budget?

Budgeting can take shape in multiple ways, and there are a few steps to take regardless of your preferred method.

  1. Collect your spending and income: Ideally, your income would exceed your spending. If this is not the case, now is the time to find areas where you can cut expenses to make sure you are living within your means. You can create your budget in a spreadsheet where you are in charge of tracking each expense or utilize an app that tracks everything for you.

  2. Include goals: Once you have a good handle on your baseline budget, integrate any goals you have such as debt pay down, saving for large expenses, or retirement.

  3. Track and Adjust: Your budget should be fluid, and will likely change every month. Give yourself the flexibility to make these changes as unforeseen expenses arise.  

  4. Stay Consistent: The true benefit of budgeting comes when you stay consistent over the long haul. Find an approach that suits you, and stick with it. As one goal is accomplished, start on your next one.

Do I Need to Budget?

While the benefits of budgeting are evident, not everyone will choose to implement one. If you're not going to budget, at the very least, consider tracking your income, expenses, and investments every month. For your financial health, it is necessary to know that your income is more than your expenses and that you are investing in your retirement.

Final Thoughts

In the second quarter of 2023, we saw credit card balances grow by $45 billion, consumer loans increased by $15 billion, and auto loans by $20 billion according to the Center for Microeconomic Data. The persistently growing consumer debt underscores the importance of budgeting for each household. While implementing a budget may not lead to overnight transformation, it can set you on a path to a better financial future and provide increased peace of mind.

Ben Lex, Financial Advisor, Sales Professionals, Financial Planning, Wealth Management, Investing, Investment Management, Grand Rapids Financial Advisor, Hudsonville Financial Advisor

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.