If reaching your financial goals is part of your 2024 Action Plan, consider reviewing or establishing your budget
Article Courtesy of Nancy Harris, CMFC, CDFA
President, LPL Financial Planner, New Foundation Wealth Group
Do you ever wonder where your money goes each month? If so, you may want to review or establish a budget to help you keep track of how you spend your money and help you reach your financial goals.
1. Examine your financial goals.
Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child's college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.
2. Identify your current monthly income and expenses.
Start by adding up your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You'll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you're not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.
3. Evaluate your budget.
Once you've added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you're on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely, and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don't worry! All it will take is some determination and a little self-discipline, and you'll eventually get it right.
4. Tips to help you stay on track:
• Involve the entire family: Agree on a budget up front, and meet regularly to check your progress.
• Stay disciplined: Try to make budgeting a part of your daily routine.
• Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays).
• Find a budgeting system that fits your needs (e.g., budgeting software).
• Distinguish between expenses that are "wants" (e.g., designer shoes) and expenses that are "needs" (e.g., groceries).
• Build rewards into your budget (a little getaway or dinner out).
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