Of all the variables that make up your financial plan, the most sensitive by far is your living expense number. A slight shift in this number can drastically change the age in which you are on track to retire, how much you need to be saving, and whether you have a reliable chance of sustaining your lifestyle.
Managing your cash flow is a critical skill. We can help of course, but this is generally the point where our guidance only goes so far and your personal discipline is in the driver’s seat. Regardless of how well-constructed your plan, if you can’t stay at or below your spending target, you could be putting yourself at risk. Here are a few strategies to effectively and realistically manage your budget.
There are a lot of apps and resources out there to help, but I’ve found that good old Excel is still the best. Those resources, including our Bluestone 360 app, can certainly supplement, but Excel gives you the ability to fully customize your budget and really make it your own. Separate your living expenses into categories. Build in a cushion every step of the way. Keep in mind, some expenses are incurred every month while some are annual such as vacations and gifts. Figure out how much per month you need to set aside for these annual expenses so it will be there when you need it. Make adjustments to the amounts periodically as necessary.
Automate the process as much as possible. With today’s technology, a lot of your budgeting can be set on autopilot. Set up your bills to pay automatically online where possible. This will reduce your risk of making payments late and give you one less thing to worry about each month. Call each utility company and have them calculate your monthly average. A lot of companies will allow you to pay that level monthly amount throughout the year, which will help maintain consistency.
If you have combined your finances with your spouse or partner, I personally love the idea of directing all income into a centralized joint “master” checking account. Use this account to fund all regular monthly bills like utilities/auto payments as well as monthly savings. Set up regular monthly draws from the master account into individual accounts of each partner for discretionary expenses like dining out, expenses for the kids, and entertainment. I have found that when my wife and I are both “accountable” to our discretionary expenses together using our joint account, neither of us are accountable. When our own selfish discretionary spending is at stake, we both make a serious effort to spend less.
Maintaining a budget is an ongoing process. As your expenses are constantly evolving, your budget will as well. Once you set up your spending plan, make sure you are giving yourself a semi-annual or annual checkup to tighten up the numbers and make adjustments. Understand that you will never be executing the plan to perfection. Just make sure you are always making an effort. Here are a few other odds & ends:
- Do not give up on your credit card points. Continue to use those reward cards to pay for discretionary expenses. Just make sure you stay on top of the bills every month and you are aware of the balance.
- Do not factor in annual bonus/stock grants as income. View this as gravy if you can because there are no guarantees it will be there.
- Pay yourself first. Don’t back into what you think you can save. Start with your savings goal and back down living expenses where you can.
- If your income is uneven month-to-month, rather than setting aside a monthly amount, wait until your checking account rises above a specified level – then send the excess into savings.
- Get it done TODAY. Cash flow management is the lifeblood of your financial picture. If you don’t have it under control, it can infect the rest of the body in a hurry.
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