“If you fail to plan, you plan to fail.” – Benjamin Franklin, 1790
You have likely heard this quote before. It often proves to be true, and personal finances are no exception.
We are often asked, “How much do I need to begin my life after work?” If you have followed our Financial Enhancement Group content in the past, you have certainly heard how important it is to understand what your “Standard of Living” is. This is paramount to understanding how much income is needed to cover fixed and lifestyle expenses.
For some, a detailed budget that covers every line item is something they have no problem creating and following. For those of you who struggle with this, consider “reverse budgeting.” This is a method where you automate your debt payments and savings strategy first and spend what is leftover. Think of it as creating a subscription service towards financial freedom.
Whichever method you choose to budget, it is important to be disciplined in your approach to achieve success. It is crucial for several reasons:
1. Awareness: Budgeting helps you understand where your money is coming and going. It provides clarity on your income, savings, fixed expenses, and spending habits, allowing you to make informed financial decisions.
2. Goal Setting: Budgeting enables you to set and prioritize financial goals, whether it's saving for a vacation, paying off debt, or building an emergency fund. By allocating funds towards specific objectives, you're planning to achieve them.
3. Spending Control: Creating a budget empowers you to control your spending by setting limits on certain expenses. It helps prevent overspending and encourages financial behavior that helps you achieve your stated goals.
4. Emergency Preparedness: A well-planned budget accounts for unexpected expenses or emergencies. Having an emergency fund as part of your budget ensures that you're financially prepared to handle unforeseen circumstances without derailing your overall financial stability.
A solid budget lays the foundation for financial freedom by promoting wise money habits. It helps you live within your means, avoid unnecessary debt, and work towards achieving financial independence. Understanding this is critical not only to accumulating wealth in order to meet your financial goals, but also for knowing when the time is right for you to make the decision to hand in your keys and call it a career.
Financial Enhancement Group is an SEC Registered Investment Advisor.
