While playing football, my coaches corrected my behavior If I made a mistake. They’d stop me in my tracks to point out what I did wrong. The feedback was instantaneous. If they had waited months or years to highlight my error, it wouldn’t have been useful. Because of their enthusiastic shouting, I usually didn’t make the same mistake twice. Correcting behavior needs to be consistent and immediate.
You may need help in correcting a bad habit, like poor budgeting. If you’re like most people, you might check your balance once or twice per year – if at all. As a result, you probably don’t have a good idea of how you’re spending your money.
To improve your cash flow and spending patterns, consider reviewing your budget weekly. This small change in behavior will help you identify spending issues sooner rather than later. It will allow you to make changes to your spending patterns.
To simplify your budgeting process, consider automating it with an app like Every Dollar from Dave Ramsey: https://www.daveramsey.com/everydollar. Another great resource is Mint from Intuit: https://www.mint.com/. These apps will make it easier for you to reign in your finances. And, if it’s easy, you’re more likely to stay with it.
Consumers must get a handle on their spending because debt is spiraling out of control. Mortgage debt is $9.4 trillion, student loan debt is $1.5 trillion, and auto debt is $1.3 trillion. Unfortunately, our government is not good at budgeting either. The budget deficit recently surpassed $1 trillion, and our national debt is north of $22 trillion.
How much debt is appropriate? Your total debt should be less than 38% of your total monthly gross income. If your gross income is $10,000, then your debt should be less than $3,800.
What about spending? According to the Bureau of Labor Statistics, here’s how much people are spending on certain items as a percentage of their gross income. How do you compare?
Food = 12.9%
Housing = 32.9%
Transportation = 16%
Healthcare = 8.1%
Utilities = 6.5%
Entertainment = 5.6%
Cell Phones = 1.9%
Pets = 1.1%
Are you ready to start working on your weekly budget review? Here are a few steps to help you get started.
- Gather your bank and credit card statements from the past six months.
- Input the data to Excel to Identify amounts and patterns. Most financial institutions will allow you to import the data directly to Excel, saving you a few hours of number crunching.
- Automate your bill-paying to avoid late payment fees.
- If you’re no longer using a service, turn off the automatic payment.
- Download an app to track your spending.
- Review your budget weekly.
- Eliminate or reduce unnecessary expenses.
- Use the extra savings to reduce your debt.
- If your debt level is low, then set up an automatic investment plan.
A Certified Financial Planner™ can help you with your budgeting and planning needs. They’ll review your spending to help you develop a budget. They can also meet with you quarterly to evaluate your progress and hold you accountable, like a coach – without yelling!
A budget will bring you financial peace, and you can spend your money without guilt or worry.
For where your treasure is, there your heart will be also. ~ Matthew 6:21
September 14, 2019
Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.