Financial Planner, Chad Romero will joins us every Tuesday morning at 7:40a for the next 6 weeks with information about investment, savings and planning.

Week #1: Budgeting

Question: Why is it so important to have a budget?

Answer:  The budget is the plan from which all other plans are created.  Retirement, savings, vacations, insurance, children or grandchildren’s education are all created from a budget. It is crucial that we have a budget plan for income and expenses throughout the month.  This is the road map to how and where we spend our money.  Once you have a budget, we compare it to something known as the 20/60/20 rule. 20 percent of your income should be set aside each month for saving and investing, which covers both short and long-term, 60 percent of your income should be spent on essential expenses, like your mortgage or rent, utilities, groceries, insurance, etc., and 20 percent of your income should be spent on discretionary expenses such as entertainment, eating out, and vacations, etc.

Question: How realistic is that for people to do?

Answer: That is a great question. When I first mention this concept, most people are shocked and sometimes even laugh at me. They feel that this goal is far out of reach.  Most people don’t live check to check, the problem is that they don’t track their spending.  They have not set spending limits in certain areas of their lives, that inevitably will affect other areas.  Completing a detailed budget uncovers and reveals just how much money is being spent in specific areas.  This is usually an eye opening experience for most people and sometimes a little embarrassing.  Once we have the budget, we can start setting manageable and reasonable goals to get us as close to the 20/60/20 concept as possible. But let’s be very clear; every individual, family, or business has its own unique set of circumstance and factors that will determine what their plan looks like.

Question: This seems to be a more important part of the overall Financial Plan than I thought. Right?

Answer:  Absolutely.  We spend a lot of time talking about how and where money should be spent. I always use the Disney World example.  If you are standing in front of one of those huge maps at Disney trying to find the Tea Cups, the first question you and your spouse ask each other is OK, Where Are We?  And without fail Disney answers that question with a big red star that says “You Are Here!”  The budget is the Big Red Star of your finances that tells us where you are right now.  Without that big red star, we will be wandering around hoping to find the Tea Cups; someday.

Question: You make it sound so easy; How many people actually do this and actually stick to it?

Answer: Well, that is the hard part. It takes discipline and planning.  There is always sacrifices that have to be made.  Some are willing to make sacrifices to achieve their goals and some are not.  Many times it boils down to good old fashion grit and how bad do you really want it?  Sometimes people need a little help getting on the right path.  I am a huge fan of coaches.  Personal trainers help you meet your fitness goals, business coaches help grow businesses, and even a life coach.  There is a coach for everything now. They are proactive planners and goal oriented. Your finances are not different.  There are many advisors ready and willing to help.