The word itself sounds and feels restrictive. Budget. When you hear the term, you think you have to stop eating out, eliminate vacations, sell your car, or get rid of that HBO subscription. Admittedly, budgeting can involve some difficult belt-tightening, but in reality, the process is an exercise in empowerment. Budgeting is more about making all of the expenses that you want and need, fit in. In my financial planning practice, I always tell my clients this: “You need to include everything you want and need in your budget plan, including that emergency money for cousin ‘Pookie.’” (Don’t we all have a sister, brother, or cousin who needs the occasional loan?) My job is to let you know how your budgetary decisions affect your long-term financial goals.
Budgeting, simply put, is making the revenues (your income) cover all of your needed and wanted expenses. A budget takes into account both expenses and revenues. It has been my experience that not enough of my fellow budgeteers pay attention to the revenue side of the exercise. We often hear the phrase “pay yourself first”. The slogan is fine, but it’s as overplayed as “war on drugs”. Paying yourself is another way of saying that some of your revenues need to be pledged towards your personal goals. These goals can include retirement, college education, a new home, a new car and vacations. When budgeting, we have to look at each of these things as purchases on layaway. (That’s right, bourgeois Black Enterprise reader. Don’t act like I’m the only person who knows about layaway). In this case, however, you set the terms of your layaway payment plan for your goals. You determine the timeframe and the desired amount of money you need to fund your dreams. You can go to most any financial website, including mine (www.PolarisAdvice.com) to set your payment plan for your goals.
Now that you’ve read this, you plan to sit down and do a budget right? What is probably easier is to go through that monthly exercise of writing down all of your bills, and the payments due, and figure out how to stretch your check to fit it all. Many of you, after making this list, will also prioritize, and decide that somebody won’t get paid, or something won’t get purchased this month. This is the beginning of the difficult but necessary budget effort.
Take this opportunity to put as much thought into increasing your income as you do to cutting expenses. For instance, consider adding the expense of additional education, to increase your revenue. Plan strategically to get a promotion, or a higher paying job, or even a second job. Most importantly, be sure to do the math (or get help from a financial adviser) to calculate how much of your budget should be allocated toward each of your goals.
Eric D. Grant is a financial adviser with Polaris Wealth Management. Eric is also an Investment Adviser Representative with ING Financial Partners, member SIPC. Polaris Wealth Management is not a subsidiary of nor controlled by ING Financial Partners.