By Steve Seals
With my clients approaching retirement, we focus on three areas: creating a budget, spending less than you make, and creating an account for unplanned expenses. Working toward all three can be the key to a strong financial foundation.
1. Create a Budget
First, what exactly is a budget? A budget is nothing more than a simple plan that tracks how much money is coming into your household and how much is being spent. Your budget must be personalized to you, so the most important part is creating one! Putting the plan down on paper and tracking income and expenses over time, revisiting every month, and making adjustments is the best way to develop a budget that works for you.
Knowing where you spend your money is key. Remember: the initial plan is not the final budget—budgets are meant to evolve over time. A simple ledger of income and expenses is a great way to start. The more time spent tracking expenses, the better your budget will become.
Monitoring your budget doesn’t mean you’ll get it right every month. No one meets their budget every single month, so don’t give up if you get off track. And don’t fall into the mind game trap of “Well, I’ve blown the budget this month, so what does it matter?” Learn from the mistake and get right back on track as soon as possible.
Budgets are not intended to be rigid. Use your budget as a guide and hone it as you gather your income and expenditures over time. Remember to build money into your budget to set aside for vacations, hobbies, and recreation. Life is meant to be enjoyed, so fun should be a part of everyone’s budget.
The bottom line: create a budget as soon as possible, monitor at least monthly to see if you are on track, and make adjustments over time as you collect information about your spending habits. Lastly, the more persistent you are in actively managing your budget, the more effective it will be in helping you pursue your goals.
2. Spend Less Than You Make
Spending less than you make goes hand in hand with budgeting. The concept seems simple but can be very hard to do—especially if you have no idea where you’re spending your money. The first step is to list all your expenses; some will be “fixed” expenses, such as your rent/mortgage, car payment, and insurance.
Variable expenses include groceries, gasoline, clothing, entertainment, personal care, pet care, et cetera. Your variable expenses likely change monthly—thus the importance of tracking them over time to determine how much you spend and where you may be able to reduce spending.
If your expenses are more than your income, you are probably relying on credit cards to make up the difference. Credit cards are a trap that results in you spending even more for goods and services unless you pay the entire balance every month.
If you find yourself having credit card debt, I advise you to pay off the lowest balance first. Pay as much as possible on the card with the lowest balance and get it paid off. Doing this creates momentum and frees up money in your budget to begin paying off the credit card with the next lowest balance.
Once you’ve paid off all your credit cards, you are ready for the third part of budgeting for retirement: you can now redirect the money spent paying off credit cards into a savings account. This account will work for you when your budget is out of balance, keeping you from using credit cards to make ends meet.
If you find you are unable to reduce those variable expenses, and unable to pay off your credit card debt, you may need to consider additional income through part-time work. The money from your part-time job should go toward reducing any debt you have to get your budget in balance.
Spending less than you make is essential to breaking the credit card debt cycle.
3. Create an Account for Unplanned Expenses
Everyone has had an experience where all was going well and then something unexpected (and expensive) comes up! Oftentimes I hear people say, “If it weren’t for bad luck, I would have no luck.” Bad luck or good luck, we should have a line item in our monthly budget that accounts for unexpected expenses.
The amount in your initial budget for unexpected expenses may be small, but make sure it is a line item you consistently contribute toward. Setting aside money for the “bad luck” expense is an automatic “attitude adjustment.” When something “bad” happens, your attitude becomes “Well, this is an inconvenience and stinks” rather than fear and panic because of the financial stress.
Build up your unplanned expenses account to a level where you are confident and comfortable you can handle most emergency situations.
Once you feel confident you can manage an emergency situation, I encourage you to plan beyond the unexpected and plan for big-ticket items, including vacations and gifts. Some of my most difficult meetings with clients happen in February where they went “all out” on presents at Christmas and now owe more than they can pay back in a year in credit card debt. Do yourself a favor and add gifts and vacations to your monthly budget. Start small; having even a little set aside can help reduce the amount of interest you will pay for that same gift.
Partner With a Professional
This may seem overwhelming to some. It’s okay, we get it. Just take it one step at a time. The first step is to get started with a budget—put the plan on paper, and then make changes over time. Focus on where you want to be, not where you are.
And remember that we at Seals Financial Planning & Investments are available to help; in fact, we’re dedicated to your growth. Please give us a call at (859) 230-3476 if you would like to schedule a time to meet.
About Richard Stephen (Steve) Seals
Steve Seals is owner and independent Registered Investment Advisor Representative at Seals Financial Planning & Investments VI, LLC, a financial planning services firm based in Lexington, KY. As an independent Registered Investment Advisor Representative with about two decades of experience in the investment and insurance industries, Steve’s firm is founded on getting to know each client personally, allowing him to provide sound financial advice throughout their career and into retirement. With the mission of guiding clients on the path of success, Steve is fueled by his commitment to excellence and goes the extra mile to make sure clients are fully satisfied. He believes in maintaining a positive mindset, creating partnerships with a purpose, and always striving for significant outcomes.
Born in Jenkins, Kentucky, Steve grew up with a love for basketball and serving his community. After high school, he served nine years in the United States Marine Corps, then earned a bachelor’s degree in accounting. He was eventually able to put his degree and desire to help others to work as a fiduciary financial planner. Prior to founding his own firm in 2014, Steve learned from working with Edward Jones, US Bank, University of Kentucky Federal Credit Union, and CUSO Financial. He also received his Security Series 63 and 65/66 through Keystone Financial Group, LLC, and holds various life, health, and variable insurance licenses.
Steve and his wife, Angie, have three daughters (Lauren, Peyton, and Ashton) and two grandsons (Kenyon and Kai). Steve holds a private pilot’s license, and the family enjoys sports, spending time at the lake, and traveling. To learn more about Steve, connect with him on LinkedIn.
