Getting Financially Fit, Part 2: Taking Control of Your Finances
As a financial advisor, trying to help clients — of any income level — achieve both their financial goals and dreams, often boils down to one question that strikes the core of reality. People often have nervous reactions to this question. Rarely do I get a confident smile and a solid response.
“What is your budget, and how much do you actually spend?”
This question seems obtrusive. “How dare someone ask me how much I spend?” “That’s my private business!”
Unfortunately, as I discussed in my last blog, the difference between the money we spend, and the money we save is our “freedom.”
I decided to take my own advice and really delve into my own budget. As a result, I became frustrated with the software and tools that were available to me, because they didn’t consistently break out fixed expenses and variable expenses. Fixed expenses can’t really change without major pain, but variable expenses can often be adjusted more easily. It’s like playing golf: studying and adjusting your golf swing is easier than buying a new set of golf clubs (which may or may not work), or simply attributing your slice to the golf course itself.
I took the basic budgeting template found in Microsoft Excel, added in a few columns for those who have businesses (like me), and created a few side formulas that help answer the question, “What is the difference between my fixed and variable expenses?”
The “projected balance” cell is your freedom. Hopefully this balance is a positive number. If not, look at what can be adjusted to make this number positive. This money in the projected balance can be used to either pay down debt or add to your savings for your aforementioned goals and dreams.
Now that you have a template that breaks out fixed and variable expenses, you can further customize it for your own personal needs. Obviously, there could be some debate over our respective definitions of a “fixed expense.” This is nonetheless, a great starting point.
Good luck, and please share this information with your financial advisor, as well as your tax preparer. These people may offer additional input, based on a more comprehensive knowledge of your own personal situation.
Also, don’t forget to “like” and share this information with others!