Why you need a budget
Without a budget, spending can quickly get out of hand. This is especially true for high net-worth individuals who don't have to worry about the cost for most purchases. Building your net worth then becomes more difficult because you don't know where your money is going each month.
A budget also gives you a clear view of what needs to happen to achieve your financial goals. You'll be able to track how much you should be saving each month for a new house, retirement, or an emergency fund.
Creating a Budget
Here are some tips for creating and working with a budget:
- Keep it simple. It's not necessary to have 50 different expense categories to classify your transactions into. (Unless you want to!) Having a simple budget will make it more likely that you stick with it over the longer term.
- Delegate the daily maintenance. Hire someone to record your daily transactions and update your budget each month. You'll still want to look at a report of your budget, for example on a weekly basis, and be a part of adjusting the budget every month, but you don't need to be the person doing all the bookkeeping on a daily basis.
- Add an account for investing. The whole point of creating a budget is to make sure you have enough money left over at the end of the month to build your net worth. Add an actual account to your budget that says "Investing" or something similar and make this the first account you assign money to every month.
- Add an account for taxes. Paying your tax bill may be one of your biggest expenses every year. Schedule several tax planning sessions throughout the year to figure out how much you should be saving every month to pay your federal, state and local tax bills. Then put this dollar amount in your monthly budget.
- Don't be afraid to spend. Having a budget doesn't mean you can't spend money. It simply means that you're intentional about it by planning your spending before it happens. You've worked hard to get to where you are, so don't feel guilty about adding some luxury items to your budget.
Please call if you have questions about creating a budget or getting into the habit of using a budget to help build your net worth.