|
AGS
FINANCIAL SERVICES |
Gary
F. Restall |
 |
|
|
||
|
Budget
- key to financial
planning
|
||
|
Many
people in our area
ask me what one thing
they could do to help
themselves
financially. I
respond, in general,
that perhaps the most
important element to
improve their
finances is to
establish a budget.
This general statement is based upon years of experience with my clients before and after leaving American Express Financial Advisors, and from many discussions at various IAFP (International Association of Financial Planners) and other meetings, conferences and continuing education workshops. Based on this unscientific research, it seems that it doesn't matter if the household income is $20,000 or $2,000,000 a year. Budgets can possibly help people achieve more. I have found that many professionals do recommend budgeting in various forms in the financial planning process. Some suggest to their clients that they develop a budget. Others walk them through the process of creating a budget. Almost all of my clients have gone through the process with me. Is it worthwhile? A client in Wayland said, “We recently bought our first home because of what you have done with us. Now, before I spend any money, I think would Gary approve?” (I don't approve nor disapprove what money is spent on. I only advise.) One young lady in Ashland, MA came to me with an $11,000 a year negative cash flow [Editor's note. Negative cash flow means more going out than coming in.] and said, “Can you help? And, oh, by the way, I don't want to change my lifestyle.” A Shrewsbury client remarked, “Even the awareness of the whole budgeting process is great. We've saved over 50% of our out-of-pocket expenses and those savings mount up real fast. That alone was worth it.” Usually an overall savings of 5% to 25% (and as high as 40% to 50% in some cases) are realized the first year just by going through the process once or twice. Is it guaranteed? No. But from experience, there is a good likelihood some improvements in available cash may be realized. There are many variations in “doing a budget”. Consider what I teach my clients. First, decide what is important to you. Take time to do some personal goal setting. What do you want this year, in 5 to 7 years, and in 10 to 15 years or longer? Think individually and also as a family unit. Also, consider all seven areas of your life for better balance: 1.) God & Spiritual, 2.) Family & Social, 3.) Education & Personal Growth, 4.) Physical & Exercise, 5.) Recreation & Misc., 6.) Professional & Income Oriented, and 7.) Acquisitions & Accomplishments. This initial step assists you in establishing what is important to you and your family within your time frames. This is your value system. Is there any dollar figure associated with your goals and objectives? How much and when are they needed? The next step is to estimate any and all of your potential income and expenses by category. I have specially designed all-purpose forms that I use with much more detail than I can put into this article. [Editor's note. These are now part of the Life Finances ... Made Simple online program.] To keep it simple for this article, use as the major Income categories - Employment, Bonuses, Self-Employment and Businesses, Social Security, Interest and Dividends, Other Taxable, and Other Non-Taxable. Add them up for a Total Income figure. Deduct from your Total Income your Expenses - Savings, Taxes, Housing, Transportation, Health/Medical, Donations/Gifts, Other Committed, and Discretionary. If the amount is positive, you are super fortunate with a “Surplus”. If negative, you have a “Shortage” and are like many other people - both lower income and higher net-worth households. With a surplus, you can decide what do you want to do with it? If a shortage, you should probably review each category looking for ways to adjust your spending habits and/or expectations. This is where your value system is important. A professional financial planner may use a variation of this same exercise to review your cash flow, debt management, risk and insurance needs, goal funding needs and desires, retirement and estate distribution planning, and obviously the fun things like taxes and investments to find ways to possibly assist you in doing better financially. _____________________________________ When
this article was
written and
published, Gary
F. Restall of AGS
FINANCIAL SERVICES
was an independent
Registered Investment
Advisor (financial
planner/advisor),
Insurance Broker, and
a Registered
Representative with
FSC Securities
Corporation, a
Registered
Broker/Dealer and
member NASD/SIPC.
|
||
|
|
||