March 2011 | www.selectasset.com
Budgeting... Myth vs Math

"Discipline is the bridge between goals and accomplishments.”

- Jim Rohn

The word “budget” often strikes a negative chord with many people.  Thoughts of “sticking to a budget”, being “over-budget”, and “living on a tight budget” conjure up images of sacrifice, penny pinching and a life of less enjoyment.  However, quite the opposite is true.  Undisciplined spending without having a budget paves the way for your money to start controlling you when you should be controlling your money.  Considering the fact that financial instability is one of the major causes of stress, depression, worry and even marital trouble, having a budget and staying in control of your finances could actually make your life a whole lot easier and enjoyable now and in the future.

Let’s take a look at some of the common misperceptions regarding setting and maintaining a budget:
  • “Budgets Are For Poor People...”

It’s not uncommon to find that some more modest income earners have a higher net worth than doctors or lawyers.  This is because they have managed their money well and budgeted a portion each month to go towards long-term savings and investments, systematically accumulating their wealth.  Rich or poor, everyone has financial goals.  A budget is the financial guide that is designed to help you achieve them. Major corporations and governments worldwide cannot function without a proper budget, nor can you ensure success in reaching your goals without such a strategy. You may dream about buying property, sending your children to university, or stop working to travel the world while you are young enough to enjoy it. Achieving these goals becomes much easier if you are aware and in control of your spending habits today.
  • “I have a well paying and secure job, I don’t need to budget...”

As the recent economic crisis has shown, there are very few people who can say with absolute certainty that their job is secure.  There are myriad external factors that could cause you to lose your job which do not depend upon your personal performance.  As such, it is only wise to be prepared for the worst, including the possibility of becoming unemployed.  It is widely accepted that having the equivalent of several months expenses in case of emergency is prudent, and it is likely that you will have to budget this savings into your monthly financial scheme if you don’t already have this sum set aside.
  • “Bad things only happen to OTHER people...”

Well, that’s exactly why we say that they are “unexpected”.  Most people don’t “expect” a mishap or financial emergency to befall them.  What if you were to be hit by a huge medical bill not covered by insurance, or a family emergency in your home country?  Would such a situation break the bank?  Are you absolutely sure your company or the government will be in a position to provide for you when you are ready to stop working? While it’s always good to hope for the best, realistic budgeting can help ensure you are prepared for the worst.
  • “If I budget I will enjoy myself less...”

While it is true that budgeting forces you to take an honest look at what you are doing with your money and make some tough decisions regarding spending, keeping a budget doesn’t have to mean cutting out everything that you find enjoyable.  The idea is to strike a healthy balance between sacrificing quality in your life today and spending like there’s no tomorrow.  If you keep your long-term goal clearly in mind, you’ll find that the small sacrifices you’ll have to make on the way will result in a sense of satisfaction. You will know you are taking real steps toward making major gains or turning a life-long dream into reality.

Now let’s take a look at some of the major benefits of creating and sticking with a budget:
  • Achieve more with your money

A comprehensive budget will help you understand how much you must earmark for fixed expenses, have for short- to medium-term savings requirements, and how much can be used for your long-term targets. Unbalanced focus in any one specific area may leave you vulnerable in another.  A sound budget will reveal the areas in which you are spending too much, or perhaps too little.  You may be surprised.  After taking the time to organize your expenditures you may find that you are in a position to achieve more than you currently believe possible.

  • Become financially independent

If you do not sit down and figure out exactly where your income is going or how it compares to your expenses, you will be unable to determine what spending habits need adjusting so that you can build your nest egg for a financially stress free life in the future. For a quick and efficient way to examine your monthly income and expenses   use Select Asset Management’s budget calculator.  Often, once you’ve seen your income and expenditures written down in black and white, you can easily identify areas where you can adjust spending in order to reduce your dependence for future financial security on others without having a negative impact on your lifestyle today.

Would you embark upon a journey to distant lands without a map or a well thought out itinerary?

Neither should you hope to successfully traverse the road to financial freedom without being equipped with the proper tools and well laid plans.  Select Asset Management’s team of experienced financial consultants is here to help guide you in the right direction.  Contact us today to arrange a financial review.