Among financial planners, there are those who dedicate the largest parts of their careers to working with clients, helping them with their advice on how to save and invest in long-term goals, repay debts, and choose the right insurance. There is a consensus among them on some of the worst budget pieces of advice they have heard, but also on what they would suggest instead. From their experience, most of their clients need help planning a budget that is realistic, sustainable, and non-burdensome.
Here are the four worst budget tips that financial planners have heard and tips on what they suggest instead:
1. To Start Budgeting, Review Last Year’s Spending
Going back and analyzing spending throughout the whole year is an extensive job and often ends up as an obstacle to getting started. In addition, people often don’t want to look back because they don’t want to feel guilty about past spending or be condemned for it.
Instead of looking at each transaction in the past year, look at last month’s spending to get good estimates for your average monthly expenses. In addition, list the increasing, less frequent expenses you expect over the next year, such as property taxes, vacations, holiday gifts, and annual donations, and make a plan for how you will fund them. Strive to make your initial budget the best assumption and plan to adjust it over the first few months to ‘fine-tune’ it.
2. If You Don’t Track Every Penny, It Doesn’t Count
Experts point out that they have seen budgets collapse many times because they were too detailed: $ 12 for coffee, $ 26 for lunch, $ 38 for fast food, $ 336 for groceries…
To budget efficiently and stick to that budget in the long run, consider having 10 to 15 ‘broad categories’. This will not only make it easier for you to track and categorize expenses but will also give you a little more freedom to live in the moment and have some flexibility within the wider limits of your budget.
3. Save Until It ‘Hurts’
Saving for your future is important, but it is not more important than your current life. And it certainly does not have to ‘hurt’ to be effective. In fact, the less it hurts, the more likely you are to stick to it.
Instead of saving until it hurts, focus on finding the right balance between enjoying life today and saving for the future to make sustainable progress in the long run.
4. Plan Your Expenses According to Needs or Eliminate Desires?
This judgment-based spending filter often results in a sense of guilt in regard to spending and creating a budget that reduces all desires means it will remain virtually impossible in the long run. Unsuccessful diets don’t work, nor do budgets. Instead of looking at each expense as a ‘need’ or ‘desire’, filter your spending through another lens called the ‘price of happiness’. It is a way to estimate how much happiness (or pleasure or value) you get from each dollar spent.
As you look for ways to reduce spending and find dollars for your goals, think about keeping costs that provide great happiness and try to eliminate those that make you less happy. For example, you might decide that stop by a local coffee shop to take a cup of hot coffee on the way to work or pay to spin a roulette wheel now and then at TopCasinoExpert.com online casinos offering games of top software providers bring a lot of happiness. On the other hand, you might come to a conclusion that paying for more music services does not really bring that much happiness. Or, vice versa.