#budgeting

By:  Paul Horn, CFP®, CPWA® Senior Financial Planner

For most couples, the leading cause of fights is over finances. To best handle finances it is best to have open and honest communication and to work with a Certified Financial Planner™ professional who can be a neutral third party. In my experience, many fights over finances are over minor things that can be easily avoided. Below is a solution I have utilized for many clients that works because it eliminates the likelihood of fights over these smaller items. Take a look at the steps below to see if it may be a good solution to help you and your spouse better manage finances and reduce fights.

The first step is to establish the budget.

For this exercise, we will look at Hector and Helena Dominguez. Hector thinks that Helena spends too much on dining out and shopping while Helena feels Hector spends too much on golfing and cigars. They would like to save more but blame the other spouse for them not saving enough. We took a look at the budget, to begin with, and listed all their monthly expenses like mortgage, utilities, insurance, and car payments. After adding up the expenses their monthly total was $6,800. We then looked at their take-home pay from their jobs and this totaled $9,200 a month. They also have to save and invest each month, and this is another $1,000 a month. This meant after bills are paid and money is saved, they have $1,400 a month left over ($9,200 Income – $6,800 for bills – $1,000 Savings = $1,400). From here Hector and Helena discussed how much they want to have for discretionary expenses and they both agreed they each get a $500 a month “allowance”. The key to making the allowance work is that they get to spend that money on anything they want (within reason) and the other spouse cannot hassle them on how the money is spent. The key though is once the money is gone, they cannot spend any more until the next payday.

The second step is to set up proper accounts.

To make sure that all the bills are paid, their paychecks are direct deposited into a joint checking account. All the monthly bills are set up to be automatically paid from this account. Both Hector and Helena have to agree that they will not take any money out of this account. From the bills account, 3 additional transfers are set up:

1. $1,000 transfer to the savings account
2. $500 transfer into a checking account in Hector’s name only
3. $500 transfer into a checking account in Helena’s name only

Why this system works.

The whole point of this system is to automate budgeting and reduce the potential for arguments. Putting the money into the bills account and not allowing anyone to spend from that account ensures that everyone sticks to the budget and ensures bills are paid on time each month. Having the monthly transfers into savings helps them achieve future financial goals. Each spouse has a separate “allowance” account that is their money to spend until it is gone. This can help avoid spouses fighting over money since everything is automated and it works beautifully as long as each spouse does not overspend from their spending account.

While this system may not be for everyone, it is important to have some system in place to reduce the chance of overspending and make sure there is proper savings. If you are struggling with budgeting or if finances are a challenge in your relationship, please reach out so we can help. Please contact us at finanicalplanning@bfsg.com.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Paul Horn, CFP®, CPWA® Senior Financial Planner

In our last blog post, we mentioned the importance of automating your budget. This blog post will look at some different tools and resources available to make managing your finances much easier and less scary! Take a look at the different options below. These are merely a starting point and by no means an exhaustive list. We do not have any affiliation with any of these tools (we do use eMoney as a financial planning tool) and remember if something is free, ‘you’ are the product or they try to cross sell you with other products they may offer.

1. Your bank or credit cards website.

Most financial institutions provide free budgeting tools to help users track their spending. This can be a great place to start but works best if all your expenses are done in one account or if your credit card and bank account are at the same institution. If you bank with Chase and have an American Express credit card, then this may not works since the tools will not give you a complete picture.

2. Utilize financial management tools offered by your advisor.

Most people use several banks and credit cards, and this can make it difficult to manage expenses. For our clients, we offer them free access to eMoney (our financial planning software), which allows them to link to all their outside accounts and see all their information in one place. Once their accounts are linked, eMoney creates a budget for them and provides one place for them to log in and see all their accounts in one place. This provides greater clarity and is a great way to automatically compare what you planned to spend versus what you spent.

3. Look into Mint.com.

Mint.com works similarly to eMoney and puts all your accounts into one platform that can be used to track your finances. This is owned by Intuit, the same company that owns Turbo Tax and Credit Karma.

4. Consider Empower PER.

Empower PER is the same tool that used to be known as Personal Capital. It is the same tool but was purchased by Empower so it has a different name but is the same tool for now. Not sure if it will change in the long term since Empower recently purchased the technology.

These are just a few of the more common tools available to simplify personal finance. It will be interesting to see in the next 12 – 24 months how Artificial Intelligence (AI) can potentially simplify and enhance these tools even more. If you would like access to eMoney and are a client of BFSG (or interested in becoming one) please contact us at financialplanning@bfsg.com.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Paul Horn, CFP®, CPWA® Senior Financial Planner

One of the biggest challenges of working with individuals is discussing their budgets. The simple reality is people are busy and we are not taught how to budget. Another challenge is that budgeting is like doing taxes – it’s necessary but no one wants to do it! Let’s take a look at some of the more common mistakes we see when helping people budget.

1. Most people create a budget incorrectly.

When creating a budget people will typically put down what they think they spend or what they want to spend. This misleads people and typically this results in their budget showing lower amounts than what they spend. A better way to budget is to start with what you spend and then look for ways to cut down on expenses from there.

2. Learn the difference between non-discretionary and discretionary spending.

When creating a budget, it is important to understand what expenses are non-discretionary. These are expenses that you must pay each month and include things like rent/mortgage, insurance, utilities, etc. These expenses are typically fixed and cannot be lowered. When trying to lower your budget, it is important to focus on reducing discretionary expenses. Discretionary items are those that you choose to spend and not what you have to spend. Common examples are dining out or hobbies.

3. Understand pseudo-discretionary expenses.

For many people, these are misunderstood. Pseudo-discretionary items are non-discretionary expenses that have discretionary components to them. For example, I helped a client reduce their cell phone bill by over $100 a month. Cell phones are non-discretionary and something we all need. The client’s bill was very high, so we took a closer look at the bill. They had Apple watches and iPads linked for data that was costing $60 a month. They were paying Verizon insurance when their Apple products had Apple care (they had two forms of insurance). These expenses are not necessary, so they called Verizon and removed them, and this lowered their expenses by $100 a month. Other examples would include internet service as people often pay for more internet services than they actually need. Understanding these expenses and making changes has helped one client lower their bills by over $500 a month by simply eliminating expenses they were paying for but not using!

4. Compare what you planned on expenses versus what you actually spent.

People will take the time to create the budget but then they will never look at it again. It is important to look at what you planned to spend for the month and then compare it to what you spent. This is where the true value of budgeting lies as this will teach you the true value of money!

5. Automate the process.

When it comes to budgeting it is important to automate the process as much as possible. Life is complex, so automating your budget simplifies the process. Make sure to pay yourself first, so set up automatic transfers on payday into savings and investing. Set up bills for autopay, so bills are paid on time (avoid those late fees!). Use budgeting apps (we will discuss this in great detail in the next blog).

Budgeting is a necessary evil, and we are here to help! Feel free to contact us at financialplanning@bfsg.com  if you would like to discuss your situation or receive our free budget template!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.