Budgeting Q&A for the new year

Money is one of the most common arguments for married couples so it’s no surprise that it’s also a common New Year’s resolution. Whether you’re saving for a big purchase, wanting to save more, or want budget your money smarter, Andrew Sampson, an Investment Advisor Representative at Wilde Wealth Management Group, has all the tips and advice for you. 

Starting a budget is overwhelming. Where do we start? Thinking about budgeting can be overwhelming, but it is not that bad. Like many things, getting going on something can be a chore. Once you start, however, it is very rewarding. There are two sides to budgeting: the financial side and the personal side. In current times, the financial side has never been easier. I have tools as a financial advisor to help my clients with budgeting and financial planning and most banks have tools to help their clients. 

Many apps can help you look at your past spending and categorize your expenses. Take extra care to classify each expense as discretionary or non-discretionary. This gives a good idea of where you are, so you can better project into the future. One thing you can do is start by unplugging from social media and have some conversations with family around the dinner table. My favorite question to start a conversation is, “If money was not a limiting factor, what would your dreams, goals, and priorities be?” When appropriate, allow kids to be a part of the conversation. 

 What are some benefits of setting up a household budget? My opinion is that budgeting is a freeing exercise. It allows you to spend money guilt-free. Understanding the amount of discretionary income you have enables you to enjoy your toys and hobbies much more. You can buy those golf clubs knowing that all bills are paid and goals are funded.

What are some easy financial goals for families? A few universal financial goals are:

  • Have an emergency fund with a minimum of 3 months of family expenses. Keep this apart from your checking, ideally in a high yield money market or savings account. I recommend keeping this at a separate financial institution than your day-to-day checking. Consider saving more if you have high deductible insurances. 
  • Pay off all high-interest debt. 
  • Take the time and ensure that you have the proper insurance for your family. People often save money by scrimping on insurance. A study by the American Journal of Public Health found, 66.5% of all bankruptcies were due to medical issues. 
  • I know it is cliché, but spend less than you make. I encourage you to treat saving for future goals as a bill. Know what your goals are and what you need to save monthly, then go ahead and fund your goals.  After these 4 points are met, any money left in the budget is available to spend, and you should do so guilt-free. 

Is it better to use credit cards or debit cards when making daily purchases? 

You would be surprised how controversial this question is but the math does not lie. Credit cards are not all bad.With cashback rewards and other perks, like fraud protection, they are a tool that many use to their benefit. Credit card debt, however, is terrible. Credit Cards.com says, “The average interest rate for a credit card as of December 22, 2021, is 16.13%.” So, if you are a person that carries a balance, it may do you well not to use credit cards at all. 

How can I track my spending and saving? What are some good budgeting tools? There are many great tools to help with budgeting. Many of them are free websites or apps. Use these with caution and make sure you understand the terms and conditions before linking your bank accounts. Often if it is free, you are the product. These apps may be selling your information or targeting you with ads. I would recommend you start with your bank, or even better, your financial advisor. Most have resources to help you with budgeting and may help point out things you overlooked. A financial advisor will even help facilitate conversations around goals and help track your progress. 

When we’re setting up our budget, what types of categories should we have? How much should we spend in each category? As mentioned, the most important categories are discretionary and non-discretionary. Make subcategories for things like dining out and recreation under discretionary. Things like mortgage and utilities would be non-discretionary. Spending per category will vary greatly depending on where you are in your wealth journey. The best advice I have here is to sit down with your financial advisor to build a financial plan.  

It’s easy to save money if you’re spending it on non-necessities (coffee, dining out, entertainment), but how can we save when we’ve already cut all those out?!). If you have cut discretionary spending and still cannot save, there are two things to do next. The first is to see if you can reduce the cost of your non-discretionary spending. For example, having internet may be a must, but if you have the fastest speed available, explore changing your service to the slowest manageable speed. Due to the appreciation of home prices, homeowners may also be able to refinance at a lower interest rate and possibly remove mortgage insurance. Delaying car purchases can also be a benefit.

Something I don’t think gets enough attention is income. If you don’t have a spending problem and still cannot save, you have an income problem. Increase your income. That sounds easier said than done, but with the side jobs such as ride-sharing, food delivery, and freelance marketplaces, it is getting much easier to find ways to fit extra work into your lifestyle. Some people find that getting additional income is easier than cutting their discretionary spending. 

I’ve heard of some families using ‘cash envelope’ systems to prevent overspending. But some places are no longer accepting cash, so is there a better way? I don’t think so. I also believe that we will continue to see fewer places accepting cash in the future. The great thing about the envelope system is that you must stop spending when the envelope is empty. Consider opening separate checking accounts in place of the envelopes. This may not be better, but it is the way things are headed. 

What are some options for retirement savings? The most popular retirement vehicle is the 401k. Many companies even offer to contribute to your retirement savings if you are willing to. 401(k)s are even available to business owners and sole proprietors. If an employer does not offer a 401(K), other tax-advantaged accounts like IRAs are available. I suggest you speak with a financial advisor to see what options are suitable for you. 

Is it better to put money in savings accounts or invest it? Where should we invest our money? Savings accounts and investment accounts serve two very different purposes. A high yield savings account is best for an emergency fund. Investments go up and down. You don’t want your emergency fund to be down when you need it. Money you have saved for longer-term goals should be invested. So neither is better, just two separate tools in your toolbox. 

How can I set aside money for savings when we’re living paycheck to paycheck? 

Sean Covey said, “Saying ‘yes’ to one thing means saying ‘no’ to another. That’s why decisions can be hard sometimes.” Say yes to saving, so by default, say no to dining out. Say yes to saving, and in doing so, say no to impulse buying online. Stop trying to have the willpower to say no when saying yes is so much easier. The best part about this is that you are not truly saying no. What you are saying is not yet. If you do a good job saving, you will eventually have the money for things you said no to. 

What are some other financial tips you have for families? According to Ramsey solutions, 80% of millionaires are the first generation. Only 16% of millionaires inherited more than $100,000. So, in a relatively short time, you can save more, earn more, invest more, and you can become wealthy. It starts with a plan and ends with financial freedom. 

Andrew Sampson is anInvestment Advisor Representative at Wilde Wealth Management Group in the Valley. wildewealth.com