When I was in marketing management, my least favorite part of the job was organizing the end-of-year party for a thousand employees and their guests, a third of whom would sign up but never show up. Those who did attend seemed to be having a marvelous time, gobbling plates of shrimp and roast beast, and downing free beverages like they’d just turned 21. For me it was a weekend of cat herding in high heels.

My second least favorite part of the job was budgeting. Most people attracted to marketing like the creativity and are fascinated by consumer behavior. When we’re asked how much money is needed to accomplish a particular marketing objective, we usually say “more.” I learned early on, though, that managing my budget was a way to have control. The alternative was giving power to someone else – a boss who may have different ideas for how to allocate resources.

Creating a personal or family budget – or “cash flow” in financial planning terms – also puts you in control. Being the boss of your money can help you get to the end of the year with an optimistic outlook, knowing you’re living within your means while saving for the long term.

Make it your own

Your cash flow should be personalized to reflect your – or your family’s – priorities and financial situation. You’ll want to start with the realities of your income, assets, and expenses. With that, you’ll have an idea of what money is available for saving, to pay down debt and, of course, have fun. Here are a few things to consider:

• Needs and wants. Start with two main budget categories: fixed and discretionary spending. You’ll always have to account for fixed expenditures like monthly loan payments and insurance before you know how much is available for extras. Something to consider, though, is what you’re going to categorize as “fixed.” If you include IRA contributions and the kids’ college savings as necessary expenses, you’re more likely to stay on track to meeting those goals.

• Windfalls. The word “windfall” used to refer to fruit or branches knocked down by the wind. A work bonus or pay raise isn’t exactly like food falling from the sky, but your budget should give you a good idea how to handle a windfall when it comes. One way to ease financial stress is to invest in your future self by putting unexpected earnings into your retirement or rainy-day fund. Of course, sometimes you’ll want to use a windfall to treat yourself. Understanding your cash flow allows you to splurge guilt free, knowing what you can afford.

• The ins and outs. Your cash flow isn’t just about balancing money coming in (earnings) with what’s going out (expenses). Depending on your age, you should either be building toward or maintaining a cash reserve that will cover living expenses for 2-3 years. A prepared budget will help you define the size of the fund and how much you need to set aside each month. 

• Live life. Your budget isn’t there to control you. It’s a way to give you a complete, personalized financial picture to help with decision making. It should allow you to see into the future so you can more easily plan life changes like a new job, a move, or retirement. Your budget might also reveal ways you can save on expenses, so you have more money to enjoy yourself.

• Make it a conversation piece. If you’re creating a household cash flow, be sure you’re discussing it with the family and letting everyone participate in age-appropriate ways. This can help the family see that decisions aren’t made arbitrarily. And being open about the realities of budgeting can help kids manage their money when it’s time for them to leave the nest.

You can create your cash flow or budget with a spreadsheet, an online tool or app, or a paper and pencil. However you do it, make it your own. It’s the New Year, and the perfect time to get started being the boss of your budget. If you’re unsure how to get started, be sure to add “Call Arrivity” to your financial to-do list. And stay tuned later this month because we’ll be sending out more ideas for that list.

Questions to think about:

• Are you a generous person? Of course your are! Don’t forget to budget for gift giving.
• Do you have kids at home? Your budget will need to change year-to-year as the kids go from diapers to childcare to laptops and sports gear.
• Is it hard to keep your hands off your rainy-day fund? Some people set up different accounts for short-, medium-, and long-term goals, each with different investment strategies.

Action steps:

• Explore different tools for budgeting to see what works for you. Most banks and brokerages have tools on their websites. Paid tools like YNAB (You Need a Budget), Pennies (Apple app), and EveryDollar are free to try.
• It can be easy to forget expenses like auto repair, home maintenance, and health care out-of-pocket costs. Look back a few years to estimate the budget for these non-recurring costs.
• Choose a month to update your budget each year. Maybe it’s January, or perhaps April after you’ve done the taxes. 

Please contact us at 206.217.2583 or info@arrivity.com if we can assist you or someone you know with financial planning.

The foregoing content reflects the opinions of Liz Behlke and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.