Having a solid spending plan in place is great for managing your current cash flow, expenses, and investments, but it can be even better as a tool to help you with long-term savings. Here are 4 tips to help you start your budget.
Back when you were in medical or nursing school, with little spare time to tend bar, chances are pretty good that you were getting by on some kind of budget. Now that you’re an established healthcare professional, the need for a strict budget may be less acute, but it’s still a good idea to have some general financial parameters you set and stick to. Having a solid structure in place is great for managing your current cash flow, expenses, and investments, but it can be even better as a tool to help you with long-term savings.
Here are a few tips to get you started and then keep on track.
1. Get the Facts Straight
The first time you sit down to do a budget, you may be astonished by how much you spend in certain areas. You may find ways to cut back on things that aren’t as important to your overall lifestyle and goals. But the most important aspect of this first step is just being aware of where your money goes each and every month. A good budget helps you plan and estimate expenses, of course, but it also helps you assess your overall life goals and compare your spending habits with those goals. You’ll need your pay stubs, bank statements, copies of current bills, and any favorite money-management tools.
2. Review Your Budget (!)
You may already have a pretty good budget. If so, do you review it from time to make sure it’s still accurate? With apologies to Jerry Seinfeld’s rant on his eponymous sitcom about taking reservations, anyone can make a budget; the key is to stick to the budget. The step that many people forget is to compare current and past expenses to what you budgeted, making sure you didn’t set aside too much or too little. You should also review expenses over time. For example, depending on where you live, your electricity bill can vary widely from winter to summer. Did you budget $200 for electric in July, only to see a bill closer to $400? Look at last year’s bills to help you estimate more closely.
3. Share Your Budget
Budgeting, like swimming, can be dangerous if done alone. Involve your spouse, and, if appropriate, your kids in the budgeting process. They are likely to play a significant role in whether or not you stick to that budget, of course, but perhaps more importantly, getting input from your family members is an essential part of future financial planning. Does your slightly-below-honor-student son plan to go to further his semi-education at Expensive Out-of-State University (EOSU)? Is your soon to be texting-while-driving daughter convinced that her upcoming birthday gift will be a shiny new car?
Budgets aren’t just for now. They should project future expenses—including your own retirement and insurance needs—and set aside savings for them.
4. Adjust Your Budget
Long-term planning always involved projections. You don’t know what your income or expenses will be 5 years down the road, but you can estimate. When you do, take into account things like inflation, potential changes to income, and unanticipated expenses. A good budget may be consistent year over year, but it won’t be static.
Why Budgeting Matters
Even if money isn’t necessarily tight, the simple fact is that long-term saving requires discipline, sacrifice, and planning. Knowing where your money is going now can help you and your family assess how much you can save for the future. The sooner you make those kinds of decisions, the sooner you can benefit from a long-term investment strategy that may make your retirement years less dependent on a strict budget. Ironic, isn’t it?