To budget or not to budget? That shouldn’t be the question. The rich don’t budget (they just spend, spend, spend). The wealthy always do. The wealthy budget because they understand that creating sustainable wealth takes discipline, and that’s at the heart of the budgeting process.
The following are some practical steps to achieve budgeting discipline:
Know Your Income
It’s obvious; know what’s coming in each month. This could mean your salary, expected bonus, commissions, side hustle income, etc. Make a complete list. Everything. Add it up for the year and segment by the month. If multiple earners in a household, each should budget accordingly and aggregate collectively.
Know Your Expenses
Equally obvious, know what’s going out, i.e., your expenses. Break this down into two pots, necessities vs. variables.
Necessities are essentials like mortgage/rent, real estate taxes, income taxes, insurance payments, utilities, gas for your car, groceries, phone bills, and so on. Most people have an intuitive idea of these numbers, but you must be disciplined and write them down in a budget format. Of course, some are fixed such as rent while others vary based on circumstance or usage such as gas, utilities, income taxes, etc., so estimate the best you can.
Variable expenses are where most people lose track of their money. Variable expenses carry “expenditure choice.” You don’t have to go out to dinner once a week, you don’t have to buy that new set of weights, you don’t have to go to Europe, on and on. Variable expenses are “lifestyle” expenses, and by definition, these expenses are controllable by choice. Write it all down. Yes, it’s work. Yes, it’s detailed. Trust me, the value of this discipline will be seen in the end.
Know Your Cash Flow
On a cash-in vs. cash-out basis, we all know the net/net is either a positive or negative cash flow. Your goal, of course, is to have a positive cash flow annually and monthly. From a positive cash flow, you can put money aside in savings and start building wealth. If there is a negative cash flow, you need to moderate/cut back your variable expenses until the cash flow turns positive. It’s often difficult to cut back your fixed expenses as these tend to be necessities, like your home. (While owning too much home is also a big mistake people who fail to build sustainable wealth often make.)
You get the point. You see why it takes discipline. To build wealth you must start with a positive cash flow. (Refer to my last article, “Retiring in Style.”)
Get an Accountability Coach
Once you achieve positive cash flow status, the journey is not over. The core issue, and a serious matter many overlook, is how to leverage your positive cash flow to build long-term wealth the right way. If your car needs repair, you call a mechanic. When it’s tax time, you call your accountant. Unless managing money is your business, reviewing your situation with a fiduciary wealth advisor to hear what they have to say is a no-cost phone call away. Remember, building wealth is by choice, not chance. You need to take the first step.
When you think you’re ready to break out and take the all-important step toward building long-term, sustainable wealth for you and your family, let’s chat. Visit juliuswealthadvisors.com, email [email protected] or call (201) 408-4644.
Jason Blumstein, CFA® is the CEO and founder of Julius Wealth Advisors, LLC (www.juliuswealthadvisors.com), a registered investment adviser in Englewood Cliffs, New Jersey. He is also the host of “The Big Bo $how” podcast available on YouTube, Spotify and Apple podcasts. Jason has been investing and educating himself on personal finance since the age of 10. His company aims to elevate your wealth-building game plan with integrity, knowledge and passion, unwaveringly devoted to a collaborative, highly personalized style. Jason currently resides in Englewood with his wife and two kids. He can be reached at 201) (408-4644 and/or [email protected].
Disclosures: This piece contains general information that is not suitable for everyone and was prepared for informational purposes only. Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee any future results. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit adviserinfo.sec.gov.
