There is a common saying that time heals almost everything. Yet, even as we embark on the fifth year since the pandemic began, most of
Simplifying Your Budgeting Process to Reach Sustainability
Published Date : April 20, 2016
“He who will not economize will have to agonize.” – Confucius (551 BC – 479 BC)
For thousands of years people have been told to adhere to a budget, and today the thought seems as daunting as ever. This can be especially true for those who live in a high cost area such as San Francisco or have seen their income reduced in retirement during a period where fixed income yields are low. You are not alone if you find it difficult aligning your spending with a targeted goal; however, with a slightly modified approach, there is a way to make living within a budget more attainable.
There are many tools available today that will help you efficiently track your spending and project sustainable cash flows from your investments. While expenses can be manually tracked on a basic spreadsheet, it is most productive to invest in user-friendly yet robust data collection software, such as Quicken. Tools like Quicken allow you to track and categorize your spending history in an automated manner. Once implemented, the next important step to managing future spending is to assign each of your expense categories into one of three broad classifications: static expenses, control expenses and dynamic expenses.
Many have found that simplifying expenses into these three broad classifications helps individuals and their advisors efficiently work through what is often an intimidating project. The premise is that your expenses are viewed as three concentric circles embedded within each other:
- Static expenses are found in the inner core of the three expense circles, and are sometimes called “core operating expenses.” They are tied to fixed monthly expenses that keep your home, health and vehicles operating, insured and maintained. Most of these items provide us with a reoccurring and typically fixed bill, such as a mortgage, property taxes, or insurance.
- Control expenses are found in the middle layer of your three expense circles, and are sometimes called “lifestyle expenses.” These expenses are made up of small but frequent purchases made throughout the month that often get overlooked in budgeting. You theoretically have “control” over whether or not, or at what level, to purchase these goods and activities. Many of these expenses enhance our daily lifestyle, such as dining, entertainment, gasoline, recreation, food, or non-essential shopping.
- Dynamic expenses are found in the outer layer of the three expense circles, and are often thought of as “future expenses.” These expenses are typically larger and often tied to vacations, charitable giving, and savings earmarked for education or major home remodels.
The key to reaching a truly sustainable budget is to continuously monitor all your expenses over time and honestly organize every expense into one of the three broad classifications: static, control or dynamic expenses. As you plan to reduce expenses, begin with those in the outer layer of your expense circle, the dynamic expenses, and then work inward through control expenses until you reach static expenses. If the static expenses alone exceed your annual spending budget, a serious look at the sustainability of your asset base would be required. For most however, simplifying expenses into these three broad classifications will help make the budgeting process more digestible and ultimately more successful.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – SEP IRA or Individual 401(k)? A Question Worth Exploring for the Self-Employed
- – Donor-Advised Funds Considerations to Help Accomplish Your Philanthropic Goals
- – The Importance of Segregated Assets at Brokerage Firms
- – New EV Tax Credits Require Planning to Glean the Largest Benefits
Related Posts
Recent Posts
