The Most Important Financial Tool
During my 22-year career as a financial advisor, I found that one of the most important financial tools was a simple monthly budget. Sadly, almost no one uses it, even though itís one of the most effortless financial tools to set-up, and among the easiest to implement.
A monthly budget is the list of expenditures that you make each month. You can go to our site:
http://mysite.verizon.net/vzer1vjr/blankstartfromscratch/index.html to download a sample budget. When using a budget, the expenditures listed are FIRM. That is, if you allocate $200 per month for entertainment, you are only permitted to spend $200 for that category. If you spend the entire amount on the first Friday of the month, youíll have to stay at home and watch TV for the rest of the month.
A budget is an important tool to assist you in saving money for retirement. However, it is an absolute necessity as you get closer to your retirement date. After all, how can you determine whether or not you can afford to retire if you donít have a good idea of what your monthly expenses are? By setting up a monthly budget, you control your expenses and increase the amount you
away for retirement.
Still not convinced? Letís assume that
you buy a $2.50 Latte every day (an item that is not in your monthly
budget). Itís just $12.50 per week, not a significant amount. Right?
WRONG! If you put that $2.50 per day into an investment paying 8% per
year, and allow it to grow for 30 years (your working career), it would
grow to a sum of $68,417.16. Now thatís real money! The value of a
budget is that it keeps you focused on your expenses. If your budget
allocates $200 per month for entertainment and you spend the entire
amount in one week, youíve got to go three weeks with no further entertainment.
Without a budget, you would just go to the bank and withdraw another
$200 from savings. Granted, itís a little painful now, but it will
pay big dividends at retirement. (Iím 55 and I retired some months
ago. Excuse me now while I freshen my drink.)