By Elena Arroyo
When I got married, I remember the horrible dread of having “The Budgeting Discussion” with my future spouse. I had no patience for limits and concessions—I was busy building my Pinterest board (rosemary is so in right now), trying to figure out how much celosia I could cram into a table centerpiece (still not sure which flower that was), and focusing on trying not to somehow offend my psychotic sister-in-laws with my seating arrangements (spoiler alert: it failed).
My spouse-to-be and I ultimately did discuss our spending. We created a spreadsheet of estimated expenditures and a total budget: and then we set it aside and never looked at it again. Soon we were over budget on nearly everything, and then came the emergencies. Our caterer pulled out the week before the wedding, so we had to find a new one last minute. We needed to get matching white Adidas tracksuits for Sunday brunch. All of a sudden, I had over $10,000 of credit card debt. We really hadn’t thought any of this through.
Regardless of whether you’re planning a major life event, or you’re trying to plan for daily life, having regular financial discussions and then following through with them is crucial for managing any household. I learned my lesson the hard way and was not well-equipped for the repercussions of those financial choices while I was supposed to be enjoying my first year of marital “bliss”. Moral of the story, don’t be like I was!
Make sure to ask yourself these 3 Key Questions for Planning Your Budget:
Question 1: Do you have an emergency fund? We all have those unexpected events in life that can lead to financial stress, but it doesn’t have to be that way. Putting aside money each paycheck into a savings account for unexpected costs can build financial security – and relieve a lot of anxiety. Consider “backing in” to these savings—set aside a dollar amount you want as a cushion, and work towards it as a part of your budget.
Question 2: How much debt do you have? Here’s a quick overview of the “Debt Snowball” strategy to pay off your debt: 1) List your debts from the smallest to largest balance. 2) Make minimum payments on all debts while concentrating on the smallest. 3) After you pay off the smallest debt, take the money you were paying on that debt and roll it into the next highest payment. 4) Repeat this method until you cross off the very last debt. The psychological gratification you’ll get from paying off the small balances first will motivate you to crush the larger ones.
Question 3: Are you saving enough in your retirement plan? Studies show few Americans have adequate savings for retirement but it’s never too late – or too early – to start saving. Already saving for retirement? Try increasing the amount you save by 1 percent each year, with a long-term goal of ultimately reaching 10% or more.
Chances are, you aren’t going to be able to accomplish all your goals in one year, but at least we have an awareness of what is pressing, and what we need to hold off on. If you can’t increase your retirement contributions because every dollar needs to go to paying off debt first, that’s fine. Maybe you want to balance paying down debt with contributing to an emergency savings account so that you don’t continue the debt cycle, and that would also be a reasonable decision. There are many different approaches to getting on track.
If you need any guidance, we are here to help! Once you have these conversations, you’re already heading in the right direction. We hope that you stay on the path, and if you need any encouragement, just remember: maybe you don’t need that extra white Adidas tracksuit.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Global Retirement Partners, LLC (GRP) a registered investment advisor. GRP, LPL Financial, and Washington Financial Group are separate non-affiliated entities.