In Perspectives

At a prior firm, one of my co-workers introduced me to a husband and wife who had been clients for many years.  The husband was planning on retiring in the next few years and they were going to begin working with me to financially prepare for that next step.  Never did they starve themselves from enjoying their money, but they were very dedicated savers and they kept an eye on their living expenses.

As I was introduced to the wife, she immediately raised both of her hands and created an X with her fingers.  “That’s a four letter word!”  She was referring to a budget.

Luckily she was joking and her playful personality was shining through.  She knew the importance of a budget, but like many others, had no interest getting into the details.  They always seemed to have enough money to meet their expenses while they were working.  And, her husband had always handled that area, which he would continue to do throughout retirement…

Unfortunately, the husband was in a terrible accident and passed away.  Distressingly the wife thought: Will I have enough for the next 20-30 years? Will I have to work for the rest of my life? Will I be able to live the same lifestyle I am accustom to? And, how am I going to do all of this without my best friend?

What was once a four letter word to her became the most important question; what are my expenses and can I support them?

A budget is simply a tool to measure the amount of expenses to support a certain lifestyle/household. Once a baseline has been established, you review it at least each year to ensure that your assumptions are in the original ranges or within close proximity.  Never will it be exact or even close to perfect, but without an honest first attempt, you are working without a very important measurement tool.

A budget is a living, breathing, ever-evolving piece of information.  As much as I would love to discuss all the other, more exciting areas of financial planning, a financial plan provides little value or insight without a detailed, well-thought out budget.  Heightening your awareness is the first and potentially most empowering step.