Budget Giving You Trouble? Look Below the Surface

If budgeting were easy, you wouldn’t be reading this. It’s not easy. You may already know not to overspend, and you understand income minus spending equals savings. That’s not the problem for many people who struggle with budgeting. The hard part is accidental under-planning.

If you’ve ever made up a spending plan that only worked for a month or two, you have probably experienced the effects of under planning. The typical budget format includes monthly expenses like housing, bills, transportation, and food. You also include non-monthly spending like clothing, vacations, and car maintenance. If everything on your spending plan adds up to your income but you didn’t actually plan for everything, you will overspend.

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Dealing With A Financial Emergency In Stages

Last week, Shannon wrote about what emergency funds are really intended for. As a follow up, I’m sharing a piece I wrote last summer that first appeared at NerdWallet.

Financial emergencies come in all shapes and sizes. They are, by definition, obligations that you haven’t planned for and that will be difficult to pay. Whether you should have anticipated an expense is irrelevant once you’re faced with it. If you must pay it soon, and if not paying it will bring serious consequences, then you have a financial emergency.

Many people have an emergency fund — money set aside for no other purpose than to bail them out of a crisis when they have no other cash available. Even if you don’t have such a fund, there may still be ways for you to make room in your budget to accommodate the urgent expense. And if you do have an emergency fund, you can use those same methods to put off having to dip into it, which will make your “rainy day” money last longer — or preserve it for the next unforeseen expense.

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What An Emergency Fund Is Really For

The emergency fund: simultaneously the most useful and least descriptive financial tool there is.

We all know emergency funds are meant to handle life’s curve balls. But the term “emergency fund” is so broad that it leaves us pondering:

What constitutes an emergency – and what illustrates a pattern that could actually be planned for?

Most financial advice that broaches the topic of emergency funds fails to address this important question. The result? We build up our emergency funds only to dip into them more frequently than planned – and for “unexpected expenses” that were actually quite predictable.

If all we ever do is use our emergency funds and then rush to rebuild them again, then there’s no way we can get ahead financially. An emergency fund is just the first of many important financial goals, so anytime we ping pong on our progress, we’re getting set back on all of our financial potential. That’s why it’s so important to understand what an emergency fund is really for.

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How to Switch Your Money Mindset from “Fixed” to “Growth”

When it comes to achieving personal finance goals, 90% of the work is emotional.

From a logical perspective we know what to do. Spend less than we earn. Save for the future. Avoid debt; pay debt off if we have it. Figuring out how to do all of this is a bit more challenging, but it’s not impossible (and there’s a lot of advice out there and professionals available to help).

The challenges we face when striving for financial goals aren’t tactical, they’re emotional. And these challenges can be overcome – with a growth mindset.

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A New Way to Look at Income Allocation (and Your Savings)

I’ve recently talked about how, as a financial advisor, I’m often approached with the question,

How much do I need to be saving for my future goals?

Putting a dollar amount on something set for the future is no easy task, so I’m never surprised when I get asked this question. We all have a list of objective things we want to save for (retirement, a home, cars, even a tank of gas), but understanding the amount we need for each of these goals isn’t always so straightforward.

The breakdown I give my clients is fairly simple: I give them a specific ratio for income allocation. But in order to structure that income allocation, I introduce a term that most of my clients have never heard before: “achieving expenses.”

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Why You Should Ask “Why” When You Receive Financial Advice

A few years ago, I was given the worst financial advice I could have been given – and I took it.

To be clear, the advice I was given wasn’t objectively bad. In fact, for someone else it could have worked very well. But for my goal and where I was emotionally at the time, it was terrible advice. And I paid for it in years worth of credit card debt.

Had I taken a minute to relate the advice back to my specific situation (in other words, my goal and the emotional blocks I was dealing with), then I would have known it wasn’t going to work for me at that time. Instead, I looked at it objectively. Since it made more sense objectively, I went with it.

That was when I learned the importance of asking “why” every time someone gives financial advice. Because, if we don’t do that, we could end up in situations far worse than the ones we started with.

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Savings, Redefined: What You Need to Know

As a financial planner, I’m commonly approached with this question:

How much do I need to save for my future goals?

In thinking about it over time, it’s become clear to me that savings isn’t always what we think it is. In fact, the line between savings and spending (two seemingly opposite financial actions), isn’t as clear as it seems.

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The Biggest Money Mistake You Can Make

Have you ever written out what seemed like the best budget ever – only to find that a month goes by and, like all the months before, you have no clue what happened to your money?

This is where budgets and intentions can get in the way of actual progress. If this has ever happened to you, then there is more than likely one key thing you were forgetting to add to your budget. And that key thing is the biggest mistake you can make in personal finance.

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Are You Looking at Budgets All Wrong?

There’s a real problem with today’s approach to goal setting. In our way too busy for anything but need to “have it all” culture, we’ve been forced to relegate major life goals into tasks, line items to be crossed off a list.

  • Lose x pounds
  • Save up x amount of dollars
  • Buy a house in x years
  • Get happy

The list goes on and on. And while I strongly believe in goal setting (you can’t accomplish that which you don’t set out to do), viewing goals as something to be achieved once and then crossed off a list forces us into a narrow point of view.

This limited point of view places arbitrary constraints and pressure around our goal. Those constraints (that didn’t need to exist in the first place) then make us feel bad about ourselves when we don’t achieve within them fast enough. And that loss of self worth makes it even harder to continue pushing forward to achieve.

When we relegate major life goals to simple to-do lists, we lose sight of the big picture, we make it arbitrarily harder to reach our goals, and we set ourselves up for failure.

This practice applies to any life goal you can think of, but it has a major impact specifically on how we budget our money and how we set ourselves up for financial goals. Just like we’ve been looking at our goals all wrong, we’ve been looking at budgets all wrong. So let’s talk about what you can do to fix it.

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How to Strike a Balance with Emotions and Numbers in Money

At first glance, personal finance is a numbers game.

Write a spending plan. Pay off debt so your net worth doesn’t decrease. Try to increase your net worth through investments.

But when you dig deeper, personal finance is also an emotions game.

Writing a spending plan only works if you’re motivated enough to stick to it. Paying off debt is hard to do because it can cause feelings of shame, it’s frustrating, and it’s often part of a long-haul strategy. Increasing your net worth through investments can be hard when you realize the market fluctuates (and sometimes crashes).

The point is, if you want to win the money game, you have to strike a balance between numbers and emotions. It’s two sides of the same coin. Here’s how you can work both sides and reach your financial goals.

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