Budget Now or Budget Later – It’s Your Choice

Budget Now or Budget Later – It’s Your Choice

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No one likes the word, “budget,” let alone doing it. While it should be basic to personal financial planning, budgeting is often a reluctant response to a negative financial experience. A common example of this situation is after an inordinate amount of credit card debt has been accumulated.

Setting up, modifying, and sticking to a budget requires discipline. Planning, organizing, and monitoring personal finances needs to be done on an ongoing basis. It may mean sacrificing things you would otherwise do and buy without this essential financial tool.

The ostensible, traditional purpose of budgeting is defensive in nature — making sure that you live within your means. To many people, this implies spending all of the income you receive without going in the hole. Never mind setting aside funds for an extraordinary unexpected expense, let alone saving for a future life-changing financial event like retirement.

For those of us who want to control our financial destiny, budgeting is instead a proactive financial strategy that’s used to achieve various financial goals. The overriding theme of this strategy is “Pay yourself first.” Before you allocate income toward paying for nondiscretionary expenses like your mortgage, utilities, food, etc., set aside a defined amount of income in an account that’s earmarked for a specific financial goal.

A common way this is often done is with employee 401(k) plan contributions. Before a participant’s paycheck hits his/her checking account, a specified percentage of each paycheck is automatically withdrawn and deposited into a retirement savings account. As an added bonus, the participant receives a tax deduction for the contributions and the funds grow tax-deferred until they’re withdrawn.

Does making a 401(k) plan contribution seem like budgeting? It should if you’re doing it with the goal of paying yourself first to save for retirement. It’s more difficult to adopt this mindset, however, if you don’t have a mechanism in place to automatically transfer funds from your paycheck to an investment that’s earmarked for a particular financial goal. This is a major reason why people aren’t successful in achieving financial goals, especially saving sufficient funds for retirement.

Once realistic goals are established, the core of any type of financial planning approach is a proactive budgeting “pay-yourself-first” strategy. To the extent that you don’t adopt this mindset during your working years and earmark funds for retirement, you will be forced into traditional defensive budgeting when you retire, i.e., making sure that you live within your means. Your means will be much less than what they would otherwise be had you chosen to employ a disciplined approach with your finances during your working years. Budget now or budget later – it’s your choice.

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