Let’s talk about the B-word
June 13, 2019
Lia Bertelson
Lia Bertelson
Certified Financial Planner™
Investment Adviser Representative
470.443.1808

…the part of financial planning that everyone dreads, no matter their income.

This week I received an email from a client with some answers to follow-up questions about her financial plan. At the end she wrote, “no progress on the b-word. Sorry.” It made me laugh out loud. The b-word that she so dreads is, of course, a budget.

She is not alone. In fact, her sentiment is almost universal. When I ask clients or potential clients in a meeting whether they keep a budget, they almost always look slightly panicked, or they apologize that they know they should have a budget but they don’t, or they go right into how they know they could cut their spending.

Apparently, I need to make some professional adjustments in the way I bring up the topic.

Our purpose in asking clients about a budget is not to restrict their spending or to pass judgment in any way about how or how much they spend.

Here is the news: you don’t necessarily need to cut your spending, and that is not the purpose of creating a budget.

The purpose is just to gather information and answer questions like:
• What are your needs? How much money does it take to keep the household running?
• Which needs are life-long and which are likely to change? Expenses like childcare and tuition are temporary. Factoring this in will make your plan more accurate.
• What do your expenses tell you about yourself? Is travel important to you? Is having a beautifully appointed home meaningful to you? Is carry out food a critical reality in your busy life? These give us clues about your needs now, as well as insight into the lifestyle that you are working to protect for your future.

We ask about their budgets to help our clients plan for a lifestyle that will satisfy them. Spending decisions and lifestyles vary widely, even among people with similar incomes. We make no judgment on those decisions. We just need to know what those particular habits are for our clients, so we can know with more certainty what they need to do to ensure that they can live the life they want to live, for as long as they live.

It is possible that a person or a family may decide to make some changes after looking at their spending habits, but that is not always the case.

What if we could take a step back and evaluate our own expenses as if we were a disinterested third party? Leave your own judgments aside for a moment and get curious about what you are prioritizing with your money. I suggest this acronym for a way to work your way through the budgets… IT’S LIFE.

Income
Taxes and tithes– the non-negotiables for you.
Savings– 401(k), 403(b), IRA, Roth, 529s, HSA, investment accounts, emergency fund, and saving for the pursuit of your dream goals.
Living– paying for where you live and what you use to move around. This includes your rent or mortgage, auto or transportation expenses, and the costs of maintaining them.
Insurance– health, life, disability, property and casualty. This is the category that protects you from catastrophic loss.
Fixed– bills, bills, bills. The basics go here. This is what it takes to keep the lights on.
Everything else– the things that make life fun and make you, you.

There are adjustments that can be made in every category of IT’S LIFE. After some consideration, a family may decide to increase or decrease any of the categories (except taxes—no need to try to increase that). A financial plan can illustrate what the impact of those changes will be on future financial goals. On the other hand, the conclusion may be that the current budget is working well and there are no changes needed.

I am newly re-committed to dispelling the fears of the b-word. Let’s take a step back and look at a budget as a source of information about ourselves and a tool to make sure that our plans will lead to the outcomes we seek.

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