For this month's Financial Tip of the Month, I wanted to talk a little about the Dreaded Budget. In the 25+ years that I have been in this business, the process of creating a budget is probably the BIGGEST stumbling block for most clients. In fact, most people don't have a detailed budget at all and if you find yourself in the same position, don't worry. You don't need one!
I know you are thinking that is crazy! A financial planner telling me that I don't need a budget. Of course you need to be living within your means, but when it comes to planning for retirement, it's more important to just get your roadmap started. I have found a 75% replacement ratio may be the best way to get over the apprehension of creating a detailed budget. Just look at your total gross income for the year and assume you will need 75% of that in retirement to maintain your current lifestyle. At least, now, you will have a starting point.
Then, this is where the magic happens! Next year, as we compare your plan, we can clearly determine how much income you had, how much Uncle Sam took, how much you saved, and whatever is left you must have spent, right? By doing a year-by-year analysis of your income to your savings, you can start to see a pattern of annual spending emerge and begin to tighten up those spending projections from the 75% replacement ratio to something that is more reliable and accurate. If you have delayed your own retirement planning, because of this Dreaded Budget conundrum, give us a call and let's get started!