Having spent over ten years in Corporate Finance and going through many budget cycles for companies I am pretty comfortable with creating and tracking against budgets. I am excited to share my knowledge with you and how you can apply to your life starting today!
Budget for Companies
In Corporate America a budget is typically created in the summer and approved by the Board of Directors around December prior to the beginning of the next fiscal year. The Budget aligns with the company’s goals for the following year and helps the company stay on track with spending. On a monthly or quarterly basis Budget vs. Actuals are analyzed so the company can course correct as quickly as possible and ensure spending goals are on track. Typically most of the Budget is built in excel or another planning system. Us finance folks use excel for everything and it is pretty amazing.
Now we can apply this knowledge from Corporate budgets to our personal budget.
Plan Out Your Financial Goals
Similar to Company budgets we should create a personal budget at least once a year and plan out our personal finance goals. Examples of personal finance goals can be:
- Save up for a down payment on a house
- Start and / or contribute to a 529 plan for your kids
- Continue to save for retirement in your 401(k)
- Save up for a vacation
- Save up to help your parents with their expenses
- Create a six month emergency fund
- Save for retirement / financial freedom
Start with Your Net Monthly Income and Subtract Expenses
After deciding on your personal finance goals you want to start with your net monthly income. Net income is your after tax monthly income. You’ll want to subtract any recurring expenses such as:
- Rent / mortgage payments
- 401(k) payments
- 529 account expenses
- Childcare expenses
- Car expenses
- Grocery / going out to eat
- Phone payments
- Health insurance
- Other expenses
It is helpful to look at your historical three to six months expense trend to get a good idea of your buying and saving behavior. After subtracting all these expenses you’ll want to see how much you have left to save and then invest.
Analyze and Review Your Monthly Savings
Review your monthly savings as compared to your income and see if you are able to achieve your financial goals. Some of us that live in low cost areas and / or have really high income are able to achieve high savings rates easily. For those of us that have a lot of expenses and / or live in really high cost cost areas (think California, New York, and other Coastal Cities) it may be harder to get to the savings rate we would like. Especially in many articles and blogs I have read savings rates of 20% or higher are recommended. If you are not there yet that is okay. Put together a plan on how to get there.
While I try to save and invest as much as possible there were several years especially when our kids were younger than five that it was hard to save as much as I would like. While the cost of childcare is still expensive for our kids (ages seven and nine) it was even more expensive when they were under five years old. We spent two to three thousand a month on each kids childcare. That is okay. At the time I knew as soon as the kids went to public school I’d be able to save some more and so to me I prioritized continuing to work to build my career.
We all have responsibilities whether it is taking care of our parents, children, or something else and there are times when we can’t save as much as we would like. Ask yourself questions such as how long will these lower savings rates last? If they are short term that is okay. Keeping your job especially for us working mothers is incredibly important to our long term financial stability. Be sure not to miss the long term strategy of being financially stable for the short term gain of staying home with your kids to save on childcare. I know this is an incredibly complex decision and I highly respect each parent’s decision.
Determine Ways to Meet Your Long Term Savings Goals
If you are not quite at your savings goal are there areas that you can reduce or perhaps can you find ways increase your income? Currently both my husband and I work and that helps us significantly especially living in a higher cost of living area with two kids. If we lived on one income, as we have in the past, then I know firsthand it becomes more challenging to save and invest as much as I would like.
Increase Your Current Income
Can you find another job or continue to get promoted in your current job to increase your income? As my years of experience in finance increased and I built my resume by working at different companies I felt confident that when I made the transition from Marketing back into Finance that I would be able to get a higher pay. My plan of switching back into finance worked and I was able to increase my income by approximately 20%. There should always be a balance on how often you switch jobs so do keep that in mind before making any moves. Some of us are able to stay at the same company many years and continue to build our careers, get promoted, and add value to the company and that is highly respected!
If you are less likely to increase your income at your current job can you start a side hustle? There a lot of options now on how to start a side hustle whether it is being an uber driver, starting a blog, or investing in real estate. Most of these options will take some planning. But it is best to plan and get started as soon as you can. Time goes by so quickly and it is better to spend the time getting started rather than worrying.
Decrease Your Current Expenses
Is it possible to decrease your current expenses to achieve your savings goals? Some questions to ask yourself are:
- Would you consider living in a lower cost area?
- Can you plan your meals and put together a grocery list in advance to reduce weekly food costs?
- Can you limit how often you eat out?
- Can you reduce or limit how much you spend on clothes or other expendable areas?
I try to reduce my expenses as much as possible while still being able to enjoy life. I try to thoughtfully purchase weekly groceries and not eat out to much. It is important to find balance and still budget some fun and eating out costs.
Make Course Corrections
Whether you decide to increase your income, reduce your expenses, or both as long you are willing to course correct and make adjustments to achieve your financial goals that is great. I can speak first hand that it is not easy to achieve high savings rates while raising a family in San Francisco but I am constantly willing to course correct, work hard, and put plans in place to achieve my financial goals. I am confident you will be able to do the same!
Be Open Minded and Supportive of Ourselves and Each Other
Each of our situations is a little different and that is what makes us unique and incredible. We should remember to be open minded and supportive of ourselves and each other. We should especially be supportive of ourselves, we all try so hard to do our best in our careers, personal lives, relationships, and all facets of our life. It is important to take a step back while budgeting and planning to appreciate where we are and what we have accomplished!
As long you have a strategy to get to your savings and investing goals in the long run and are willing to course correct you should be well on your way to being in excellent financial shape.
We Are Looking for Action and Not Perfection
Readers what are some of your long term savings goals? Especially for those of you in big cities would love to hear about your tradeoffs between childcare and savings. There is no right or wrong answer!