Money Follows the Heart.
Creating a budget is about as fun as getting your wisdom teeth pulled. Budgeting is a painful task for most people and most would rather do anything else besides figuring out where their money is going. However, to be a successful saver and investor it’s imperative to spend some time reviewing your spending habits.
According to the American Psychological Association 72% of Americans say money is the number one reason for the cause of stress. This is usually the result of money coming in versus money going out. It’s possible to control the former but much easier to control the later. I’ve experienced most people really don’t want to know where they’re spending money. Out of sight, out of mind.
What’s the best way to create a budget? The best way to create a budget is to spend some time reviewing your credit card and bank statements for the past six months or so. January and July are great months to sit down and stroll through your finances. A January review will give you insight into your spending habits for the past year while a July review will allow you to explore the past six months of the current year. A great resource to help you get a handle on spending is Mint.com. After you’ve dissected your statements are you able to identify pockets in your spending where you can make changes?
The breakdown of your spending habits will also tell you where your heart is. People only spend money on things they need or they’re passionate about. Food, gas, electricity are necessities while entertainment and hobbies are wants. Where does your money go?
According to the Bureau of Labor Statistics Consumer Expenditure Survey here is where the consumer spends their money. The numbers below are a percentage of your income. For example, Americans spend about 12.5% on food so if your annual income is $50,000 you will spend about $6,250 a year on food. How do you compare to the national average?
Food = 12.6%
Housing = 33%
Property Taxes = 3.6%
Utilities = 7.3%
Transportation = 17%
Healthcare = 5.4%
Entertainment = 5.2%
Cell Phones = 1.8%
Reading = .2% (point two percent)
In 2015 Americans gave $373.25 billion to charities or $2,974 per household. The three largest beneficiaries of giving last year were religion, education and human services. A suggested amount for giving is 10% of your income.
Your total debt should be less than 36% of your gross income and your mortgage payment should be less than 28%. If your annual income is $100,000, then your total debt payments should be less than $36,000 per year or $3,000 per month.
Also, if you don’t know where your money is going how do you know how much to save? A person with a spend first save second mentality will never have enough money at the end of the month to invest. If you save first and spend second, your assets will continue to grow. How much should save? As much as you can or 10% of your gross income. Your savings can be done through a corporate retirement plan in addition to your personal savings. Automating your monthly investing and spending will help you improve your financial outlook. The ability to draft from your checking or savings account to an investment account or IRA is easy and routine.
With technology and the resources available to you today it has never been easier to crate a budget – yeah! Once you spend some time creating your budget the review and maintenance of it will become second nature. After you figure out where your money has been going you can turn your spending into savings!
For where your treasure is, there your heart will be also. Luke 12:34
Bill Parrott at Parrott Wealth Management, LLC. www.parrottwealth.com.
August 15, 2016
 http://www.apa.org/news/press/releases/2015/02/money-stress.aspx, accessed 8/14/16
 http://www.bls.gov/cex/2014/combined/age.pdf, accessed 8/13/16.
 https://www.nptrust.org/philanthropic-resources/charitable-giving-statis..., accessed 8/14/16