Wednesday, July 8, 2015

Back to the Basics: Dust off your Budget


I read a great article recently about the St. Louis Rams football team. Before they allow any of their new draft picks to sign contracts (many containing huge signing bonuses) they have to attend a mandatory “Financial Planning 101” class.  If the story is true, one of the coaches walked into the room with a briefcase and dumped out one million dollars in cash onto the table. Hopefully that got their attention [it would have gotten mine!]; because the next thing he did was physically remove a third of the pile…for taxes. He then took away several other stacks representing the player’s management fee and declared what was left was theirs to keep… BUT they had to make it last for the rest of the year.  

Not all of our employers are able to put our entire annual salary on the table in front of us in cash and challenge us to be good stewards of money, but what if they could? Would it change how you manage your money right now?

Our coach in this story is teaching his players a very valuable life skill and lesson on the importance of wisely controlling how you spend money. In the financial world we call this a “Spending Plan” or a “Budget”; a great tool that when used properly can help prevent you from overspending on your lifestyle and falling into debt. 

If you’re new to budgeting and making a spending plan, regardless of your age, don’t sweat it. No one gets their budget perfect the first, or even after several tries.  What is crucial during this timeframe is that you compare the projections you made to what you actually spent that month.

If you need a place to start or a format to follow; email us today at info@paragon-adv.com to request a free copy of our Household Budget Template.

The key to budgeting is to plan for your expenses ahead of time. By knowing your spending habits and accounting for your wants and needs it’s possible to take out the guesswork and quit wondering where all your money went.  If you’re married, being able to sit down and discuss your budget with your spouse will allow you to be on the same page and prevent future money disagreements; which can be a huge stress reliever. 

What if I have a surplus or a deficit?

If you find yourself having too much month left at the end of your money then it’s time to be honest with yourself. If you have a deficit by spending too much or your expenses are greater than your income, one of two things should happen 1) Decrease your Expenses and/or 2) Increase your Income. If you’ve dug yourself into a hole the best thing to do is stop digging! Put a plan in place to alter your habits so that destructive financial behavior will not create further problems.  In the words of Ben Franklin: “Beware of little expenses; a small leak will sink a great ship.”

What if you review your budget and make more money than your expenses? Congratulations, that is a great problem to have! When you reach the point where your expenses are under control is a perfect time to maximize your contributions to retirement accounts, children’s college funds, as well as save and invest for major purchases and financial goals.

We, at Paragon Financial Advisors, assist our clients in identifying their cash flow needs in order to maximize their savings and lifestyle. We offer Financial Planning and Investment Management. Paragon Financial Advisors is a fee-only registered investment advisor located in College Station, Texas.


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