Budgeting Effectively For Wealth Management

Budgeting Effectively For Wealth Management

Budgeting is an essential foundation for reaching financial goals as well as building and managing wealth. Creating a budget provides you with a snapshot of how your money moves. This information can be used to assess your existing financial situation and also allows you to plan future financial goals. The following is an insight into budgeting for wealth management.

Implementing A Budget Plan

Creating a budget plan can recalibrate your spending and assist with your money management as well as your long term savings goals. For example, you may allocate an amount or percentage of your income to the following areas each time you get paid1. These three areas are needs, wants and savings. Below are examples that can make up each of these categories:

Needs

  • Rent or mortgage payments
  • Transportation
  • Groceries 
  • Insurances 
  • Childcare
  • Education 
  • Utilities 
  • Phone and internet

Wants

  • Dining out
  • Daily coffee
  • Shopping 
  • Entertainment
  • Subscriptions
  • Hobbies 
  • Holidays

Savings

  • Emergency funds 
  • Savings accounts 
  • Extra debt repayments 
  • Investments inside and outside of superannuation

 

The amount of money allocated to each of these categories is dependent on personal circumstances. The 50/30/20 budgeting rule may assist individuals who would like to implement a budgeting plan to manage their finances.  

50/30/20 Budgeting Rule 

This rule2 provides a general guideline that may assist with initial financial plans and actions. In overview, a budget plan that recalibrates spending can help to create financial balance to meet expenses, allocate spending money, save money and maintain financial security. 

 

The 50/30/20 rule consists of allocating 50% of your income to needs, 30% to wants and 20% to savings. When starting out with a budget this rule can be beneficial but you may also want to consider a financial planner so that your situation can be assessed according to your personal circumstances. 

Tracking Spending 

When making large purchases such as a house or car many individuals tend to assess the long term impact of their decisions. This however isn’t always the case when making other purchase decisions such as day to day spending. With the switch to electronic purchases, individuals may experience desensitivity to the value of money, increasing purchase frequency and amounts. 

 

Cash-based purchases on the other hand are tangible and individuals are more likely to be aware of money leaving their possession. No matter how small the cost of your individual daily spending purchases are, for example, your morning coffee, it all adds up to your overall spending figure. 

 

Formulating a budget for your monthly income can provide you with a better understanding of how your money moves3. This information can then be used to assess your current financial situation and implement appropriate plans to achieve your financial goals month to month. 

 

Tracking spending regularly whilst budgeting should allow you to gain an accurate picture of the movement of your money. A budget should account for fixed expenses as well as variable expenses, which may require regular adjustments and planning. 

 

Budgeting is important as it can assist individuals to control their spending, track their expenses and save more money for long term wealth creation and management. There are many ways to assist with effective budgeting such as implementing a budget plan, using the 50/30/20 budgeting rule and tracking spending regularly. Budgeting effectively directly impacts wealth creation as well as wealth management. 

 

If you require any assistance in regards to the movement of your money and putting a plan in place to achieve your personal finance goals you may like to consult a financial service. Michael at Ethica is a wealth management specialist that may assist with budgeting for generating and managing wealth. Contact the friendly team at Ethica today for a free 2 hour consultation.

 

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.