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Sound Advice: April 30, 2025

Budgeting: The Key to Financial Planning 

Although it’s tempting to think that the main issue of concern for planning one’s financial future is accumulating enough money to handle the costs of the years ahead, that’s not really the challenge.  It’s a matter of balancing what’s coming in with what’s going out.

What’s coming in during working years is usually income from salaries or businesses owned.  In retirement, incoming cash flow will probably be from some combination of income from investments (and businesses owned), pensions, and social security.  Most of this is readily available information.

The problem going forward is the other side of the equation: what you’re spending.  At first glance, understanding these items would seem to be straightforward, but it’s anything but.

What first comes to mind are major items such as rent or mortgage payments.  Alongside are food, household incidentals, and utilities such as electric and natural gas.  But there’s much more.

What about clothing and personal items, property improvements, and upkeep.  Or domestic help, home aides or babysitting?  And things such as property taxes, entertainment, and vacations.  Or charitable contributions, alimony, child support or child care?

It doesn’t end there.  How about books, newspapers, and subscriptions?  Home furnishings and gifts?

Seems like that’s all?  It’s not.  Don’t forget medical expenses, loan payments, credit card payments, and insurance payments?

Wow, that’s a lot.  But these are only the recurring items.  Then there are, occasionally sizable, nonrecurring items such as new car purchases, major home repairs, unexpected medical bills, legal fees, and higher education.

To plan well for the future, the task is to ensure that your burn rate (annual expenses) is within the prospective range of your future income while maintaining a sufficient reserve to cover the other than regular items that crop up from time to time. 

 

 

N. Russell Wayne

Weston, CT  06883

 

203-895-8877

 

www.soundasset.blogspot.com

 

 

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