When it comes to budgeting, some advice is timeless – don’t spend more than you make, keep track of what you spend and save first are three rules that will always hold true. However, according to Stefanie O’Connell Rodriguez, a financial expert and influencer, the world has changed, and financial advice needs to evolve as we evolve. She believes some of the traditional budgeting tips and advice is too rigid, and should be updated for today’s world:
Don’t be scared of change. Often people don’t want to sit down with their finances or create a budget because they’re scared of what they will discover. More so, they fear that when confronted with their financial reality, they’ll be forced to change. ‘Taking stock of where your money is going can be a very empowering process. Knowledge is power.’ O’Connell Rodriguez says. ‘Even just knowing you’re in a bad place is better, because you can then set up a path forward’.
RE-Categorize your spending. Most are familiar with the traditional budget categories of fixed (utilities, mortgage) and variable (dinners, kid camps). O’Connell Rodriguez feels this may be limiting. Although a gym membership may not be a fixed expenses, it is still could be a priority and shouldn’t necessarily be discarded in the discretionary expenses. Instead, she recommends dividing your expenses into three categories based on your priorities: Essential, Priority and Discretionary. Essential is what you spent money on so you can live and work. Priority may be considered a discretionary, but it’s important to you – like your gym membership. Discretionary is everything else: morning lattes, books, baseball tickets, travel, etc. Now, when looking to cut expenses, you’ll have a better idea of what is most important to you, and what you can live without.
Cut the right expenses: Traditional advice tells us to ‘cut discretionary first’, because it’s not necessary. While that makes sense to a degree, O’Connell Rodriguez suggests taking a closer look at your essential expenses. Yes, you can cut out your morning coffee, but that will save you maybe $30 per month? Reviewing your larger bills may lead to significant savings. For example, cutting down a $1000 fixed expense by 10% will end up having a larger impact on your bottom line then cutting a small expense like coffee. Car expenses is often be one of those larger budget items that can be cut down. O’Connell Rodriguez recommends using a service like Kelley Blue Book Service Advisor to help cut car costs. Kelley Blue Book can answer key car ownership questions and provide personalized recommendations like what services to have done, when to have them performed locally, if your car has a recall, and most importantly, how much this should all cost based on similar repairs in the area.
O’Connell Rodriguez’s personal example of prioritizing expenses is that at 37 years old, she’s never lived alone. Although now married, before moving in with her husband, she had three roommates. ‘Living with roommates made sense for me. It’s important to know yourself, accept your values and stop listening to what people tell you is right. Living with three roommates cut down on my expenses dramatically and allowed me to do more of what I love, which was travel.’
Budgeting is a practice. Finance and setting up a budget is not a one and done activity. Budgeting should be a practice. Like everything else, your priorities, income and life will change over the years, so your budget should regularly be revisited and revised to make sense for your current lifestyle.
Read the full article here
