Common Questions About Budgets

There are many aspects and things to consider when preparing a budget which means there are lots of questions about budgets.

Recently, a high school senior who was working on a school project, contacted me.  This article is based upon his questions and my responses. I thought the questions about budgets would make a good article. It’s important to note that he was asking these questions from a young adults’ perspective.

How frequently should you reassess and make changes to a budget?

Every month you should review your budget and consider making changes.  In real life, things change more often then we realize.  This does not mean that you must make changes every month.  I am suggesting that each category should be evaluated.

It usually takes several months of data before you have an accurate budget.  Spending may fluctuate, emergencies and unexpected expenditures can occur.  You may even receive a raise or start a side hustle.  Just remember, the purpose of a budget is to avoid spending more than you are earning.

After creating a zero-sum budget, how strict are the budgets meant to be followed by clients?

The term “zero-sum budget” basically means every dollar earned is either spent or saved.  The net result of income less spending and saving is zero.

This concept is the best way to prepare a budget.  The difficulty lies when people budget for what they “wish” they were spending.  A more realistic way to make a budget is gather actual spending for several months.  Then based upon actual experience, make a budget.

Besides the general trends in the millennial market (a desire for financial stability, experiences over materialistic possessions, greater human capital investment, and technological use), are there any specific things that are recommended for millennials in terms of budgeting?

Millennials buy a lot of monthly subscriptions and they can add up quickly.  It’s possible you may be paying for something you are no longer using or forgot you have.  Since the payment is automated, you may not even realize how many monthly subscriptions you have.  Audit your bank accounts and credit card statements and add up all your subscriptions.  Are you spending more than you thought?

Save and invest in the stock market.  In general, millennials are too scared to do so.  It’s a terrible idea not to do so.  You have time on your side and if you don’t start, it will cost you dearly.  It is one of the best ways to build wealth.

What is the best single piece of advice you would suggest I give to a client in terms of building their budget?

Every dollar you earn has a job.  It’s either paying for a current or for a future expense. The important question is: What do you want that dollar to do?

You can use your money for something immediate like a cup of coffee or a salad for lunch that you make yourself.  You can use it for travel in the next year or for more long-term goals like a down-payment for a home.  Pay attention and make conscious decisions about how you decide to spend or save your dollars.

Final Thoughts

Hopefully, the questions about budgets presented here were helpful.  It’s important to know that preparing a budget is one of many steps in assessing your personal financial situation.