David Barson from Barson Financial Planning. I want to talk to you today about a topic that is critical to financial planning, and that is budgeting. And very few people do it, main reason being that it's time-consuming. Hopefully, from today's video, I'll give you some tips and tricks to help you with that. And I actually will provide you a budgeting toolkit. If you just click at the bottom of the video, you can get access to that too, as well.
So let's talk about budgeting, and why it's important, and how to do it. First thing you want to do when you're doing your budgeting is figure out how much income is coming into the household. So that's looking at wages, tips, salary, pension, and maybe even Social Security, if you're retired. So looking at those things that are coming into the account. And I want to look at them after taxes, after expenses. So if you have things pulled out for taxes or whatever else, just what actually hits the account is what's important. Okay, and then you want to look at tracking your expenses. So we, here, use software to do this. And you can use software that's free over the web or just the tried and true spreadsheet where you just list out all your expenses and all your income, and then get a sense of that. The third way that a lot of people, I shouldn't say a lot of people, but some people do is, they'll just have all their income and all their expenses come out of one account. And then, at the end of the month, they can get a sense, a general sense, of what's going on there. And that's really all we're trying to do here with budgeting is get a general sense of what's going on.
Now, it is nice to know what the difference between your needs and your wants are. And some people call this discretionary or non-discretionary expenses, or lifestyle, or basic living expenses, whatever it may be. We want to get a sense of what does the household actually need to live? So utilities, groceries, auto expenses, things like that. Those are key expenses that you just really can't live without, right? And then, you have the wants. So those are your entertainment, traveling, vacations, things like that. That you want to sort of separate those, and figure out what the differences are. And the reason being that if there's a recession, or you lose your job, or you're not getting your bonuses because there's a recession, you want to know how much fat is in the budget that you can trim back to just those basic living expenses. Critical certainly in retirement, but also helpful to know pre-retirement too, as well.
The purpose of budgeting really, is just to get an idea, what's coming into the household, what's going out, so at the end of the day, we can figure out how to fund the goals that we have, right? That might be sending kids to college, or early retirement, or even just not early retirement, just regular retirement. Might also be buying a home or a boat or whatever your long-term goal is. So this is why budgeting is critical to financial planning.
So not any specific advice here, just general information, mainly for educational purposes. If you do have questions about your specific situation, talk to your certified financial planner or your accountant, and they should be able to help you out. So hopefully this is helpful, and have a great day.
David Barson, MBA, CFP® is a financial planner and founder of Barson Financial Planning, a Fee-Only Registered Investment Advisor based in San Mateo, California. Barson Financial Planning offers comprehensive financial planning and investment management services specializing in working with those approaching or in retirement and professionals in biotechnology.
Disclaimer
Barson Financial Planning, LLC is a Registered Investment Advisor offering advisory services in the state of CA and in other jurisdictions where exempted. The information contained herein is not intended to be used as a guide to investing or tax advice. This material presented is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Past performance is no guarantee of future results
