Design Your Stress-Free Budget


26 Oct, 2016

On the one hand, the term “Stress-Free Budget” might sound really ideal, but on the other hand, it might also sound impossible.


Actually, it’s wasn’t impossible, but it was very challenging to develop. The Stress-Free Budget in the Money Organizer Plan took years to design because of all the many scenarios individual families have with their household financial needs. Fortunately, it's now very simple to set up and manage.


What may not be simple for many people, however, is following the plan. Sometimes what's ideal on paper just isn't realistic.


What does it all mean?


The Stress-Free Budget is a guideline for spending. If you adhere to the guideline percentages, your finances will be balanced in a way that will allow you to enjoy your lifestyle today, while also helping you advance toward the A Wealthgrade, and ultimately, your Ideal Lifestyle.


The guideline percentages you see on the Stress-Free Budget of your Money Organizer Plan are currently set for a family of four. If you have a larger or smaller family, you may need to adjust the guideline amounts accordingly.


It's perfectly fine to make adjustments, but remember that you only have 100 percent of your net income to work with. If you're spending more than 100 percent of your monthly net income, that's going to be a problem. If you're spending less, that's great, and in other articles, we'll talk about how to adjust your Stress-Free Budget to apply CAFR (discretionary money) to specific goals in order to reach them quicker.


Also, in some areas of the country, it's not uncommon to spend more money each month than the Stress-Free Budget guideline recommends for housing. There are some cases in which this may be OK; if it's part of a well-thought-out strategy and if it means you've adjusted your spending in other categories.


For example, in 2010 Sandra had just graduated from medical school and knew that her income would be low for the next two years while she completed her residency but that it would significantly increase thereafter.


She wanted to take advantage of low-interest rates and lower housing costs, so her advisor created two separate Money Organizer Plans, one using her current income and one with her expected income in two years. The information was enough to make both Sandra and her advisor agree that buying a home would be a complement to Sandra's long-term strategy. And three years later, because she started making more money, her housing expenses went from 45 percent of her net income to just 31 percent.


On the other hand, Bill and Teresa discovered their housing expense was 44 percent of their monthly net income. Their advisor pointed out that it was preventing them from putting enough money in their Savings & Investments category. As a result, they were going to have to retire eight years later than they had been hoping.


Bill and Teresa made the difficult decision to downsize to the right home for their budget. After just one year in their new home, they had saved more money than in the previous five years combined. "The initial decision was very difficult, but we couldn't be happier, and I sleep so much better now!" Teresa told her advisor. "I didn't even realize just how much stress I had, but building up a big savings account has given me confidence about my future that I've never had before."


We've heard lots of stories like this, but right now it's all about helping you with your story.


Setting up your Stress-Free Budget is such an important part of your plan. The right budget can make all the difference, but setting it up isn't the hard part; following it is.


One key to success is not committing to anything unless you know you will follow through This is especially important with your new Stress-Free Budget. In other words, it won’t be very “Stress-Free” if you reduce your entertainment spending to zero just like it won’t be very Stress-Free to increase your savings to 20% of your income but eat only rice and beans every day.


A Stress-Free Budget is only stress-free when you get to the place where your spending is in line with your goals and abilities, and it’s all on auto pilot. The Money Organizer Plan will help you get there quicker as it will show you your future if you follow your plan. And if you want to take it a step further, talk with your financial advisor about whether your spending plan is in line with your goals and abilities. If you need help connecting with a financial advisor in your area, click here and be taken to our Connect with A Pro page.


Remember, you work hard to get money in your checking account each month. Now work smart to make sure that when it leaves your checking account that it’s going to places that will help you advance your Wealthgrade.

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