Foundational Financial Planning

Without mastery of the basics, you will not be able to achieve financial planning success.

“Advanced tactics are just doing the basics well.” -Leif Babin

Our office receives a lot of inquiries seeking advice in areas that do not require a comprehensive financial planner. Instead, many in the public simply need education and perspective on the very basics—the things they should be doing to set the framework for long-term financial success.

Successful financial planning is mastering the fundamentals. It is not the seductive strategies seen on social media such as buying vacation rentals, or getting a “side hustle,” or selling products on Instagram. It is doing the basics well, even if it is not glamorous or does not make a great Twitter post.

In the coming weeks I will focus on these basic financial planning concepts that each of us must master before achieving any long-term financial success:

1. Budgeting & Lifestyle Management

2. Debt Evaluation & Payoff Planning

3. Emergency Fund Creation

4. Understanding & Preparing for Taxes

5. Retirement Planning Basics

6. Planning For Advanced Financial Goals

Each of these tenets builds on one another and together, they are the crucial tactics and strategies that precipitate financial success. This week I’ll focus on Budgeting and Lifestyle Management—a straightforward concept that is easily overlooked, even by high-income earning households. See our Youtube Live from Friday.

The Importance of Budgeting & Lifestyle Management

Not knowing what your lifestyle costs cripples both your present and future. In the present, you are likely mindlessly paying bills as they come due and spending whatever money is available until your next paycheck. Even if you are not acquiring debt and are “living within your means,” you are not implementing a strategy to find more money to save, invest, leverage, or otherwise utilize to move you forward.

Equally as bad for your future, not understanding your lifestyle costs prevents you from effectively evaluating if you are saving enough for retirement. You must know—at the very least—your annual expenses to determine how much you need to save to sustain that spending level in retirement.

Where to Start

If you have never budgeted, step one is to go back and track your spending as accurately as possible. I recommend looking at your credit card and bank account statements and piecing together the last six months of your spending. Categorize the expenses and compare what you spend each month in each category. There are several online tools that assist in gathering the data even looking backwards. Our planning software for clients has this ability, and I know some who use Mint.com or Quicken with success.

Budgeting for Goals

Tracking and evaluating what you are spending is the first step to understanding where all your money is going. Next, you may need to find room in your spending for savings, debt repayment, or other goals. This is where a budget comes in. Looking at the categories of spending, evaluate if there are places you need to cut back so you can allocate those monies to your other financial goals.

Part of budgeting is going to require you to understand what financial goals you may need to be working towards. Perhaps you have student loans, consumer, or other debt that is not moving you forward. Or maybe you do not have an emergency fund or have not started saving for retirement. If you have neglected planning for these needs, you are not building a foundation for success. Now is the time to review your budget and begin looking at where you can make cuts to begin tackling these other needs.

If You Need Help

There is a need for straightforward advice on the basics of financial planning. Seeing this need, we have opened registration for our Foundational Financial Planning e-course, with the first week of material released April 3. This six-week course will go over one pillar of foundational financial planning each week. Once you have mastered these basics you will have a firm foundation and can progress onto more complex financial goals such as buying real estate, starting a business, or planning to retire early. We are offering 25% off for the first 10 Substack subscribers in the next 30-days if you use our coupon code SUBSTACK.

It is vital that we each master the basics, building a solid foundation on which to create a long-term financial plan that moves us closer to freedom for our own lives and choices.