"In Your Business" with Michael Sayre. A Production of CUI Wealth Management

Building a Financial Foundation: Budgeting Essentials

• Michael Sayre • Episode 12

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Summary
This podcast delves into budgeting and financial management essentials, emphasizing the importance of establishing a solid financial foundation. It covers the significance of budgeting as a tool for empowerment, setting and prioritizing financial goals, tracking income and expenses, creating personalized budgets, and managing irregular income and debt. The discussion concludes with a reminder that effective budgeting can lead to significant financial improvements over time.

Learn More: www.cuiwealth.com

Takeaways
Managing finances is like survival on a desert island.

  • Budgeting connects spending to financial goals.
  • Budgeting is often seen as restrictive but is empowering.
  • Short-term goals are stepping stones to long-term aspirations.
  • SMART goals are essential for financial planning.
  • Prioritize financial goals based on urgency and importance.
  • Break down long-term goals into manageable steps.
  • Regularly review and adjust financial goals as needed.
  • Track income and expenses to understand spending patterns.
  • Create a budget that reflects personal needs and priorities.

Disclosures
Securities and advisory services are offered through Osaic Wealth, member FINRA and SIPC, and a Registered Investment Advisor. Insurance services are offered through CUI Wealth Management, LLC, which is not affiliated with Osaic Wealth. Neither Osaic Wealth nor its representatives offer tax or legal advice.

This communication is strictly intended for individuals residing in the states of (Arkansas, Utah, Colorado, California, Delaware, Michigan, Minnesota, New York, Utah, Wyoming, Idaho, Maryland, New Mexico, Nevada, Hawaii, Mississippi, and Oregon). No offers may be made or accepted from any resident outside the specific state(s) referenced.

Contact Information

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  • Phone: 801-505-0548

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Imagine getting washed up on a desert island. The first thing that you'd do wouldn't be to build a luxury tree house or planting a beautiful garden. You'd be focused on the essentials of survival. You'd look at food, water, and shelter before anything else. Well, managing finances is a similar thing. There's a hierarchy of needs. Your foundation starts with ensuring that you can cover the necessities like housing.

food, utilities, and transportation. And once you have a solid base in place, then you can look at other resources to build up larger goals like saving, investing, and indulging in luxuries every now and then that can enhance your life. So think of budgeting as a blueprint. If the foundation isn't strong, the entire structure can collapse. By focusing first on essentials, you create more stability. From there, you can gradually add elements that can help you move forward towards

your financial goals and your financial freedom, like paying off debt, saving for an emergency fund, and working towards long-term goals like home ownership or retirement. Now, only after these priorities are addressed should you consider the nice-to-haves, the equivalent of the beautiful tree house in your imaginary island. Today's discussion will explore some of the structure of budget and talk about step-by-step towards budgeting. And you'll learn how to build a financial framework.

that meets your immediate needs and sets you up for long-term success. Now with the solid foundation, you can grow your resources and create a financial tree house that can reflect your personal goals. So let's get started. Think about this for a moment. Budgeting itself is empowering. Budgeting is what connects your spending to your goals. It allows you to align your resources with your priorities. And this gives you a clear picture of where your money is going and how it can be working for you.

Despite the benefits, people know that budgeting is important, but people tend to avoid it. Why is that? It's because budgeting often feels restrictive, tedious, or overwhelming. It's easy to see budgeting as a set of rules that tell you what you can and can't do rather than a tool designed to give you more freedom. So here's the trick. It's not about limits, but clarity and

A budget doesn't lock you into a rigid framework. It gives you the knowledge and structure to make intentional choices about your spending and saving. With that one, it's easy to feel like you don't have control of what's going on, no matter how much money you make. And I've seen this time and time again. We've worked with people that have a lot of resources and a lot of money, but if they don't use it well, that doesn't ensure anything. I've seen plenty of people who make

loads of money, but who don't have a nest egg like others who haven't made as much, but have saved more. You could be earning six figures and still feel broke and constantly wondering where your money is going to end up at the end of the month if you don't have a budget. A budget changes the narrative. gives you, it gives every dollar a job and make sure that the hard earned money that you have is going to work for you.

When you commit to a budget, you track your finances and create a roadmap for your goals. It's about building a life you want and ensuring that your money is spent on things that matter to you. So whether you're paying off debt, saving for your dream vacation, or simply wanting to know where your finances are, a budget is a foundation that makes all of this possible. So instead of living paycheck to paycheck or drifting aimlessly, you gain confidence and control that you can take charge of your future. So budgeting isn't just a task.

It's a mindset shift. It transforms your relationship with money and helps you live with more purpose and intention. So let's talk a little bit about long-term and short-term goals. Short-term goals are smaller. more immediate milestones that can be achieved in days, weeks, or months. So saving for a getaway for a weekend, paying off your credit card bill or setting aside.

a specific purchase for some short-term goal that you have. These are all typical stepping stones that build to larger aspirations. On the other hand, long-term goals require more time, resources, and planning. And these can include things like buying a home, saving for retirement, building a college fund for your kids. These goals can take years or even decades to accomplish, but they are essential for your personal financial wellbeing. So here's the secret to success. Tie your goals to a clear timeline.

A defined timeline can give you a sense of purpose and urgency, and it can help you stay accountable and motivated. Without a timeline, your goals may feel like distant dreams or, you know, it's hard to actually put that into place. Think about this. It's really difficult for us to judge where we're going to be in a year or three years or five years. It's hard for people to see into the future. But if you don't have any map towards a future,

You're not going to get anywhere because you don't have anywhere to get to. So as you're setting up your financial goals, we use the same criteria that we use for anything else. We want to have smart goals. Smart goals are specific, measurable, attainable, relevant, and time-bound. So if you want to be a millionaire next week, it might not be the best goal to set. You want to have something that instead of saying, want to save...

money or I want to spend less eating out. I mean, you're getting there when you start to talk about those types of things, but it's better if you can set something specific like I want to save $500 in three months by cutting back dining out or unnecessary spending. this gives you a very clear goal and actionable items that you can track. Next is to prioritize your goals. So not all goals can receive your attention at once. It's critical to prioritize because

know, it'd be nice to be able to change all kinds of things about our lives, but that's not how things work. have to identify what's most urgent and essential and important to you and focus on that. So it'd be great if we could say, you know, I'm going to get rid of all my credit card debt. I'm going to be saving $500 a week into a retirement plan and I'm going to set aside a thousand dollars for a vacation, but it doesn't work like that. You've got to prioritize because

Prioritization allows you to focus on what matters most because there are so many things that try to take our time and we have limited time and resources. And it also becomes overwhelming if you don't prioritize. Next is to break down big goals into smaller steps. So long-term goals can sometimes feel daunting, but breaking them into smaller, actionable steps can make it more manageable. So for example, if you want to buy a home in five years, start by figuring out how much you need for down payment and then create a monthly savings plan and

Michael (06:47.018)
Each month you can track and see where you're at and it can build momentum over time. Next is to review and adjust regularly. Now, this is one of those things that it might be a little bit controversial, but I think it's important to change your goals as you grow because sometimes the things that are important and the things that you are working for early on don't necessarily have the same importance now. You know, if you're saving to

do a new paint job on your car and then your car got totaled and towed away, then it doesn't make sense for you to keep on saving for that paint job. you know, times change, life changes, priorities change. So it's important for us to adjust our goals on a regular basis and realign them as those things change. Next, let's talk about tracking income.

and expenses. So before you build a budget, you need to understand where your money is coming from and where it's going. Last time we talked a little bit about some financial statements and how they can not only help big companies, but they can help individuals with their own personal finances. And that aligns really well with this. It's important to track your income and expenses. If you do a daily coffee run, see what that looks like over time. In fact, see what that looks like over the course of a year and

10 years and 30 years and see what it looks like. If instead of going out and buying a coffee every day, what if you put that into a, an investment? What would that look like at a reasonable rate of return over the course of 30 years? I think this is a really good way to understand what the cost really is of spending money frivolously. Now I'm not saying don't go out and get a cup of coffee every now and then. That's, there's nothing wrong with that, but saying be mindful of your spending because

Sometimes those little things are the things that add up over time and that can make a huge difference. Tracking your income and expenses is a foundation to effective budgeting. It allows you to identify unnecessary spending, prioritize your needs over wants, and allocate funds towards saving for your financial goals. So here's how to do it. You can gather data.

such as bank statements, credit card bills, receipts. And this gives you a big picture, but there's a lot of technology out there that can make it easy for you to do this. There's apps like You Need a Budget. Some of these I've heard of, haven't tried all of these. I used to use Mint all the time. Mint had, it was a great app where you could connect all your financial accounts and...

I'm not endorsing any of these by the way, but you could see what your spending looked like and where your money was going. And it was easy to break down and you didn't have to go and sort through statements and bills and such. So there are apps like that that can be significant helpers along the way. The next thing that I would look at is categorize your spending. So break down your spending into fixed costs and variable costs. So those fixed costs are those things like rent and utilities, insurance, things that are

probably going to stay the same over time, whereas variable costs, it depends on the month, know, dining, shopping, entertainment. It's important to break these down because some things you can count on the bill to be the same, such as a mortgage, whereas other things are not as easy to count on as things change over time. You know, you can't expect to budget in a visit to the doctor, you know, that you're going to, you know,

spend $500 a month on seeing the doctor doesn't work like that. If you break a leg, then you're going to go see the doctor today. But if you don't have any issues, you know, you might just go to the six month month checkup or whatever that might be. Another thing that you can do is identify your spending patterns. Take a look at your habits. Are you buying things on a regular basis that have become habits and that can easily be replaced with other spending habits?

simply because you have just gotten used to doing certain things. know, I know here in our office, we have a gas station that is just close by the office and it's really easy to go and purchase things on a daily basis. And, you know, everybody has their own lifestyle choices, but I'm just saying take a look and see what those habits are and see if there are some patterns that are not suiting you well. One of the most important things that you can do is compare your spending patterns to your income.

Obviously, if you are making less than you are spending, that's not a good thing that's going to come in the backside in the long term. Compare your spending to your income. And then finally, make adjustments. Just like you make adjustments to goals, you need to make adjustments to your budgeting and spending patterns. If you see that you are spending money frivolously over time on regular basis, see what you can do to break those patterns. Make adjustments.

The way that I do budgeting, I like to get an estimation of what is the total amount that I want to spend over the course of the month. And I break it down into categories and I kind of get an idea. And I'm not one that likes to look at my budget with an eagle eye every single day. I like to have some flexibility, but I like to know what the parameters are. Some people are a little bit more strict. I know of people who have note cards of everything they spent every day of their life.

for years or decades on end. I'm not like that, but for some people that makes sense. But the point is to take the time to review your spending because if you don't do that periodically, if you don't take a look at checks and balances, your spending can increase over time. know of people who have made it a habit to look at their budget every year and cutting a specific amount from their spending every year. So they may say, you know,

over the course of the year, I have made more commitments to different subscriptions and such. So I'm going to cut my spending by 19 % at the beginning of the year. I've seen that and that seems to be a great way to go. So it really doesn't matter. There's a lot of ways to make budgeting work. The most important thing is to make sure that you have a pulse on things and that you pay attention because if you don't, it can have a significant impact on your finances over time. Next, let's talk about how to create a budget. So

Budgets are not a one size fits all solution. It reflects your needs, your lifestyle, your priorities. What you want out of life may be different from what someone else wants out of life. But if you're unsure where to start, I'd begin by looking at some of the frameworks that are out there. There's a framework called the 50, 30, 20 rule. It's pretty straightforward and easy to implement. It's just that you spend 50 % of your income on essentials. So things like housing, groceries, utilities, transport, your day-to-day living costs.


30 % on discretionary spending. So hobbies, entertainment, and 20 % on savings and debt repayment. If you have more going towards debt than 20%, maybe you can take a little bit out of the discretionary spending and put it towards debt. Now, this is just a framework. This is a basic framework that some people use and it works well for them. doesn't mean that it works for you, but that's a great way to start.

as you get a better handle on your budget. Maybe you can adjust things over time, but 50, 30, 20 rule. So 50 % going to essentials, 30 % discretionary spending and 20 % towards savings or debt. Next, let's talk about sticking with the budget. The truth is it's hard to stick to budget perfectly and that's okay. But the main thing is that you want to make sure that you have some consistency in your spending.

and that you are not flying blind. Life is unpredictable. Like I said, you can get into a situation where your car breaks down or kid breaks a leg or whatever the case may be, but it's important to keep track of things. One of the easiest ways to stay consistent is to automate your savings. I've always said, if you give me a dollar, I'll find a home for that dollar. I'm pretty good at finding places for that dollar to go. And that includes savings. you automatically have

money going from your paycheck, for example, to a 401k plan, that's a great way to automate your retirement savings over time and it makes it so you don't have to think about it. And that's one of the most powerful reasons why people should participate in a 401k plan. It's not necessarily about an employer match as much as it's about having an automated way that you can save for retirement. You may set aside automated savings goals for your individual savings account. And I think there's

some power in saving just to save. Sometimes we want to save for specific things and that's great, but it's a good practice to save just to save. As you are budgeting and putting things together, make sure that you have some flexibility. You don't want to have every single dollar assigned to every single thing that you're planning on spending. That makes for pretty dull life if you can't decide to go and take your kid out to eat every now and then.

And then as a common theme that we've talked about today, regularly assessing where you are and reassessing, I think that's key. It doesn't mean that have to sit down every day or even every week, but periodically take a look at where money is going and where money is coming in from and adjust your goals and adjust your spending habits over time. Okay. Here some of the questions that we've had from different individuals. One of them is how to handle irregular income.

So if you're a freelancer, a contractor, a business owner, sometimes it's tough to predict your cashflow. And I've been in that space too. mean, I am one of the partners in with CUI Wealth Management. And when I started working in this industry, it can be pretty unpredictable. You can have a quarterly income that's a little bit bigger, larger paychecks, and then

you may not have as much in between and things go up and down. So what really worked for me with handling irregular income is, so I went old school, I got a spreadsheet and I listed all my fixed expenses and my variable expenses. And every month I put at the top of the month what my expected income was and what my expected bank balance was. And I'd add those together and then I'd subtract my expected fixed and variable.

expenses. And then at the bottom of the spreadsheet for that month, it would show what I had left over. then I put that in the next column over, in the next row, the next column over and carried that over. then had going down once again from the top to the bottom, my fixed and variable expenses. And that way I could see what that looked like over time, my income savings and so on and so forth, where everything was going.

And that was a great framework for me. The other thing that I would say is for irregular income and freelancers, business owners, there's that rule of thumb that you should save three months of living expenses in a savings account. If you are a business owner, I would push more towards like a six months of savings of your expenses in a savings account because there can be a lot more volatility and you can't always control the economy and what...

Well, you can't control the economy and where things are going. So it's important to be prepared for that. Another question that we often get is balancing debt repayment with other financial goals. You know, should you wait until all your debt is paid off before you start prioritizing other goals or do you mix things up and spread it across multiple goals? And the way that I look at this is if you are, it's more a matter of where you

put the priority. Now, if you have high interest credit cards, then yes, you may want to put more money towards that than you would be saving towards retirement because a credit card company, are going to require you to pay a specific interest rate. Whereas the markets, like the stock market,

that is a variable up and down. You don't know if it's going to be positive or negative. And so a guaranteed payment to the creditors versus a non-guaranteed potential earning from the market, it's going to make more sense to pay down those high interest rate credit cards because sure, you could potentially beat that.

credit card in the market and do better than make more than what the credit card company is requiring you to pay, but that is unlikely. I think it's – I always like to use the example of a canoe. If you're in a canoe, there's times where you pedal more on one side and times where you paddle a little bit more on the other side. That depends on a lot of things, the wind, the current and where you're trying to get to. And so I would say you don't put aside every other financial priority to take care of one. In most scenarios, you can

You can bridge out and have multiple things that you're working on. Okay, to wrap things up, budgeting may seem intimidating, but if you use budgeting over time, it can make a huge financial impact. There is a financial hierarchy of needs. You want to build your foundation before you go onto other bigger and better things. You start with the necessities and you work up to...

the wants and the wishes over time. If you start trying to build the Swiss family Robinson type of tree house and so to speak, and you haven't secured food and water, you're to be in a bad situation. And when it comes to finances, you want to make sure that you take care of your day-to-day expenses before you go out and buy the awesome car. hope this has been helpful. Please like, comment, and subscribe. I'd love to hear from you. And if you have any great

thoughts or ideas, please reach out to us. If you want to take your finances to the next level, we'd love to help. And you can reach out to us at cuiwealth.com. We'll see you next time.