The markets were down across the board last week, with all three major indices moving into negative territory year-to-date. This does not mean that you should panic. This is a normal short-term reaction to geopolitical events.
If you have money set aside for the long-term, maybe in a plan at work or in an IRA, how do you handle the short-term? Your paycheck comes in, where does it all go? Creating a budget seems very big-picture, restrictive, and is often hard to implement. Instead, focus on a spending plan.
Find a notebook or yellow pad. Each page is a paycheck. Start with your next three paychecks. At the top of the first page, write down your current checking account balance. Then put how much is deposited each pay period. If it varies, it’s okay to plan with a normal paycheck. These two numbers add up to how much you have to spend – add them and write that down.
Next, list every bill you have to pay before your next paycheck. This should also include groceries; write down how much you normally spend on groceries. If your child needs new shoes, write that down. Same for haircuts, gifts, gas – everything you know you have to spend before you get paid again. You should also include savings, even if it is only five or ten dollars. Total up your spending, and subtract it from your available money at the top of the page. Whatever is left over is yours to spend, however you want.
But what if that number is negative? That’s why we start with three paychecks. Maybe your rent or mortgage, and most of your other bills, are all due in one pay period. Look at the previous page and see how much money there is left after those bills are paid. Can you use some of that to pay something early? Or, is there something you can push to the next pay period, like a haircut or oil change?
To keep you on track, there are two more things. First, put a check mark to the left of each bill that is scheduled to be paid – either because it is on auto pay or because you have gone onto the company’s website or app and scheduled a payment. This keeps you from late or missing payments. Second, update it at least weekly. As bills are paid, or groceries are purchased, cross it off, and recalculate the amount available for you to spend at the bottom. If you are married, look at it together, and make sure you’re in sync with your finances.
The system works for many people, because we all have expenses that are expected, but not regular, like car maintenance or vet bills. You may know that you spend, on average, $1,200 a year on your car, which works out to $100 a month. But it generally isn’t $100 a month, and most of us don’t set aside that $100 every month. And when the bill comes, it goes on a credit card, because we didn’t have the money.
A budget is useful for seeing what you can afford, especially for big ticket items like mortgage payments or rent. But for day-to-day cash flow, it can seem overwhelming. Tracking cash flow and knowing what you have available to spend this pay period can make it more manageable.
Your action item this week is to take a walk. As the weather warms up, getting outside and getting in some exercise is a free way to improve your physical and mental health. And both of those are linked to your fiscal health.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.