How Do I Begin Creating a Financial Budget Based on My Lifestyle?

How Do I Begin Creating a Financial Budget Based on My Lifestyle? by Nadine Riley{8 minutes to read}  In an era of so many uncertainties, individuals and companies are becoming more mindful of their bottom lines. The question is, are we addressing these concerns wisely?

We often talk about how much we need to save, but how closely are we monitoring our spending? Swiping that card and clicking on the “Pay” icon are now second nature and can become costly habits if they are not managed. Every purchase, however small, takes a bite out of our savings — yes, every one.

In this article we will discuss:

  1. How our preferred way of spending impacts our finances; and
  2. How we can identify multiple streams of income that we have not thought about before.

The information shared in this article applies to business and personal finances.

What is budgeting?

In its most simple form, budgeting is monitoring what comes in and what goes out.

Most of us will agree that we don’t mindfully think about each dollar we spend. I mean, who among us makes a written note each time they make a purchase? I’m sure you know someone who does this, as do I — and that someone would be me. Yes, when I was in college. I didn’t have so many activities to juggle beyond my GPA and very little money to manage, so I had a written note of each purchase.

It is my opinion that we should periodically review our inflows (money coming in) and outflows (money going out). Knowing where we are financially helps us to create a better path towards achieving our financial goals, whatever they may be — buying a home; repaying student loans; taking a one-month trip on a great safari.

We want to take this journey with you using a 3-5 step process; steps are ranked from basic to comprehensive:

  • Know where you are at this point in time.

By compiling your actual monthly income and expenses (from all sources, such as credit cards, bank, etc.) you should be at a great starting point. In business, this may be referred to as the Income Statement. Each of us needs one for our home.

  • Calculate the amount that you owe others.

These could include unpaid credit card bills, unpaid loans, etc. (For this illustration, we will not include your home mortgage.) I’ve found that each of us generally knows how much we earn and who owes us what, but very few of us keep track of who we owe.

  • Our preferred lifestyle.

The way we live plays a major part in our financial stability, more than we would like to admit.

For example, take a look at the cost for a ride from Soho to the Upper East Side using UberBLACK vs. UberPOOL. UberBLACK estimates a cost of up to $70 while UberPOOL estimates $8. A shared ride is a fraction of the cost of a solo ride. How many of us are willing to share a ride for a lower cost? For some of us just the mention of pooling a ride is insulting, which is an example of a lifestyle preference.

Another is your morning coffee. How many of us get our coffee from the corner donut cart?

Take this test: If you have a car service account such as Uber, check your annual summary to see the total charges for the year. Next, look at your credit/debit card summaries for meal/entertainment costs. These may be seen as small amounts but when they are added over a period of time, you will see the impact.

  • Location, Location, Location!

The one I have seen with the biggest impact is where we choose to live. My commute from home to work in the morning is over 1 hour. The commuting time for a colleague who lives in New Jersey is 35-40 minutes. And he has a great view of the Hudson River. Not only does he save on NYC local tax but he pays at least $800 less per month than a similar apartment would run in Manhattan. If we truly think about it, how many hours do we really spend at home in this metropolitan city? Is it worth paying that high rent?

  • Multiple income streams.

The finance gurus talk about this a lot. Can a regular person take advantage of this strategy? Yes.

Are you talking about taking on a second job? I don’t have enough time to do my current job, so where would I find time for another?

Hear me out on this. I believe each of us was born with a gift; within that gift is a wealth of knowledge that a company can use. Is there something that you know very well and are comfortable sharing with others? It could be just giving a start-up company one hour of your time per week, providing guidance in your area of expertise. At $350 per week, the annual income would be over $15,000. What if this company cannot pay me? Well, all is not lost; why not consider equity, based on the company structure? This could be a great tax planning strategy for high income earners.

Another — how about mentoring/teaching, which does not necessary require you to be in the classroom.

Yet another — what about that room you claim is intended to be an office, but never quite used? Thousands of college kids land on this country’s soil with the hope of getting a US-based education. Do you know you can make an average of $1,500 per month for that room? That’s $18,000 per year. Or if you prefer short-term, Airbnb is becoming more popular as a second source of income. However, be sure to check your landlord’s policy on roommates/sublets.

By the way, I won’t take away your morning coffee, but would you considering having coffee at home 2 mornings per week, then treating yourself to the coffee shop specialties the other 3 days? With small shifts or adjustments you can achieve a realistic target, but first you must know where you are currently and have a sense of where you would like to be. This is how one guru puts it: “Without numbers you can’t possibly know where you are, let alone where you are going.

We hope to hear from you. We can help you navigate your numbers as you begin the journey of achieving your financial goal.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301