Budgeting is a common concern, and many people wonder how much is too much to spend. The answer varies for everyone, and budgeting can be challenging due to changing spending habits and evolving expenses.

How to Simplify a Budget by Solving for Savings

To simplify the budgeting process, we suggest starting from the end goal and working backward. Consider a couple aiming to save for a house downpayment and retirement. Begin by determining the annual savings needed for each goal:

  • Downpayment – $20,000 / year
  • Retirement – $30,000 / year
  • Total Savings – $50,000 / year or $4,167 / month

These goals are adaptable to your specific objectives. Instead of delving into a complex budget of fluctuating expenses, prioritize solving for your savings goal first. Make the savings goals automatic by setting up scheduled transfers, eliminating the need for manual transactions.

Wondering if You’re Spending Too Much?

Using the example above, if the couple meets their savings targets without accumulating debt or tapping into emergency funds, they are not overspending. While this is a simplified scenario, it’s important to address all future savings goals and their timelines. If the savings target seems too high, prioritize which goal is more important. For instance, if $50,000/year is unattainable, discuss which goal to fully fund and which one to delay or partially fund.

For retirees, budgeting takes on a different dimension. Fixed incomes and unique expenses in retirement require a tailored approach. It’s essential to factor in healthcare costs, potential travel, and leisure activities. Retirees may need to reassess their budget regularly to ensure it aligns with their evolving lifestyle and financial needs.

In cases where savings targets aren’t met, it’s an opportunity to review the budget and identify areas for potential cuts. While uncovering unnecessary costs is important to avoid, we view this exercise to be more helpful than debating which streaming service to cut or do we have too many new clothes.

When engaging in budget discussions, consider starting with this approach to find a simple solution to what might otherwise become a complex topic.

Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.