How many times have you been told by a parent, friend, or financial professional that you need to have a budget? Countless times I am sure and admittedly I have been on the other side of that conversation many times with clients. Now, with all those people harping on you to make a budget for yourself, how many times have you actually made one? For sure some of you have, but in my experience on both sides of this conversation I know that most people have not made a budget. So why do financial professionals continue to harp on people to make one?
The problem I have with the way advisors have approached budgeting in the past is that they are not realistic about what is going to work for you as a client. Sure, if you come to me with a fully completed spreadsheet illustrating your income and expenditures down to the penny over a 6-month period that would be great! It makes my job a lot easier, but the fact is that it’s completely unrealistic to expect that most people are going to do that. Creating a comprehensive budget of this magnitude takes a lot of work and at the end of the day it fails to recognize the way most people think about money. To most people, budgeting means limitations and even elimination of things they enjoy doing… generally not the most fun thing to do when you are exploring your lifestyle.
So, if you’re not the analytical type that enjoys diving deep into the details of budgeting spreadsheets and bank statements, what should you be doing? The first thing you should do is know where you are spending your money. Although I am not a fan of the way that Financial Professionals have approached budgeting, I do think it is important that you have a general grasp of where your money is going on a monthly basis. There are a lot of great tools out there now which can make getting this info quite easy to do. In fact, most banks are now offering analysis tools in their online banking platforms, and if not there are many apps out there which can help you out, I would recommend looking at “Mint”. The reason why this is an important first step is because you want to prioritize your money to the things that are most important to you. What many people find is that they are allocating money to things that are not that important to them and they would prefer to allocate more to other areas or activities that are.
Another error which Financial Professionals are making consistently is that they assume that your number one goal in life is to retire and thus you must have a budget which ensures you will be able to. Now for most people, this may be your number one goal, but for more and more people today it is no longer their primary purpose for working. As Canadians, most of us are fortunate to have the opportunity to find a career or a vocation that we love and find rewarding. At some point you may choose to retire but I am seeing many more of my clients working later in life, not because they must, but because they find their work rewarding. The “traditional mentality” of saving everything for tomorrow leaves you open to a risk which most people fail to consider, which is the risk of underliving and leaving opportunity on the table. Nobody has the crystal ball and so you need to live a rewarding life all the way through, not just when you are able to retire and stop working. If you enjoy drinking $4 coffees every day and they make you happy then go ahead and don’t worry about how many cars you could buy if you saved that money. If owning a luxury vehicle makes your life better, then go ahead! But understand that prioritizing money to these items takes it away from other opportunities.
Now, don’t take this as my permission for not planning out your future and spending all your money today, because it’s not! In the technological age we live in, ignorance is no longer an excuse and it’s important to know where your money is going but this doesn’t mean that traditional budgeting is necessarily the answer. Know what your priorities are, know how much is needed to achieve those priorities and make sure your money is working towards them, both long and short term. At Endeavour Wealth, we call this Smart Money.
- Grant White, CIM, CFP®
Grant White is an award-winning Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.