Managing your finances can be daunting — like eating an elephant. No matter how hungry you are to get things under control, you just can’t seem to take that first bite because there seems to be so much to understand and digest. This is one big reason so many Americans never get a handle on their money.
But it’s really not that hard. As with most things in life, the keys to financial success are simplicity and discipline. Establish clear goals, create some easy-to-follow systems and habits to achieve your objectives, and stick with these year in and year out until you hit the mark.
Budgeting is the perfect example. Too many people view a budget as a cage; something that limits their freedom by constantly reminding them about limits and making them feel guilty. Worse, tracking expenses and regularly updating a budget spreadsheet seem like grinding chores.
But, in fact, a well-crafted budget is actually the key to freeing you from the cage of financial worry. Once you know where all your money is going, you can make informed decisions to ensure it is being spent efficiently to meet your needs, and advance your long-term goals. I guarantee that once you get a good look at your spending, you will be stunned at how much money is, ummm, misappropriated. There are several good online tools to help track your expenses, including GetWela.com and Mint.com.
If you are overwhelmed by the notion of creating a detailed budget, my TSL system is a good way to take that first bite of elephant. You simply live by the following allocation of your gross income.
Taxes (30 percent) — Yes, that’s correct. You must set aside almost one-third of your gross income to cover federal and state income taxes and the various other government levies we pay, including property taxes. This stunning figure should give you an incentive to study up on how you might be able to lower your tax bite.
Savings (20 percent) — This is the minimum you should be saving for retirement and other long-term goals, such as buying a house. Ideally, much of this money will be in your employer-sponsored 401(k), where it will grow tax-free until you retire and receive a matching contribution from your boss.
Life (50 percent) – So, you are left with one-half your gross income to pay for everything you need and want in life, from food and shelter to car repairs to Starbucks. How you spend this bucket of bucks is, obviously, up to you.
The TSL system is obviously a big-picture approach to budgeting. While I view it as a simple starter system, I have clients who stay at this level and never implement more detailed budgets. These folks are, candidly, financially secure. They have significant income and live well within their means.
The rest of us, I believe, benefit from taking the time and effort to create a more detailed monthly budget. Again, it need not be complicated. You don’t have to spend 45 minutes after every Target run assigning each of 18 purchases to a budget line. Start by tracking the big stuff — housing, utilities, food, entertainment, clothes, car costs, et cetera. You can add categories over time. Obviously, the more effort you put into your budget, the more value it offers.
This process does indeed take some time and effort. But it’s well worth the effort. As former Navy SEAL and business consultant Jocko Willink preaches, “Discipline equals freedom.” Truer words were never spoken when it comes to managing your money.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
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