Saving & Investing
Creating your personal budget
September 19, 2013
Rebecca Katz: We have a question in from Eugene in New York, who says, "How important is a detailed budget for a financial plan?" I know I cannot stand doing it. I know. I work here. I know it's important to be tracking things on a monthly basis. I just can't do it. Do you have to start there with keeping track of every single thing you buy?
Chuck Riley: That's one of the common misperceptions, that you have to have it down to every penny, and that's one of the kind of the comforting things to me about financial planning is that you can deal in kind of ballpark estimates. What I tell clients is that, so number one, you have to come up with a method that is good for you. So whether it's putting pen to paper, whether it's using something like mint.com, if it's taking your receipts and putting them on top of the bureau at the end of the night and then putting it on a spreadsheet, whatever it is, you've got to at least put something into place. It doesn't have to necessarily—don't worry about it if you don't get every receipt, if you don't get every ATM card. Life gets in the way.
Just the process of going through that and starting to pay attention to what's going out, where that money is going, it's going to change, and you'll get a feel for when you're maybe spending a little bit more, when you can save a little bit more. Don't worry about having a spreadsheet. I'm sorry, all the engineers out there and scientists that love the spreadsheets, they're very helpful, and if that's the way that works for you, that's fantastic.
But for the rest of us, I'm not a spreadsheet guy. We use a checkbook register and Quicken, kind of a hybrid approach. It's really whatever works for you, and it doesn't have to be overly detailed.
Rebecca Katz: When you're talking to clients about their investment plan, which I think is probably our primary focus here at Vanguard, do you just ask them for things like their monthly spending? What kinds of questions do we ask around spending?
Earl Harley: I'll ask whatever level of detail they're willing to go—in some people's cases, they'll be very general about it. I'll work with that. We can work with that as long as we're within a reasonable ballpark. If you've got more detailed information, so much the better because the more detailed it is, the better information I can then plug into my system and we can—if we see there's a red flag that pops up—we can more easily identify, but we don't have to have extreme levels of detail. We can work with generalities quite nicely. But at least in your head, you probably ought to have a good idea of where the money's going, coming in and going out. It may not have to be to the dollar, but you should have a good idea.
Mary Ryan: Not to be depressing, Rebecca, looking at things—but I do think that at some point, whether it's every six months, quarterly, really going through and looking to see where the money goes. It's funny, you go out and hit the ATM machine and you get $100 and the next thing you know, the $100 is gone, where'd it go? And I just recently with my own family, I went through and did the budget of where we were. The amount of money we're spending on food—we should all be as big as houses. I mean we are spending so much money on food. So I cleaned out the freezer.
Rebecca Katz: Unfortunately, Vanguard's headquarters are located next to a wonderful supermarket, so when you run in for milk after work, you walk out with a $100 bag of groceries.
Mary Ryan: It's amazing, isn't it?
Earl Harley: But it's true.
All investing is subject to risk, including the possible loss of the money you invest.
Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.
This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
© 2013 The Vanguard Group, Inc. All rights reserved.
A good financial plan doesn't need to be complicated
You may not need a front-row seat when budgeting your money but it’s a good idea to at least be in the ballpark. Chuck Riley of Vanguard Advice Services, along with Mary Ryan and Earl Harley of Vanguard Asset Management Services™, describe some simple yet effective methods to keep track of expenses.
Other excerpts from this webcast:
- Planning your finances: How to get started
- Include your spouse when making financial decisions
- Words of wisdom from Vanguard financial planners
- All investing is subject to risk, including the possible loss of the money you invest.
- Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
- Advice services provided by Vanguard Advisers, Inc., a registered investment advisor.
- This webcast is for educational purposes only. We suggest you consult a financial or tax advisor about your individual situation.
© 2013 The Vanguard Group, Inc. All rights reserved.