Budgeting

At McFie Insurance, we often get asked about budgeting and how to manage personal finances effectively. While budgeting is a common recommendation from many financial advisors, our approach is a bit different. We believe in financial management that provides freedom rather than restriction. Let’s explore how you can create a financial plan that works for you without feeling constrained by traditional budgeting methods.

The Problem with Traditional Budgets

Many people associate budgets with rigid spending limits and a sense of deprivation. This restrictive approach can lead to feelings of frustration and even rebellion against your own financial goals. We’ve seen cases where one spouse puts the other on a strict budget, creating tension and resentment rather than financial harmony.

Traditional budgets often focus on fixed dollar amounts for various categories of spending. While this can work for those with steady, predictable incomes, it fails to account for the realities of fluctuating income that many business owners and self-employed individuals face.

Schedule Strategy Session »

A More Flexible Approach: Thinking in Percentages

Instead of fixed dollar amounts, we recommend thinking about your spending and saving in terms of percentages. This approach allows for greater flexibility as your income changes from month to month or year to year.

One helpful framework is the 10-20-70 principle:

10% of your income goes to savings
20% (maximum) goes to paying creditors
70% is for lifestyle expenses

By thinking in percentages rather than fixed amounts, you can maintain a consistent approach to financial management even when your income fluctuates. This method also helps you prioritize saving and debt repayment while still allowing for a comfortable lifestyle.

Creating a Plan, Not a Rigid Schedule

Just as it’s more effective to have a flexible routine rather than a rigid schedule for household management, the same principle applies to financial planning. Instead of setting strict spending limits for each category, focus on overall goals and adjust your approach as needed.

For example, rather than planning every meal for a month in advance, it’s often more practical to keep a well-stocked pantry that allows you to make decisions based on current circumstances and preferences. This approach provides flexibility while still helping you avoid unnecessary spending on last-minute takeout or grocery trips.

The same principle can be applied to your finances. Have a general plan for your money, but allow for adjustments based on current needs and opportunities.

Setting Goals and Making Choices

Effective financial management isn’t about restricting yourself. It’s about making intentional choices that align with your long-term goals. This requires three key elements:

Desire: Have a clear vision of where you want to be financially in the future.
Determination: Make choices that move you toward your financial goals.
Discipline: Develop the self-discipline to stick to your plan, not out of rigid obedience but out of commitment to your goals.

By focusing on these elements, you can create a financial plan that feels empowering rather than restrictive.

Practical Tips for Flexible Financial Management

Pay Yourself First: Prioritize saving by setting aside a percentage of your income before allocating funds to other expenses.
Use Percentages: Instead of fixed dollar amounts, allocate percentages of your income to different categories. This allows your spending to adjust naturally as your income changes.
Plan for the Short-Term: Rather than trying to plan your spending for an entire month or year, focus on weekly goals. This allows for greater flexibility and reduces the likelihood of getting off track.
Keep a Well-Stocked Financial “Pantry”: Just as a well-stocked pantry gives you flexibility in meal planning, maintain a healthy emergency fund and savings to provide financial flexibility.
Regular Evaluations: Periodically assess your financial situation and adjust your plan as needed. This allows you to stay on track towards your long-term goals while accommodating short-term changes or unexpected events.
Focus on Value, Not Just Cost: When making purchasing decisions, consider the value you’re getting rather than just the price. Sometimes spending a bit more upfront can save money in the long run.
Allow for Fun and Spontaneity: Build some flexibility into your plan for entertainment and unexpected opportunities. This helps prevent feelings of deprivation that can lead to impulsive overspending.

Avoiding Financial Boredom

One of the pitfalls of overly strict budgeting is that it can lead to financial boredom. When every dollar is allocated in advance, there’s little room for creativity or enjoyment in your financial life. This boredom can lead to “retail therapy” or other impulsive spending behaviors that undermine your financial goals.

To avoid this, build some flexibility into your plan. For example, instead of allocating a small amount for entertainment each week, you might save up for a few weeks to have a more significant and enjoyable experience. This approach can make your spending feel more rewarding and help you appreciate the value of your money more fully.

The Importance of Shared Financial Goals

For couples, it’s crucial to approach financial planning as a team. Rather than one person imposing a budget on the other, work together to set shared financial goals and create a plan that works for both of you. This collaborative approach can strengthen your relationship and make it easier to stick to your financial plan.

Regularly discuss your financial situation and goals together. Be open to adjusting your approach as your circumstances and priorities change over time.

Financial Freedom Through Flexible Management

At McFie Insurance, we believe that effective financial management should provide freedom, not restriction. By thinking in percentages, focusing on overall goals rather than rigid categories, and allowing for flexibility in your approach, you can create a financial plan that helps you achieve your long-term objectives while still enjoying life in the present.

Remember, the goal isn’t to follow a perfect budget. The goal is to manage your money in a way that allows you to build wealth, achieve your dreams, and live a fulfilling life. By adopting a more flexible and intentional approach to your finances, you can create a sustainable plan that works for you in the long term.

Whether you’re managing your household budget, planning for retirement, or building a business, these principles can help you create a financial strategy that aligns with your values and goals. If you’d like personalized guidance on creating a financial plan that works for you, don’t hesitate to reach out to us at McFie Insurance. We’re here to help you achieve true financial freedom.

Listen to this episode and discover some new creative ways to work your budget. Budgeting can be fun and extremely rewarding, if you do it the right way.

Follow the Wealth Talks Podcast on:

Instagram: https://www.instagram.com/wealthtalkspodcast/?utm_source=ig_web_button_share_sheet&igshid=OGQ5ZDc2ODk2ZA==

Facebook: https://www.facebook.com/profile.php?id=61554798231074

Listen to the Wealth Talks Podcast on:

Apple Podcasts: https://podcasts.apple.com/gb/podcast/wealth-talks/id978187163

Spotify: https://open.spotify.com/show/7MOugefeGkTl5jdkhYdjvQ?si=80ce9359d8e54cc8

Youtube Music: https://music.youtube.com/playlist?list=PLwU1nBBz00on-wImV9bLClndzJhc0a2eu

Watch on YouTube: https://www.youtube.com/@wealth-talks-podcast