Education

Working with a financial coach can be a valuable investment in achieving your financial goals and improving your financial well-being. Before deciding to work with a financial coach, it’s important to consider factors such as cost, financial goals, and the coach’s qualifications and experience. A good financial coach should possess skills such as knowledge of personal finance, communication and coaching skills, empathy and understanding, analytical skills, and professionalism and ethics. The responsibilities of a financial coach include developing a financial plan, providing education and guidance, setting and tracking financial goals, offering accountability and support, providing unbiased advice, and adhering to professional standards and ethics. The components of financial coaching include financial planning, education and guidance, goal setting and tracking, accountability and support, review and feedback, and behavioral change. By understanding these factors, you can make an informed decision about whether working with a financial coach is right for you.

Table of contents:

1. Are financial advisors worth paying for?
2. How much should I pay a financial coach?
3. What is the average hourly rate for a financial coach?
4. Is it worth getting a financial coach?
5. How much does it cost to hire a financial coach?
6. How do I choose a financial coach?
7. What is a financial coach not allowed to do?
8. What is the difference between a financial coach and a financial advisor?
9. Should I work with a financial coach?
10. Is it worth getting a financial coach?
11. What are the benefits of working with a financial coach?
12. Why should you hire a financial coach?
13. What makes a good financial coach?
14. How much should a financial coach cost?
15. What skills do you need to be a financial coach?
16. What are the responsibilities of a financial coach?
17. What are the components of financial coaching?

Are financial advisors worth paying for?

If you’re considering working with a financial coach, one question you may have is whether financial advisors are worth paying for. The answer to this question depends on your specific needs and financial situation.

A financial advisor can provide you with expert guidance and advice on a wide range of financial topics, including investing, retirement planning, tax strategies, and risk management. They can help you create a comprehensive financial plan that takes into account your goals, risk tolerance, and time horizon. Additionally, a financial advisor can help you navigate complex financial products and regulations, and provide ongoing support and monitoring of your investments.

However, it’s important to note that financial advisors typically charge fees for their services, which can vary based on the advisor’s experience, expertise, and the level of service provided. These fees may be structured as a percentage of assets under management, a flat fee, or an hourly rate.

Before deciding whether a financial advisor is worth paying for, it’s important to consider your own financial goals and needs. If you have a complex financial situation or lack the time or expertise to manage your investments on your own, a financial advisor may be a valuable investment. Additionally, if you’re looking for ongoing support and guidance, a financial advisor can provide regular check-ins and adjustments to your financial plan.

However, if you have a relatively simple financial situation and feel confident in managing your investments on your own, you may not need the services of a financial advisor. Ultimately, the decision to work with a financial advisor is a personal one that depends on your specific financial goals, needs, and preferences. It’s important to do your research and ask potential advisors about their experience, qualifications, and fees before making a decision.

 

How much should I pay a financial coach?

When considering working with a financial coach, one of the most common questions people have is how much they should expect to pay. The cost of a financial coach can vary widely depending on several factors, including the coach’s experience, qualifications, and the level of service provided.

Some financial coaches charge hourly rates, while others charge a flat fee for a specific service or ongoing support. In some cases, financial coaches may charge a percentage of assets under management, particularly if they also provide investment management services.

The cost of a financial coach may also depend on the length and frequency of your sessions, as well as the complexity of your financial situation. If you have a relatively simple financial situation and only need basic guidance and education, you may be able to work with a coach on an hourly basis or pay a flat fee for a specific service. However, if you have a more complex financial situation or require ongoing support and monitoring, you may need to pay a higher fee or percentage of assets under management.

When considering how much to pay a financial coach, it’s important to keep in mind that the cost is an investment in your financial future. A good financial coach can help you achieve your financial goals, improve your financial literacy, and avoid costly mistakes that could set you back in the long run.

Before hiring a financial coach, it’s important to ask about their fees and how they are structured. You should also consider their experience, qualifications, and track record of success with clients. Ultimately, the cost of a financial coach should be reasonable and within your budget, while also providing value for the services provided.

 

What is the average hourly rate for a financial coach?

The hourly rate for a financial coach can vary widely depending on several factors, such as the coach’s experience, qualifications, and location. However, based on industry data, the average hourly rate for a financial coach ranges from $150 to $350 per hour.

 

It’s important to note that some financial coaches may charge a flat fee for a specific service or a percentage of assets under management, rather than an hourly rate. Additionally, some coaches may offer packages or ongoing support for a set fee rather than charging by the hour.

 

When considering working with a financial coach, it’s important to ask about their fees and how they are structured. You should also consider the value of the services provided, as well as the coach’s experience and qualifications. Ultimately, the cost of a financial coach should be reasonable and within your budget, while also providing value for the services provided.

 

Is it worth getting a financial coach?

Deciding whether it’s worth getting a financial coach is a personal decision that depends on your individual financial situation and goals. However, working with a financial coach can provide numerous benefits that may make it worth the investment.

A financial coach can help you:

1. Set and achieve financial goals: A financial coach can help you define your financial goals and create a personalized plan to achieve them. This can help you stay focused and motivated, and avoid getting sidetracked by short-term distractions.
2. Improve financial literacy: A financial coach can help you understand complex financial concepts and terminology, and provide guidance on how to manage your money effectively. This can help you make informed decisions and avoid costly mistakes.
3. Develop better financial habits: A financial coach can help you develop better financial habits, such as creating a budget, saving regularly, and avoiding unnecessary spending. Over time, these habits can lead to significant improvements in your financial situation.
4. Avoid common financial mistakes: A financial coach can help you avoid common financial mistakes, such as taking on too much debt or investing in high-risk products without understanding the risks involved.
5. Provide accountability and support: A financial coach can provide ongoing support and accountability, helping you stay on track with your financial goals and making adjustments as needed.

Ultimately, whether it’s worth getting a financial coach depends on your individual needs and goals. If you have a specific financial goal you want to achieve, such as saving for retirement or paying off debt, or if you lack financial knowledge or discipline, a financial coach can be a valuable investment. By providing guidance, support, and accountability, a financial coach can help you achieve your financial goals and build a stronger financial future.

 

How much does it cost to hire a financial coach?

The cost of hiring a financial coach can vary widely depending on several factors, including the coach’s experience, qualifications, location, and the level of service provided.

Some financial coaches charge hourly rates, while others charge a flat fee for a specific service or ongoing support. In some cases, financial coaches may charge a percentage of assets under management, particularly if they also provide investment management services.

The cost of a financial coach may also depend on the length and frequency of your sessions, as well as the complexity of your financial situation. If you have a relatively simple financial situation and only need basic guidance and education, you may be able to work with a coach on an hourly basis or pay a flat fee for a specific service. However, if you have a more complex financial situation or require ongoing support and monitoring, you may need to pay a higher fee or percentage of assets under management.

Based on industry data, the average cost of hiring a financial coach can range from $100 to $400 per hour, with some coaches charging more or less than this range. It’s important to note that some coaches may offer packages or ongoing support for a set fee rather than charging by the hour.

Ultimately, the cost of hiring a financial coach will depend on your individual needs and the level of support you require. It’s important to consider the value of the services provided and whether they align with your financial goals and budget. Before hiring a financial coach, it’s important to ask about their fees and how they are structured, as well as their experience and qualifications.

 

How do I choose a financial coach?

Choosing a financial coach can be an important decision that can impact your financial future. Here are some common questions to ask when selecting a financial coach:

1. What is their experience and qualifications? Look for a financial coach who has experience working with clients who have similar financial goals and challenges to yours. Also, ask about their educational and professional background, such as certifications or degrees in finance, accounting, or financial planning.
2. What is their coaching approach? Different coaches have different approaches, so it’s important to find a coach who aligns with your personality, communication style, and learning preferences. Some coaches may use a more structured approach with specific steps and processes, while others may take a more collaborative approach with a focus on customized solutions.
3. What services do they offer? Determine what type of financial services you need and ensure that the financial coach offers those services. For example, if you need help with debt management, ensure that the financial coach specializes in this area.
4. How do they charge for their services? Financial coaches may charge hourly rates, flat fees for specific services, or a percentage of assets under management. Determine what payment method you are comfortable with and ensure that the coach’s fee structure aligns with your budget.
5. What do their past clients say about them? Ask for references or read reviews of the financial coach’s services. This will give you insight into how they work with clients, the success of their coaching, and any potential issues that may arise.
6. How will they help you achieve your financial goals? Determine how the financial coach plans to help you achieve your financial goals. Do they offer a comprehensive financial plan, provide ongoing support, or have a particular investment philosophy? Ensure that their approach aligns with your goals and values.

By asking these questions, you can make an informed decision when selecting a financial coach who can help you achieve your financial goals and build a stronger financial future.

 

What is a financial coach not allowed to do?

When seeking the services of a financial coach, it’s essential to understand the scope of their responsibilities. While a financial coach can provide guidance and support, there are specific limitations to their role. Here are some things a financial coach is not allowed to do:

1. Offer investment advice: A financial coach is not a licensed financial advisor and cannot offer investment advice. If you need help with investments, you should seek the services of a licensed financial advisor.
2. Make decisions for you: A financial coach can help you understand your financial situation, but they cannot make decisions for you. The ultimate responsibility for your finances lies with you.
3. Provide legal advice: A financial coach cannot provide legal advice, such as how to set up a trust or establish a business entity. If you need legal advice, you should seek the services of an attorney.
4. Sell products: A financial coach is not allowed to sell products or receive commissions from the sale of financial products. If a financial coach tries to sell you products, it may indicate a conflict of interest, and you should be wary of their services.
5. Guarantee specific outcomes: A financial coach cannot guarantee specific outcomes or results. While they can provide guidance and support, the outcome of your financial situation ultimately depends on your actions and circumstances.

In summary, a financial coach can provide valuable guidance and support in helping you achieve your financial goals. However, it’s important to understand their limitations and know what they are not allowed to do. By knowing these limitations, you can make informed decisions about whether working with a financial coach is right for you.

 

What is the difference between a financial coach and a financial advisor?

When it comes to managing your finances, there are two professionals you may consider working with: a financial coach and a financial advisor. While their services may overlap in some areas, there are significant differences between the two. Here’s what you need to know:

1. Services provided: A financial coach focuses on education and guidance in helping you set financial goals, develop a plan, and stay accountable to your objectives. On the other hand, a financial advisor provides specific financial advice and investment management services.
2. Credentials and licensing: A financial coach does not require any specific licensing or credentials. However, many financial coaches hold certifications such as Certified Financial Education Instructor (CFEI) or Certified Financial Coach (CFC). In contrast, a financial advisor must hold specific licenses and credentials to provide investment advice, such as a Series 7 or 66 license.
3. Compensation: A financial coach typically charges a flat fee or hourly rate for their services. Financial advisors, on the other hand, can receive commissions for selling financial products, as well as charge fees for their investment management services.
4. Target audience: Financial coaches typically work with individuals who are looking to improve their overall financial wellness and may not have significant assets or investments. Financial advisors typically work with individuals who have more significant assets and investments and are looking for specific investment advice and management services.
5. Investment advice: A financial coach is not licensed to provide investment advice. However, a financial advisor is licensed to provide investment advice and can help you make investment decisions based on your risk tolerance and financial objectives.

In summary, while both a financial coach and a financial advisor can provide valuable financial guidance and support, their services and qualifications differ significantly. Before deciding which professional to work with, it’s important to understand your financial goals and needs and determine which professional is best suited to help you achieve them.

 

Should I work with a financial coach?

Deciding whether to work with a financial coach can be a personal decision, and there are a few things to consider before making your choice. Here are some questions to ask yourself to help determine whether working with a financial coach is right for you:

1. Do you have financial goals but struggle with achieving them? If you have specific financial goals but have been unable to achieve them, a financial coach can provide the guidance and support you need to create a plan and stay accountable.
2. Do you need help creating a budget or managing debt? If you’re struggling with managing your finances, a financial coach can help you develop a budget and create a plan to pay off debt.
3. Are you looking for someone to provide investment advice? If you’re looking for investment advice or need help managing your investments, a financial advisor may be a better fit for your needs.
4. Do you have a limited budget for financial services? If you have a limited budget, working with a financial coach can be a more affordable option than working with a financial advisor, who may charge higher fees.
5. Are you willing to put in the work to achieve your financial goals? While a financial coach can provide guidance and support, ultimately, achieving your financial goals will require effort and commitment on your part.

In summary, working with a financial coach can be beneficial if you have specific financial goals, need help managing your finances, or have a limited budget for financial services. However, if you’re looking for specific investment advice, a financial advisor may be a better fit for your needs. Ultimately, whether you choose to work with a financial coach depends on your individual circumstances and goals.

 

Is it worth getting a financial coach?

Deciding whether working with a financial coach is worth it is a personal decision that depends on your financial situation and goals. However, here are a few things to consider when determining if working with a financial coach is worth the investment:

1. Cost: Working with a financial coach typically involves paying a fee, either hourly or a flat rate. Before deciding to work with a financial coach, you should consider the cost and whether it fits within your budget.
2. Financial goals: If you have specific financial goals, such as paying off debt or saving for retirement, a financial coach can help you create a plan and stay accountable to those goals.
3. Financial knowledge: If you have limited knowledge about personal finance, working with a financial coach can help you understand basic financial concepts and develop the skills you need to manage your finances effectively.
4. Accountability: A financial coach can help you stay accountable to your financial goals by providing regular check-ins and support to help you stay on track.
5. Return on investment: Working with a financial coach can help you achieve your financial goals more quickly and effectively, potentially resulting in a positive return on investment in terms of reduced debt, increased savings, or improved financial well-being.

In summary, working with a financial coach can be a valuable investment if you have specific financial goals, need help managing your finances, or have limited financial knowledge. However, before deciding to work with a financial coach, you should consider the cost and determine whether it fits within your budget. Ultimately, whether working with a financial coach is worth it depends on your individual circumstances and financial goals.

 

What are the benefits of working with a financial coach?

Working with a financial coach can provide numerous benefits to help you achieve your financial goals. Here are some of the benefits of working with a financial coach:

1. Clarifying your financial goals: A financial coach can help you clarify your financial goals and develop a plan to achieve them. This can help you prioritize your spending and make more informed financial decisions.
2. Creating a budget: A financial coach can help you create a budget that works for your specific financial situation. This can help you manage your expenses and avoid overspending.
3. Managing debt: If you’re struggling with debt, a financial coach can help you create a plan to pay it off more quickly and effectively.
4. Developing financial skills: A financial coach can help you develop the financial skills you need to manage your finances effectively, such as understanding basic financial concepts, creating a financial plan, and investing.
5. Accountability: A financial coach can provide accountability and support to help you stay on track with your financial goals. This can be especially helpful if you struggle with self-discipline when it comes to managing your finances.
6. Improved financial well-being: Working with a financial coach can ultimately help you achieve greater financial well-being, which can lead to reduced stress and improved quality of life.

In summary, working with a financial coach can provide numerous benefits, including clarifying your financial goals, creating a budget, managing debt, developing financial skills, providing accountability, and improving your overall financial well-being. If you’re looking to improve your financial situation and achieve your goals, working with a financial coach may be worth considering.

 

Why should you hire a financial coach?

There are many reasons why you may choose to hire a financial coach. Here are some of the most common reasons:

1. Clarify your financial goals: A financial coach can help you clarify your financial goals and develop a plan to achieve them. This can be especially helpful if you’re not sure where to start or are feeling overwhelmed.
2. Manage debt: If you’re struggling with debt, a financial coach can help you create a plan to pay it off more quickly and effectively. They can also provide strategies for avoiding debt in the future.
3. Create a budget: A financial coach can help you create a budget that works for your specific financial situation. This can help you manage your expenses and avoid overspending.
4. Improve financial literacy: If you’re new to personal finance or are looking to improve your financial literacy, a financial coach can provide guidance and education on basic financial concepts and strategies.
5. Prepare for major life changes: If you’re preparing for a major life change, such as buying a home, getting married, or having a child, a financial coach can provide guidance and support to help you make informed financial decisions.
6. Provide accountability: A financial coach can provide accountability and support to help you stay on track with your financial goals. They can also help you stay motivated and focused, even during challenging times.

In summary, hiring a financial coach can help you achieve greater financial clarity, manage debt, create a budget, improve financial literacy, prepare for major life changes, and provide accountability and support. If you’re looking to improve your financial situation and achieve your goals, working with a financial coach may be a valuable investment.

 

What makes a good financial coach?

If you’re considering working with a financial coach, it’s important to find a coach who is a good fit for your needs and has the skills and experience to help you achieve your financial goals. Here are some qualities that make a good financial coach:

1. Experience and qualifications: A good financial coach should have the necessary experience and qualifications to provide sound financial advice. Look for coaches who hold certifications such as Certified Financial Education Instructor (CFEI) or Certified Financial Coach (CFC).
2. Communication skills: A good financial coach should be an effective communicator who can explain complex financial concepts in simple terms. They should also be able to listen actively to your concerns and questions.
3. Empathy and understanding: A good financial coach should be empathetic and understanding of your unique financial situation. They should be able to provide guidance and support without judgment or criticism.
4. Personalized approach: A good financial coach should be able to tailor their approach to your specific financial situation and goals. They should be able to provide personalized advice and strategies that work for you.
5. Transparency: A good financial coach should be transparent about their fees and services. They should be upfront about their rates and any potential conflicts of interest.
6. Positive track record: Look for a financial coach who has a positive track record of helping clients achieve their financial goals. Read reviews and testimonials from previous clients to get a sense of their experience working with the coach.

In summary, a good financial coach should have the necessary qualifications and experience, effective communication skills, empathy and understanding, a personalized approach, transparency, and a positive track record. By considering these qualities when choosing a financial coach, you can find a coach who is a good fit for your needs and can help you achieve your financial goals.

 

How much should a financial coach cost?

The cost of working with a financial coach can vary depending on the coach’s experience and the services they offer. Here are some common pricing structures for financial coaching:

1. Hourly rate: Some financial coaches charge an hourly rate, which can range from $50 to $300 per hour. The hourly rate may be lower for newer coaches and higher for more experienced coaches.
2. Flat fee: Some financial coaches charge a flat fee for their services, which may range from $500 to $5,000. The flat fee may cover a specific number of coaching sessions or a specific service, such as creating a financial plan.
3. Percentage of assets: Some financial coaches charge a percentage of assets under management (AUM) as their fee. This fee structure is more common for financial advisors who also provide investment management services. The percentage of AUM may range from 0.5% to 2% or more.
4. Performance-based: Some financial coaches may offer a performance-based fee structure, which means their fee is based on your progress toward achieving your financial goals. This fee structure is less common and may be more expensive than other fee structures.

When considering the cost of working with a financial coach, it’s important to factor in the potential return on investment. By working with a financial coach, you may be able to achieve your financial goals more quickly and effectively, which can lead to improved financial well-being and reduced stress.

In summary, the cost of working with a financial coach can vary depending on the coach’s experience and the services they offer. It’s important to consider the potential return on investment and factor in the cost when determining whether working with a financial coach is worth it for your specific financial situation and goals.

 

What skills do you need to be a financial coach?

Being a financial coach requires a range of skills to effectively help clients manage their finances and achieve their financial goals. Here are some skills that are important for a financial coach:

1. Knowledge of personal finance: A financial coach should have a strong understanding of personal finance concepts such as budgeting, saving, investing, and debt management.
2. Communication skills: A financial coach should be an effective communicator who can explain complex financial concepts in simple terms. They should also be able to listen actively to clients and understand their unique financial situations.
3. Coaching skills: A financial coach should have coaching skills such as active listening, asking open-ended questions, and providing feedback and support.
4. Empathy and understanding: A financial coach should be empathetic and understanding of clients’ financial situations. They should be able to provide guidance and support without judgment or criticism.
5. Analytical skills: A financial coach should be able to analyze clients’ financial situations and develop strategies that work for their specific needs and goals.
6. Business skills: A financial coach should have business skills such as marketing, networking, and managing their own finances and business.
7. Professionalism and ethics: A financial coach should adhere to professional standards and ethics, such as providing unbiased advice and avoiding conflicts of interest.

In summary, being a financial coach requires a range of skills including knowledge of personal finance, communication skills, coaching skills, empathy and understanding, analytical skills, business skills, and professionalism and ethics. By possessing these skills, a financial coach can effectively help clients manage their finances and achieve their financial goals.

 

What are the responsibilities of a financial coach?

The responsibilities of a financial coach can vary depending on the coach’s experience, qualifications, and the services they offer. Here are some common responsibilities of a financial coach:

1. Developing a financial plan: A financial coach should work with clients to develop a comprehensive financial plan that takes into account their goals, income, expenses, debts, and assets.
2. Providing education and guidance: A financial coach should provide education and guidance on personal finance topics such as budgeting, saving, investing, and debt management.
3. Setting and tracking financial goals: A financial coach should help clients set specific financial goals and develop a plan to achieve them. They should also help clients track their progress and make adjustments as needed.
4. Offering accountability and support: A financial coach should provide accountability and support to help clients stay on track with their financial goals. They should also offer encouragement and motivation when clients face challenges or setbacks.
5. Providing unbiased advice: A financial coach should provide unbiased advice that is in the best interest of the client. They should avoid conflicts of interest and disclose any potential conflicts.
6. Adhering to professional standards and ethics: A financial coach should adhere to professional standards and ethics, such as providing confidential and respectful services, and avoiding discrimination or bias.

In summary, a financial coach has a range of responsibilities that include developing a financial plan, providing education and guidance, setting and tracking financial goals, offering accountability and support, providing unbiased advice, and adhering to professional standards and ethics. By fulfilling these responsibilities, a financial coach can help clients improve their financial well-being and achieve their financial goals.

 

What are the components of financial coaching?

Financial coaching involves a range of components that work together to help clients manage their finances effectively and achieve their financial goals. Here are some common components of financial coaching:

1. Financial planning: Financial coaching typically involves developing a comprehensive financial plan that takes into account the client’s income, expenses, debts, assets, and financial goals. This plan serves as a roadmap for achieving the client’s financial objectives.
2. Education and guidance: Financial coaching includes providing education and guidance on personal finance topics such as budgeting, saving, investing, and debt management. This helps clients build their financial literacy and confidence in managing their finances.
3. Goal setting and tracking: Financial coaching involves setting specific financial goals and developing a plan to achieve them. A financial coach helps clients track their progress and adjust their plan as needed to achieve their objectives.
4. Accountability and support: Financial coaching provides accountability and support to help clients stay on track with their financial goals. A financial coach offers encouragement, motivation, and guidance to help clients overcome obstacles and stay focused on their objectives.
5. Review and feedback: Financial coaching involves regular review and feedback on the client’s financial situation and progress. This helps clients identify areas where they are doing well and areas where they need to improve.
6. Behavioral change: Financial coaching recognizes that behavior change is a key component of managing finances effectively. A financial coach helps clients identify and change financial habits that are hindering their progress toward their goals.

In summary, financial coaching involves a range of components including financial planning, education and guidance, goal setting and tracking, accountability and support, review and feedback, and behavioral change. By addressing these components, financial coaching can help clients manage their finances effectively and achieve their financial goals.

 

Financial literacy is often overlooked yet very important for anyone. Very few people get the opportunity to learn about personal finances, which leaves them making bad decisions once they start earning money and have to make the most out of it. In 2020, the lack of financial literacy cost Americans a staggering $415 Billion. In addition, about 40% of Americans have less than $300 in savings, and around 30% have a long-term financial plan.

It is easy to assume that everything is going on well until a disaster hits you. If you got involved in a personal injury suit and have to battle out in court for more than a year, can you afford the legal fees? Suppose a close family member was diagnosed with a serious medical condition, and your medical cover is not enough to cater to the costs. Will you sustain their medication until they recover? If you lost your job and have to support your family, will you do it comfortably? These are the questions that should get you back to the drawing line and get you to rethink your financial situation.

At the heart of personal finance is a budget, something most of us dread to hear. Budgets bring to life certain truths that people do not want to know about their financial status. Budgeting is not easy and tends to starve you of the financial freedom to spend as you wish. However, it is a necessary evil if you are to get your financial status right and set your path to a better life.

What is a budget, and what does it do?

A budget estimates revenue and expenses over a specified period and is often compiled and re-evaluated periodically. In simple terms, it is a plan outlining how you will spend your money. It gives you a clear picture of how money flows into your accounts, from work, side gigs, and profits, and illustrates how it flows out.

Budgets can do many things to you, but the main one is keeping your finances in control. It gives you a sense of direction and the foundation needed to have short, medium- and long-term financial plans. Think of it as the tactical measures you put in place to achieve a strategic goal. It zeroes down to every cent you spend and ensures you have some discipline on how you spend your money.

Many people live from paycheck to paycheck and seem to have nothing left to save, despite earning healthy amounts. You can not know how your money is spent without having a budget. Here, you can take steps to cut some of these unnecessary expenses and focus on the important ones and then save the rest. Some of these unnecessary expenses drive people into debt, most commonly through credit cards. Bad finances are like a disease, and if you plunge too deep into debt, it will take a lot of time to salvage the situation. The best way is to be proactive from the word go and take charge of your finances by having a budget.

Things to Consider before making a budget

Living with a budget will change your life, and it is important to make the right one. Do not be very harsh on yourself, as this will only push you to abandon it after a few months. This is why you need to do some due diligence and get a few things right before making a budget. These will go a long way to ensure that you make the right budget for your lifestyle.

1. Why do you want to budget?

The first thing to establish before you start budgeting is the reasons behind it. Do some soul searching and see why it is important to you. Reasons could vary from the need to get your financial status in order or to help achieve a long-term goal, but it should always be clear from the word go. It is not enough to budget because people are doing it, and it is the responsible thing to do. Such generic and weak reasons will not motivate you to stick to your budget for the tough implementation part. Commonly, people decide to budget to pay off big debts and then proceed to make a huge purchase such as a home or car. Knowing why you are making spending sacrifices is vital as it drives you to success. It also gives you the focus needed to stay on course and follow the budget to the latter.

2. Set goals and prioritize them

Once you get the reasons behind your move to live by a budget, break them down into goals and prioritize them. If wishes were horses, we could all achieve what we wanted financially, but this is not possible, and that’s why prioritizing is key. Priorities are not cast in stone, and they depend on what you want to achieve and your current financial situation. For instance, you can get out of debt faster if you make paying it off a top priority and spend a lot of money on monthly payments. One rule of thumb is that you should always save for retirement as you work on all the other goals. This way, your retirement goal should be a top priority.

3. Give your goals a time limit

Timelines on budgeting goals help you understand how much you need to contribute monthly to achieve them. It helps break them down into the long, medium- and short-term goals before going into the specifics. Time limits also help change priorities as you can put more money in the short-term ones and less in the long-term ones. You will be required to make some trade-offs and sacrifices to achieve some of these goals, and timelines will help you put the right ones.

4. Don’t forget about fun

Fun money is an important category, and have it on your list as well. This is money left for activities that you enjoy doing, and all work without play will make you unmotivated. With the right allocation, this amount and the activities it will allow you to engage in will help you stay on course and achieve your goals. Fun activities can infer many things, and you will have to make some trade-off here. Work around how you can have fun and get your mind off work and other responsibilities.

5. Look for ways to cut expenses

It is hard to run a budget successfully without cutting costs. This will help you free some funds that will be used to build towards the goals you defined earlier. The more funds you can free, the shorter it will take to achieve the goals. The first place to start is by assessing your lifestyle and how your typical day looks like. Narrow down to all the instances you spend money, such as lunch, coffee, or fuel. These costs might seem small, but they add up to significant amounts in the long run if you do the math. Have the expenses you can forgo on standby, and the process will be easier.

6. Be ready to fail

Besides the numbers and goals, you need to have the right mindset to set and succeed with a budget. Do not expect to get everything right from the word go, as change is always uncomfortable. You will get it wrong the first few months and end up spending more than anticipated, but do not give up. Learn from your mistakes and work towards improving areas you failed in. Make it a process of constant improvement as you adjust and make lifestyle changes before you eventually settle in and work towards your goal. The budget you set during the first instance should not be final, and improve it as well. As you start living within the budget, you will realize ways you can save more or areas you need to increase your allocation.

Things to include in a budget

Personal budgets vary individually, but they circle back towards the same things. All our needs are related. We have compiled a few budget categories that will help you track expenses and save more.

1. Rent/Mortgage

The first expense in your budget is that of the roof you live under. This is a basic need, and have it settled first. If you are lucky to inherit or own a house, you won’t need this budget item. However, seek to take care of this as it is a constant expense.

2. Utilities

Utilities are tied to your house expenses, and they represent the costs required to run the place you live in. There is an opportunity to save money here as utility bills are not always constant. For instance, your water and power bills will not always be the same, depending on the season. However, it helps to list them and indicate the upper limit so that you are not forced to find money elsewhere to pay for them when they are high.

A special category of utilities is the phone and internet, which is essential today. Here, you can go for bundled cable packages to get value for money.

3. Transport

The details of this category depend on how you commute to and from work. If you own a car and drive, include the amount spent on gas and additional funds for regular fixes such as oil change, new tires, among others. Some people have auto insurance here, while others prefer to bundle all their insurance costs in one.

4. Food

This is a basic need, and it is hard to establish the amount of money required for this category. If you eat out frequently, have this as a sub-category here. You will most likely get this wrong the first time, but see how you work with different amounts to develop a definitive figure. Some people include household supplies such as toothpaste, tissue, soap, and water here, and it depends on you.

5. Savings

Once you have allocated enough for your basic needs, decide how much you want to save. This money will help you take care of crises such as job loss and legal fees and aim to have at least 6-months of your salary in savings. This will give you a soft landing if something affecting your income happens. It helps break down your savings structure, especially if you are looking to achieve multiple goals with the money from this category. Have an emergency fund to take care of unexpected expenses and have a different savings fund that will help you to make big purchases in the long run. Always be clear about what you are saving for.

6. Insurance

If you have multiple insurance policies, it helps to create a category for that. Common covers include medical insurance, auto insurance, and life insurance, among others. A rule of thumb is to try and get all these covers from one service provider and ask them to bundle them up as it allows you to get a discount and save some money.

7. Education

This category applies to those who plan to pursue further studies or have children who are in school. Education costs are high, and you need to plan for them. A tip to get this right is to set aside some money for your kids’ education before they start using it up. This will help you to get ahead of their tuition payments and have uninterrupted school time. Be sure to include associated costs such as school trip fees, school supplies, tutor fees, and extracurricular fees.

8. Clothing

This category will depend on how many dependents you have and how old they are. It is a category that can be adjusted easily since people do not buy clothes that often, and you can go for cheaper options. While many people do not leave an allocation for this category, times will come when you have to buy your kids’ clothes as they will outgrow them. You can have it in place and contribute monthly before withdrawing the entire sum for a one-off shopping after a couple of months.

9. Debt

This is a critical budget category and if you have debt, plan to pay for it as quickly as possible. The longer you drag debt payments, the more interest you pay, making it expensive for you. Look at possible debt payment strategies and strive a lot into these payments as it will free up some money that you can save or channel into other categories.

10. Entertainment and self-care

At the end of it all, you need to give thanks to your body and mind for working hard to get the money you are creating this budget for. Have some amount to cater to entertainment, which includes concerts, movies, dates, trips, and games. This is a category that most people tend to blow a lot of money on, and allocating a healthy amount will help you stay within the budget. Self-care is different from entertainment as it includes things you need to do to improve your body and mind health. It includes items like a gym membership, salon, SPA, makeup, and babysitting fees.

11. Miscellaneous

Miscellaneous is not a vital category, but it acts as a buffer from eating into what other categories have. It also gives you the room to stretch the amounts you allocate depending on the need. Did your car run down, and you need to spend a little more than the allocation to fix it? Do you need a little more on food and home supplies?

Commonly forgotten things in a budget

It is impossible to budget for everything, and the things you miss out on can make the whole budget crumble. This class of things can be categorized as “incidentals,” which refers to items that you cannot foresee. Others might also be overlooked, only for you to realize that there is no allocation for them when they come up.

They include;

Irregular house maintenance

The systems in your home will not run smoothly forever, and you have to repair them from time to time. The hard thing is that you cannot anticipate when these systems break down and when they do, you are often required to fix them immediately. Take an example of your HVAC system, which is very important during winter. Imagine the heater breaking down in the middle of the night, making the place uncomfortable for your family. You won’t have any other option than to call an HVAC repair contractor to fix it immediately. Think about those irregular things you replace in your home from time to time. It is easy to exclude these in your budget, and they can eat into the other categories and affect your plan.

Monthly Subscriptions

We use digital services a lot and can forget to include the amounts we use to pay for these subscriptions. Common ones include Netflix, Hulu, Amazon Prime, Spotify, Apple Music, and Fab Fit Fun. These subscriptions cost small amounts, but if you sum them up, the cost of having them becomes significant. Find a way of including these subscriptions in your budget by either creating a separate category for them or including them in your utilities section.

Taxes and Annual Payments

Annual payments can easily be forgotten due to the length of time between the payments. Once you make one payment, you have peace of mind for 12 months, and it is easy to miss out on them top of mind. They include taxes and payments for your car registration, among others. Taxes are particularly sensitive since you cannot avoid paying them, and it is vital to have a category for them. If you are making a monthly budget, create a category for taxes, as you would rather have a surplus than a deficit.

Gifts and Event Money

It is easy to avoid setting aside money for the events you will attend. First, look at the events you have to host, for instance, your children’s birthday parties, your marriage anniversary, or a house warming party. These events take a lot of money, and do not forget to include them in your budget to accumulate the funds before the actual date. Second, look at the events you will be attending. How many weddings have you been invited to? Other people’s events might seem negligible to your budget, but you might be required to buy gifts and probably a formal outfit, especially if you are heavily involved. These are items that cost a significant amount and have them in your budget as well.

Home maintenance supplies

Do you own a pet? How much does it take to maintain your green lawn? Do you have to buy a tool or organic fertilizer from time to time? These are the kinds of things that fall under this category. When budgeting, it is easy to focus on what happens between your four walls and forget what is outside. Landscaping is costly as you have to buy a few supplies and occasionally contact an expert for help. If you are keen on landscaping and spend a lot of resources on your garden, have a category for the associated costs.

Even with these additional categories, you won’t cover everything in your budget, and do not be extremely disappointed if you find something you did not plan for later. Learn from this and purpose to include it in your next budget. If you have a hunch that your budget has not captured a lot of things, bump up your miscellaneous and emergency funds section so that they can cushion you against these unforeseen expenses.

Personal Budgeting Best Practices

The journey to successful budgeting is not definite, and you will encounter many unexpected challenges along the way. In addition, you can also make use of a few lessons from various budgeting techniques to improve your journey and be successful.

• If you earn money monthly and struggle with cash flow, divide the income into weekly amounts and break this into your budget. Some people struggle with holding money for a whole month, and splitting this into weekly items will help. You can also come up with weekly mini-budgets within your larger monthly one to sort this out.
• Consider moving to a cash-only budget if you tend to overspend on certain categories. Today, the use of electronic cash gives you access to money wherever you are, and this can tempt you to overspend on certain categories. Identify the problem categories such as entertainment and clothing and spend here using cash only. This way, when the cash runs out, you won’t have any money left to spend, which will keep you in check.
• Get budgeting software to help you stay in line. You will find multiple budgeting apps today and find one that suits your budgeting style. These apps will save you the trouble of calculating how much has been spent on each category as they will automatically deduct and show you how everything is going. Most of these apps can be synced with your bank accounts, making things easier.
• If you have a family that is part of your budget, have regular review meetings and make the whole process open to them. It does not help to impose lifestyle changes on your family members, and they do not have an idea of why you are doing it. They will probably think you are mean and want to make their life harder. Engage them in making the budget and explain why you are doing it, let them own it, and be open to changing their lifestyles.
• Try and find a passive source of income. The aim of a budget is not to live frugally for the rest of your lives. It is the foundation of better personal finance, and the goal is to improve the quality of your life with time. If you drive an old car, a budget should help you have the funds to buy the car of your dreams within a couple of years. If you live in a small apartment, the budget should help you raise enough money required as deposit for a mortgage. Invest your savings in CDs, high-yield treasury bonds, and any other venture that will generate you more money. A budget is not a silver bullet to financial success, as it depends on how you use the money you save to improve your life.
• Once your expenses are lower than your income, boost your savings as opposed to increasing your spending. Recurrent expenditure won’t go away in your budget, and try to reduce them as much as possible. If you have debt and clear it, redirect most of the money you used to pay the debt into savings, as this will help you achieve your goals much faster than anticipated.

Frequently Asked Questions

What are the five basic elements of a budget?

All the budget categories can be clustered into five essential things: income, fixed expenses, variable expenses, discretionary expenses, and personal financial goals. Fixed expenses are ones you cannot do without, like rent, food, and insurance. Variable expenses change from time to time, like home maintenance costs, clothing, and transport. Discretionary expenses are specific to your life scenario, and personal financial goals are savings and pension schemes. These five basic elements are the foundation of a simple budget and can help you to break down all the categories you want to have in yours.

How much should I set aside for food every month?

Food is a special budget item since it is hard to know the exact amount you spend every month. It becomes harder if a family is involved, and you cannot estimate what everyone eats every day. However, try and work with a minimum of $250 for every adult and $150 for every child per month. This should be enough to cover in-house food and occasional dining out. However, it is not cast on stone and always revise these figures if they do not work for you.

How do I feed my family on a budget?

You can follow a few tips to reduce your monthly spending on food while still keeping your family healthy. Some of them include planning for meals every week, ditching junk food, and making use of leftovers. You can also opt for pulse cooking, where one meal stretches across two days to avoid cooking very often. Get a balanced diet and switch between animal and meat protein.

Bottomline

Budgeting is not hard, and once you make the bold step, you will live to remember that moment. Living a carefree life without managing your finances will have you wasting years of your life without making any meaningful progress. Some of the key items you need to include in your budget have been listed here. Find a top budgeting app today and create one to manage your finances.

One of the really great things about the work we do at BudgetSimple is hearing about inspirational stories of how budgeting has changed someone’s life. Many times people have often just stumbled onto budgeting as a concept and after one or two missteps have really embraced the processes. I think we can agree that budgeting isn’t a lot of work, but it’s the persistence that counts and that will make real change in people’s lives. Here’s one that we saw recently…

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I created BudgetSimple around a budgeting philosophy my wife and I had used in Excel. Something I’ve realized over the years is that there is basically no one right way to budget, so some people come to BudgetSimple confused about how it works or why it doesn’t work a way they are used to. Hopefully walking through how I use it will help you figure it out for your finances!

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