Develop and use a simple budget and financial plan

Being a wise consumer depends, of course, on having the resources you need to buy what you need (or borrow and rent, at times – which is addressed directly by the Consumer Wisdom habit of Flexibility). Managing your finances is, as we say in research, necessary-but-insufficient. My blogs are, obviously, about how you use those resources and, as you’ll see soon, helping you think through what resources you need. There are many good books out there about financial planning and management (check out a blog I wrote that summarizes some basic advice about saving and investing). In short, when it comes to personal financial resources, the things to focus on are:

  1. Your gross income (what you earn)
  2. Your net income (your “take-home pay” after taxes and deductions such as healthcare premiums)
  3. What you spend on your “needs” (housing, basic utilities, transportation, groceries, insurance, debt payments)
  4. What you spend on your “wants” (entertainment, subscriptions, restaurants, travel, etc.)
  5. What you save and invest (through automatic retirement deductions and/or after-tax investments)

Now, is your net income covering your expenses (your need and wants)? Are you paying off debt, and saving and investing? And if you are saving, are you simply saving what is left over each month, or instead treating this as a fixed expense (for example, saving at least 10% and prioritizing this over spending on “wants”)?

Next, take a look at your net worth (I hate that term since you are worth way more than your finances). This includes big things you own (such as a home, savings, and investments) minus your debt (mortgage, school loans, credit used on credit cards). Is your net worth negative or positive?

Now, consider these two together (net income and net worth). Is your net worth improving (becoming less negative or, ideally, more positive over time)? Or is it getting worse? We’re not going to talk – yet – about what to do; right now we are just trying to get a snapshot of “what is.”

But, there is more to the story of resources. A lot more. We also need to think about some important resources that are seldom addressed by books on financial planning and management. If you are going to manage your resources well, you also want to think about your time and energy. Yes, time and energy. Do you feel time poor or time wealthy? Do you have enough time to do the things you need and want to? And how is your energy level? Do you normally feel rested and at peace, or chronically tired and stressed? There’s no judgment here. But if you know your goal is to promote your well-being, you need to start with a solid sense of where things stand for you today.

Next: Be clear and intentional about the lifestyle that’s best for you

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