Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
If you’re feeling a bit cash-strapped after the holidays, you’re not alone. And, although an uncomfortable financial squeeze and the start of a new year might have you thinking about improving your budget, you may also be like many people in that you don’t even have a budget.
This becomes clear in the financial planning work I do. When I get to the budget question and ask new clients how much they spend and what they are spending it on, I often get wide-eyed looks and answers similar to this: “I’m not really sure.”
To point them in the right direction, I explain that they first need to look at what money is coming in (income) and what is going out (expenses). Then they can prioritize what money should be set aside (for debt coverage, savings, retirement, investment, etc.) and how much can be comfortably spent in a discretionary way (the extras).
Interestingly, when I asked several new clients recently how they would know that their financial plan is working, they answered that they would feel successful if they had money for discretionary spending.
Being able to spend money in ways that are important to you is a fundamental component of an effective budgeting process. People often look at their budgets and think that if they don’t go out and spend $3 or more for a cup of coffee, they could save money — and there’s a lot of financial advice floating around to reinforce that idea.
In my opinion, the issue isn’t only about the amount or what you’re spending it on. Rather, the critical component is that you’re aware of how and why that money is being spent. If you go to a coffee shop regularly out of habit or convenience and doing so isn’t all that important to you, you could indeed be spending needlessly and those amounts add up over time. However, if having a coffee out every day is truly enjoyable for you — or whatever your version of “coffee” is, like buying a new piece of clothing every month, eating out or entertaining friends — you can do that, accomplish your financial goals and feel successful by including such spending in the discretionary part of your budget.
Also interesting is a statistic that came out of the latest Morgan Stanley Wealth Management Investor Pulse Poll. In it, 91 percent of the high-net-worth investors surveyed (with $100,000 to $1 million or more in investible assets) indicated they were confident that they were on track to achieve their financial goals. Although it’s tempting to think that the incomes or assets of high-net-worth individuals are the deciding factor in whether they achieve their goals, I don’t believe that’s the case. The critical thing these people have in common is that they have a plan. They know where their money is going and why, because their financial plan fits with their personal values and goals.
So, whether you make $50,000 per year or $500,000, smart planning can help you achieve your financial goals. You can find a number of financial budgeting apps online, or you can use Morgan Stanley’s Real World Budgeting Tips. If you feel that you need assistance, take the time to find a financial advisor who understands you and your goals. You’ll be much more likely to stick with a budget that reflects who you are and your priorities.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Morgan Stanley Smith Barney, LLC, member SIPC.