Opdyke on a “spending plan”

I’ve had the conversation many times with other financial professionals and I think that everyone would agree.

At the root of success or failure regarding a household’s finances is how well they control their spending.

A household that spends LESS THAN they bring in will be flush with cash that they can save, invest, and allow to grow.  They also will not fall into the debt trap which prevents people from accumulating wealth.

A household that spends MORE THAN they bring in in trouble.

The problem is that most households don’t take the time to track how much is going in and how much is going out.  I began this process three months ago using an online system called mint.com.  The exercise has definitely been an eye opener.

Jeff Opdyke wrote this article appearing today in the WSJ which talks about tracking and living under a “spending plan”.

A couple great points from the article:

*You can choose to eat out every day, or you can choose to replace your wardrobe, or you can choose to pay off additional principal on your debt balances, or you can choose to afford a getaway over a long weekend. Whatever you want to do with your money, you can do it.  But here’s the catch: You can’t do everything. (my underline)

*The goal of successful budgeting is learning to live within the bounds of your discretionary income. (He defines discretionary income as your income less all fixed monthly expenses such as mortgage/ rent/ other loan payments, utilities, etc.)

*The first item on your discretionary spending list every month should be an amount allocated to your savings account. A savings account is your first line of defense in a financial emergency, so fund the reserve every month to build an increasingly larger cushion with each passing month.

Contact me today if you’d like to set up a spending plan!  We do offer services that help households accomplish this task.

Deleveraging begins according to Fed data

Back on September 29th I wrote this post regarding the concept of “deleveraging”.  Over the past few decades American households and corporations were addicted to debt.  We used credit cards, home equity lines of credit, mortgage loans, auto loans, etc. to accelerate our consumption.

However, our unabated use of debt lead us to where we find ourselves today.  In the midst of one of the worst financial crisis’s in our nation’s history.  As a result, the credit spicket has been turned off and consumers are being forced to deleverage their personal balance sheets.

Data supporting this trend was released today when the Federal Reserve reported that consumer borrowing declined last month for the first time in nearly 20 years.  In the long-run this is good news.