Here’s what I’ve been reading this past week or so:
Budget. The dreaded word. Most people run screaming when they hear this loaded word. Even the softer term “spending plan” makes people squirm a little. Whatever you want to call it – understanding where your dollars go each month is crucial information to being in control of your personal finances. Maybe we avoid budgeting because it sounds super boring and overwhelming. And maybe we just don’t want to know! We’re afraid of what the numbers might say. Sound familiar?
If you’ve made it past the first paragraph, congratulations! You’ve decide to push past the fear and uncomfortable feelings to hear a little more. Why is knowing your expenses so important? Your money boils down to one simple formula:
INCOME – EXPENSES = MONEY YOU CAN SAVE OR INVEST
So you either make more or spend less. These are the things you can control.
It doesn’t matter what method you use to gather the information. You can use the approach described in PureWow’s article, use a budgeting app, or go old school with a big manilla envelope where you put all your receipts from the month to tally at the end. My recommendation is to remind yourself that this is just information, not a referendum on you, your life, or how you choose to spend your money. No blame. No shame. This information is the first step to figure out what’s next for your money. That is all.
Inflation is the latest villain in financial headlines. (The way I think about inflation is using one of my favorite things to do – watching movies in a theatre. In 1984, a ticket to see Michael J. Fox, aka Alex P. Keaton, in Back to the Future at the movie theaters at Woodfield Mall Theatre was $3.50. Now, a ticket to see the latest movie costs $14. The growth in the cost of the movie ticket is inflation.) This NY Times article explains the unfortunate truth, which is no one knows what will happen with inflation. Therefore, trying to time the markets with predictions is a risky venture. Best solution? The writer Jeff Sommer’s advice is “You don’t need a crystal ball. Embrace a buy-and-hold strategy, setting up a portfolio with diverse, low-cost index funds, including stocks and bonds, in an appropriate asset allocation.”
Another Jason Zweig article. This one starts with “Optimism is as American as hot dogs and apple pie. Too much optimism, though, is about as good for you as eating a few dozen hot dogs and slices of pie.” Mr. Zweig talks about how investors don’t have realistic expectations of market returns or don’t realize the iron-clad nerves you need to ride out the volatility. Can you stomach watching your investment-of-the-day fly up $50,000 one day and then $100,000 down the next?
It’s not New York or San Francisco. Guess which one it is?
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