Budget to reach your family's financial goals

The key to reaching your family’s financial goals is a well-crafted budget. To illustrate, let’s follow Andrew and Polly, a married couple with two children, as they visit their financial advisor.

Their advisor begins by asking whether they’d ever tried to create a budget before. “Several times,” Polly admitted. “But it was either a list of expenses on the back of an envelope or a five-megabyte spreadsheet.” The advisor could see the problem. Like many families, this one had created budgets that were either too simple or too complicated.

Near term

“Simplicity is the key to a successful family budget,” the advisor said. But it also needs to be comprehensive enough to cover all the necessary items. To find the right balance, Andrew and Polly’s budget should cover two distinct facets of their lives: the near term and the long term.

In the near term, their budget should encompass the primary, day-to-day items that affect every family. First, their home: This is often the most valuable possession in a personal budget. And a budget shouldn’t include only their mortgage payments, the advisor noted, but also expenses such as utilities, furnishings and supplies.

Naturally, there are other items related to daily life that need to be accounted for. These include groceries, fuel, clothing, child care, insurance and out-of-pocket medical expenses. And, their advisor stipulated, they need to draw clear distinctions between fixed and discretionary spending.

Long term

Along with being a practical guide to their family’s spending, Andrew and Polly’s budget needs to address their long-term goals. Of course, their advisor pointed out, some goals are further out than others. For example, like virtually everyone, the couple’s longest-term objective is no doubt to have a comfortable retirement. So their budget should incorporate plan contributions and other ways to meet this goal.

A relatively less long-term goal might be funding their children’s educations. So, again, the budget should reflect efforts to this effect. And, as a long-term but “as soon as possible” objective, their budget needs to be structured to pay off their debts and maintain a strong credit rating.

Planning and discussion

“There are plenty of apps out there that can quickly create a family budget,” the advisor concluded. “But only through careful planning and discussion can you build a budget that will both manage your daily finances and meet your long-term financial goals.”

This has been brief and general discussion and is not intended as advice. To design the right budget for your particular situation, consider consulting a qualified advisor.

Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners LLC, (www.GRILL1.com) certified public accountants and advisors to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203-254-3880.