WELLINGTON COUNTY – For some, budgeting is a short-term exercise to manage monthly expenses or prepare for upcoming purchases. However, the real challenge lies in creating a budget that lasts. Long-term budgeting is about designing a plan that adapts to life’s inevitable changes while keeping financial goals in sight. Whether saving for a home, preparing for retirement, or weathering unexpected setbacks, a long-term budget can serve as the foundation for lasting financial security.
Building a successful, long-term budget requires planning, discipline, and a desire to reach an end goal.
“You have to have discipline because you’re working for yourself,” said Ecclestone Financial Group Financial Advisor Ted Ecclestone. “If you’re going to cheat yourself, then you’re not going to make it to where you want to go.”
Ecclestone says that the first step in creating a long-term budget is planning, and part of that planning includes tracking and then differentiating between needs and wants.
“There are needs and wants,” said Ecclestone. “That’s always the big thing in it, you know you need to have this, and you’d like to have that, … one of the biggest things I would say is, they should keep an eye on their income to see how much is coming in and an eye on their expenses to see what’s going out and see what can be trimmed or added to improve their situation.”
“We put out a budget form for them to fill out, and then it’s really up to them, up to whomever the person happens to be, to stick to the plan, even though there’s going to be modifications along the way, because life simply gets in the way of what you’re trying to do,” he added.
Ecclestone told the Advertiser that he encourages those in the planning phase to write down every expense, no matter how small, for up to three months. He says this will give a more complete look at the spending habits of that individual.
“Include absolutely everything that you spend. Like, if you buy a package of gum, write it down. And after three months, generally, of expenses, you’ll see the flow of how your cash is in there and then see what you can do without and then save that money,” said Ecclestone.
“You can’t spend more than you make, and if you do, then you’re never going to get it. It won’t matter what you do in a budget,” he added.
In terms of where funds saved from budgeting should be allocated, Ecclestone says that “everything has its horizon” and funds should be allocated based on an individual’s goals and where they are in life. Another important component of creating and maintaining a successful long-term budget is repaying any outstanding debt.
“We see tons of credit card debt, and there are always offers from different credit card companies that say you can transfer your credit card payment to this particular other card and zero transfer fee, and they’ll charge you zero interest. Usually it’s a fairly limited amount of time, like six months, but we would work with that person to see where we are going to get that extra money to pay down that debt,” said Ecclestone.
Debt issues – Using a line of credit to pay off credit card debt can significantly reduce interest costs. Photo by Freepik
Ecclestone says one of the best ways to pay off credit card debt over time is to access a line of credit.
“Potentially, the person has access to a line of credit from a bank or a credit union, and they could go and use that line of credit to pay down the credit card debt, and you probably have, in today’s world, you probably have a 12 or 14 per cent reduction in interest that you have to pay so you still pay it back, but the amount of interest that you pay every month is significantly less,” said Ecclestone.
“Let’s say there’s $10,000 that’s owing, … and you move it over to a line of credit, and the line of credits charging you 6% so that’s going to be $600 a year in interest.
“And then you break that down, that interest is 50 bucks a month. And so, you know that if you want to pay that $10,000 off over the course of a two-year period of time, then you’ve got 60 bucks a month coming from the interest.
“And then you want to pay probably another $300 $400 a month in principal if you’re going to get rid of that $10,000 debt in a two-year period of time.
According to Ecclestone, the biggest mistake people make when creating a long-term budget is poor planning.
“The common error I would see would be they just don’t plan,” said Ecclestone. “Things change all the time, so your plan is always fluid. It’s changing as you go with it, too.”
However, Ecclestone told the Advertiser that the biggest mistake someone can make is simply not starting.
“The biggest thing is you have to start. If you don’t start, you’re never going to get there.”
