A Financial Advisor’s Perspective on Your Budget

As your finances get more complex, the financial decisions you make now carry more weight than before. You might find yourself wondering if you’re saving enough, investing wisely, or even just managing your household day-to-day budget effectively.

In this episode of Capital Conversations, CERTIFIED FINANCIAL PLANNER™ professional Colin Day and portfolio manager Ryan Potts discuss their perspective on budgeting and aligning clients' budgets with their life goals, whether that means traveling more or saving up more for retirement.

For recent investment news and our take on the current market, retirement planning, and investment, listen to our podcast Capital Conversations or view our recent blog posts.

Below is the transcript of our most recent podcast, "A Financial Advisor’s Perspective on Your Budget."

Colin Day: Welcome back to another Capital Conversation. Colin Day here again with Ryan Potts. Ryan, welcome back.

Ryan Potts: Pleasure to be back, as always.

Colin Day: It's like we haven't left this room. We talked about in our previous episode about our “Financial Document Data Gathering Sheet.” That is a mouthful. I've got something that's even more of a mouthful in front of me right now, which is our, “Budget Initial Data Gathering Worksheet.” We're all about the worksheets today.

Ryan Potts: We are all about the worksheets.

Colin Day: And there's a reason for it, because [this is] the side of financial planning where we're really getting into the weeds, and we really need the assistance of our clients or prospective clients to provide us with documents and information so that we can start off the relationship well. But Ryan, even by our standards, this is a four page document and this is just page one and – if you can't see that very well – there's a lot of data cells on this. If you're listening via podcast on audio form, I would imagine there's probably several hundred cells on this thing.

So Ryan, why the heck do we need to fill this out?

Ryan Potts: Gosh, I think this is probably one of the most important steps in financial planning: the budget. Or, at least understanding the budget. For a lot of our clients and prospects it's one of two things: One, they've never gone through this exercise before in their life and they've just always lived on “Hey, I've got money coming in and money goes out and at the end of the month I've got a surplus or I'm negative and that means I got to kind of dial my expenses up or down based on those numbers.” If they've never done the exercise before it's just important for them to get an understanding of where the money is going, and as money comes in how much is going out?

It's crazy to say, but there are people who enter retirement who have never done a budget or a full-fledged budget the way that this is ever before. So it's important for them so we can get an understanding of their actual expenses.

The other side of the coin is we do have a ton of organized clients who come to us with a really strong budget, but ultimately they might not have 150 rows of information that they're getting requested. Because in their mind it's, “Hey, I've got a home. I've got a car. I've got kids. I like to travel.” They've got some high level budget or expenses built in, but they don't have the intricacy of what we have here. So I think it's important when we're talking to both of these clients, one, to get a great understanding of their actual budget. We can help them raise questions about where their money is going and what kind of expenses they have. And two – and I know we've talked about this off air – it's really important sometimes, when I talk to my clients, we care so much about goals-based planning. And how can we get our clients to get to their goals?

And so a lot of times, I might ask my clients, ”What are your three most important things in your life? Write down your goals. If you didn't have to worry about money or time, where would you be spending your time and your money?” And it's funny how sometimes when they write down those goals and then we reflect and look at the the budget that we put together, how much their money is not aligned with their goals and how frequently you see a divergence between “Oh, you just told me that you guys love to travel, but that's like one of your lowest items when it comes to your expenses. Are there opportunities to maybe shift the budget so you can spend more time, spend more money on the things that you really love to do?”

Colin Day: Yeah, that's such a powerful idea because really it's all about the prioritization. Because if you have some kind of goal, and it's to go to Spain and run with the bulls or whatever it is, but the amount of money that you're going to allocate towards travel to push to the side is a hundred bucks a month – well, I don't know if Spirit Air is going to get into international travel, but that's the way they might be traveling. You might be in the suitcase instead. So it's a really powerful thing to go through a budget, because again, this is the not fun side of financial planning for most people that are going through this journey. But I think it's eye opening, not only for us as the advisors as we're engaging with folks, likely for the first time, but just, to speak on, “Whoa, I didn't know that we were spending this much.”

Ryan Potts: Right.

Colin Day: How many times have we engaged with a couple who said, “Wait, what? We're spending this much?” And just the other person being completely oblivious, and thus with this blank face, trying to figure out what they're supposed to do with this new data.

For example, in our Budget Data Gathering Form, which again is several pages long, I made note of a couple things that I think are interesting. When we're going through this, I might identify somebody who put something in the alimony expense. [That’s] an important thing because if they've gone through some kind of separation or divorce where they are compensating their ex-partner, is that something that goes on forever? How are we using those funds? And I don't know if we have – I think we do somewhere in here – something for child allowances. But if you're in a situation where that alimony is only gonna last until your kids are 18 or whatever it is in your state, you might be in a situation where “Hey, that's money that I was thriving on and suddenly it's not there anymore.”

Ryan Potts: Yeah, it's really interesting, again with alimony. Another one is charitable donations that come to my mind. When we talk to people who are charitably inclined, we ask them how much they might be giving or gifting, and they give us a number and we ask them if that reflects what they would like to continue going forward. Then that always raises the question “Well, gosh, maybe we want to give more than that, or maybe we feel like that might be kind of putting pressure on us in retirement, so we need to dial that back a little bit.”

Colin Day: Yeah. Or what accounts you're using.

Ryan Potts: That was my next point. We just talked about the financial information gathering process and getting financial documents. Well, if we see someone who's very charitably inclined and they don't have a donor-advised fund or these other vehicles that would maybe help with some of the tax advantages of being charitable, those are great opportunities to bring up in conversation.

Colin Day: Yeah, absolutely. And of course, as myself, as somebody with a child in daycare right now, I have looked at the child care and man, I really don't want to write down that number because I know what it is on a monthly basis as to what we spend. But that then allows us to have a discussion on “Hey, what kind of tax credits are we talking about for your kids? Are we analyzing anything with your daycare expenses? Do you have a dependent care FSA through work?” It opens up the conversation to more types of things.

What's another example, Ryan, of something that you found interesting?

Ryan Potts: I think a lot of times – and I'm going to refer to the niche that I work with a lot and business owners – but it's reviewing their insurance policies and taking a look and seeing, “Hey, do they have disability insurance? Do they have long-term care? Do they have umbrella liability insurance?” All these things are things that are really important. And I work with a whole range of business owners, from self-employed all the way up to 50 employees. I think it's important when you're having those conversations, if the self-employed is the breadwinner in the household and they have no one else left in the business, if something were to happen to them, and they don't have disability or at least they're not claimed to have disability based on their budget, that's a conversation we need to have and [it] also probably needs to be something that we're prioritizing within the budget and saying, “Look, we're adding this expense in your budget, so we need to figure out where else we can manipulate your expenses to make it make sense.”

Colin Day: Yeah, absolutely. And there's some additional pages. Like here in the back – speaking about business owners – you might own rental properties. Depending on how you've titled those particular homes, you might be subjecting yourselves to a lesser degree of liability protection than maybe what you want it to. Because if I'm asking you a question, say, “Hey, we've got three homes on this back page. If you are only talking about house number one, but then there's the home in Florida, or there's the house down the block that we rent out to our sister-in-law or something like that.” Well, okay, how is that being held? And how is that going to be addressed, not just from a liability protection perspective, but also from an estate planning perspective? It's going to open up the conversations a lot further than just, hey, what do you spend on a monthly basis?

Ryan Potts: Yeah. Colin, you had mentioned actually not too long ago, you were having a conversation with a client and addressing the taxability of the business that he owns and how, through the Budget Data Gathering Information, we could figure out, “Are they doing the right things for themselves as a business owner?”

Colin Day: Yeah. Again, the whole idea of the budget is to go through the numbers so that we can speak more intelligently to make sure that we're not in the red on a monthly basis or to identify, “Here's why you're in the red. It's because your pet care bill is $2,000 a month because you're putting up Fido in the most luxurious of pet resorts that you can imagine.”

When it comes to the business owner perspective, making sure that we have the the kinds of things in place – We might be looking at it from saying “Hey, I noticed that you're taking this amount from an employment perspective, from like a salary, and then I noticed like your FICA is maybe a little bit different from what you're withholding should normally be. Are you an S Corp. Are you filing as an S Corp?” So I just at least understand a little bit more nuance in regards to the situation. I think you'd agree there.

Ryan Potts: Yeah, absolutely. And like I said, like we have been saying, it's just important that we get a full picture of everything that's going on with all the clients and prospects that we do meet with. And these things that we're providing, yes, they might seem like a lot, but it's important that we're asking a lot of questions, because that's the value that we bring to the table. We are thinking of things that you might not be thinking of by yourself.

Colin Day: Yeah, absolutely. And as I tell most folks that are doing data collection, that are recording down their budget, “You're going to put the kids to bed, you're going to have your favorite adult beverage, whichever that might be, and you're going to fill out some information.” It's not the most fun thing, but, hey, there are worse ways to spend your evening, right?

Well, Ryan, anything else that I missed that you want to mention before we shut this down for another week.

Ryan Potts: No, I think we covered it. I think we could spend five hours talking about this. And typically when we go through our process with people that we’re meeting for the first time, this isn't a five hour conversation, but it might be a 30 minute conversation to an hour.

Just trying to hash out these details. When it comes to planning, there are variables that we can control and there's things we can't control. Fortunately, the budget is something that we can typically control, so it's important that we know the numbers very well.

Colin Day: Yeah, absolutely. All right, well, Ryan, thanks for joining me again.

Ryan Potts: Appreciate it, as always.

Colin Day: All right, and thank you all for joining us for another Capital Conversations. We'll see you, or hear you, in the next one.

Legal Disclaimer: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember, investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Correct Capital Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Correct Capital Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Correct Capital Wealth Management unless a client service agreement is in place.

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Budgeting is about more than ending up on the red or green side of the ledger; it’s about ensuring your hard-earned money is working toward the goals that are most important to you. Our financial advisors focus on understanding your unique lifestyle, aspirations, and challenges, ensuring that your financial plan isn't just a document, but a reflection of your life’s goals and values. You can speak to a financial advisor today by making an appointment with a member of our advisor team, calling us 877-930-4015, or filling out our online contact form.