Two Federal Budgets in one year – what a treat! Nearly a decade after Labor’s…
Budgeting and financial planning are both processes designed to boost your financial wellbeing. And while there are striking similarities between the two, there are key differences in how the two work to help you achieve your financial goals.
As the old adage goes, ’Budgeting is telling your money where to go instead of wondering where it went’.
Budgeting is an incredibly important financial strategy. It evaluates how much money you make, measures how much you spend, and helps you work towards spending less than what you bring in.
Items factored into budgeting include expenses such as rent or mortgage repayments, utility bills, groceries, petrol, clothing, savings, insurance and investments.
Budgeting is all about focusing on immediate money issues and is reviewed on a weekly or monthly basis to ensure you can get rid of unnecessary spending and work towards boosting your savings to achieve short or long-term financial goals.
Fiducian Financial Services offers a free budgeting tool to help track your spending and determine your savings potential.
Financial planning is all about building a solid financial strategy to help achieve your long-term financial goals. While a budget helps you list your expenses and plan for the weeks and months to come, a financial plan looks at major financial goals over 5, 10, or 20 years.
A solid financial plan addresses your income and expenses, taxes, insurance, estate planning, and retirement. It also establishes major financial goals along the way which may include buying a new set of wheels, planning a much-needed holiday or giving your home a makeover.
When it comes to tracking your progress, a good financial plan is reviewed quarterly or semi-annually to stay on top of any fluctuations and changes in the market.
How budgeting and financial planning work together
We’ve established that while budgeting and financial planning go hand-in-hand, they are not the same. So how do they work together?
Laying out your expenses not only shows you where your money is being spent, it also allows you to understand where funds can be saved or re-directed and allocated to your financial plan and potential investments.
Some options when it comes to investing include:
- Short-term investments: Depending on your appetite for risk, you may be willing to invest in shorter term, higher return assets that can give you an immediate and satisfactory return.
- Long-term investments: Long-term investing looks at investments spanning ten years and beyond. One of the biggest benefits of long-term investments is you get to ride out any fluctuations in the market, which means you could end up with a greater return than if you try to ‘time’ the market.
- Additional contributions to your Superannuation fund
As always, we strongly recommend engaging a financial planner to help you with the best strategies to boost your wealth.
Contact our Fiducian financial planner for more information.
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