4 minute read
YOUR FINANCES
Guardrails and Vision: The Difference Between Budgeting and Financial Planning
By Bennett C. Whitlock III
Whitlock Wealth Management
Budgeting and financial planning are two terms that are easily confused. Both apply to personal finances and both are activities that can help you be financially successful now and in the future. Yet, while the two go hand-in-hand, they are not the same. Here are ways they differ and how they can work together to help you accomplish your goals.
Budgeting Sets Guardrails for Your Spending
The goal of budgeting is to help people live within their means. A budget predetermines how much you can spend during a certain length of time based on your actual income. Individuals who follow a budget are better equipped to avoid overspending.
To create your budget, you divide your income across your expenses for a given timeframe. This timeframe is typically tied to your pay schedule, whether that be weekly, biweekly or monthly. Fixed expenses, such as rent and child care, take priority. After accounting for fixed expenses, spending parameters are set for necessities that vary in cost, such as food, transportation and clothing. Remaining dollars can be allocated for discretionary spending, such as dining out and entertainment. A budget may also include a rainy day or vacation fund.
Remember that budgeting is an active process. To be successful, you need to track your spending and be prepared to adjust. A budget that offers some flexibility is generally easier to follow.
Budgeting can help you spend within your means. However, you can budget forever and still not reach the type of longterm goals financial planning is designed to help you achieve.
Financial Planning Provides a Roadmap for Your Financial Future
Unlike budgeting, financial planning is not limited to the present. Your financial plan considers where you are now, as well as where you want to be in the future. It requires vision.
The purpose of a financial plan is to formulate action steps to help you afford your life goals. It charts your course to reach milestones, such as becoming a homeowner, starting a family, completing higher education and retiring.
Like budgeting, financial planning is a dynamic process that benefits from both regular review and adjustments. A financial setback, windfall or other shifts in your life circumstances will affect your financial plan. A certified financial planner or a financial advisor who offers financial planning services can help you create a tailored financial plan. This professional can be a resource for objective advice about financial decisions going forward. Your comprehensive financial plan will likely utilize insurance and investment products to help you protect your assets and grow your savings.
Following a budget can help you manage your money and avoid debt, but a financial plan can help you achieve your long-term financial goals. Talk to a financial professional today to learn how you can benefit from both important financial disciplines.
Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and Managing Director with Whitlock Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, Inc. He offers fee-based financial planning and asset management strategies and has been in practice for 22 years. To contact him call 703.492.7732 or visit his website at whitlockwealth.com. Ameriprise Financial Services, Inc. Member FINRA and SIPC.
You’ve prepared for a rewarding retirement. We can help you make the most of it.
Your vision of retirement is unique, and your financial plan should be too. As an Ameriprise private wealth advisory practice, we have the qualifications and knowledge to help you grow and preserve your wealth. Whether it’s investment management, tax strategies or legacy planning, we’ll work with you to find the right financial solutions for your individual needs. And we’re backed by the strength and stability of one of America’s leading retirement planning companies.
Call us today and discover the personal service you deserve. Whitlock Wealth Management
A private wealth advisory practice of Ameriprise Financial Services, LLC
703.492.7732
Whitlock Wealth Management
whitlockwealth.com
The Compass is a trademark of Ameriprise Financial, Inc. Ameriprise Financial, Inc. does not offer tax or legal advice. Consult with a tax advisor or attorney. Ameriprise Financial Services, LLC. Member FINRA and SIPC. © 2021 Ameriprise Financial, Inc. All rights reserved. (03/21)
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