What Are the Four Pillars of a Budget?

For more than ten years, I’ve been guiding individuals on the ins and outs of budgeting, which means I’ve encountered a lot of recurring questions. Your Fresno financial advisor will discuss how many of these inquiries revolve around how to begin budgeting or what steps to take when facing an unexpected financial crisis. The key to addressing both of these situations lies in understanding the concept of the Four Pillars.

So, what exactly are the Four Pillars?

The Four Pillars of a Budget

The Four Pillars are the essential expenses that are necessary to sustain a family, including food, utilities, shelter, and transportation.

Food is a fundamental pillar, and it is important to prioritize groceries over eating out. While dining at restaurants can be enjoyable, it is considered a luxury and should only be included in the budget if there is room after accounting for necessary expenses.

Utilities, such as electricity and water, are crucial for maintaining a household and should be budgeted for on the higher side to account for fluctuations in monthly bills.

Shelter, which includes rent or mortgage payments, insurance, property taxes, and HOA fees, should not exceed 25% of a person’s take-home pay.

Lastly, transportation costs, such as gas and public transportation, should be included in the budget as necessary expenses. However, extravagant trips like going to Disney should be saved for and paid for in cash, rather than being considered a necessity.

What Happens During Emergency Situations?

The Four Pillars should be considered in all budgeting scenarios, especially in times of financial emergencies or when creating a monthly budget.

In emergency situations, it is important to prioritize the Four Pillars, focusing on providing food, maintaining utilities, paying for shelter, and ensuring transportation needs are met.

When creating a budget, the Four Pillars should be the first expenses to be accounted for, followed by other necessary expenses like insurance and debt payments, and then discretionary spending on personal items, entertainment, and dining out. This approach helps individuals to distinguish between needs and wants and prioritize their budget accordingly.

Conclusion

Determining whether you can truly afford a particular purchase is a critical step in making wise financial decisions. Your financial advisor Fresno, Ca understands that by understanding your financial situation, assessing your income and expenses, considering your financial goals, and creating a budget, you can confidently evaluate whether a purchase aligns with your overall financial well-being.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

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Don’t Use Your Retirement to Pay Off Your Debt

As individuals approach retirement, they often face a myriad of financial decisions that can significantly impact their future. Your Fresno financial advisor understands how one of the most critical choices is how to manage debt. Here’s why using retirement funds to eliminate debt is generally a poor decision and what alternatives exist.

Understanding the Risks

Retirement accounts, such as 401(k)s and IRAs, are designed to provide financial security during one’s golden years. Withdrawing funds from these accounts to pay off debt can jeopardize this security in several ways. First, early withdrawals often come with hefty penalties and tax implications. For instance, if you withdraw from a traditional IRA before age 59½, you may incur a 10% penalty in addition to regular income taxes on the amount withdrawn.

Moreover, using retirement savings to pay off debt can deplete your financial cushion. Once you withdraw funds, they are no longer available to grow through investments. By sacrificing these funds, you may find yourself in a precarious financial situation later in life, especially if unexpected expenses arise.

The Impact on Retirement Lifestyle

Retirement is meant to be a time of relaxation and enjoyment, free from the stress of financial burdens. However, if you use your retirement savings to pay off debt, you may find yourself living on a tighter budget than anticipated. This can lead to a diminished quality of life, forcing you to cut back on essential expenses or forgo experiences that bring joy and fulfillment.

Exploring Alternatives

Instead of using retirement funds to pay off debt, consider these alternative strategies:

Create a Budget: Start by assessing your income and expenses. A well-structured budget can help you identify areas where you can cut back and allocate more funds toward debt repayment.

Negotiate with Creditors: Reach out to your creditors to discuss your situation. Many creditors are willing to negotiate lower interest rates or create manageable payment plans, which can ease the burden of debt.

Consider Debt Consolidation: If you have multiple debts, consolidating them into a single loan with a lower interest rate can simplify payments and reduce overall interest costs.

Seek Professional Advice: Consulting with a financial advisor can provide personalized strategies tailored to your situation. They can help you create a plan that balances debt repayment with retirement savings.

Conclusion

Giving a large sum of money to a young high school or college graduate is akin to handing a brand new Ferrari to someone who just received their driver’s license. This can lead to a disastrous outcome. In order for your financial contribution to have a positive impact, it is important to teach your children the importance of diligence and accountability. They should possess the qualities of integrity, maturity, and wisdom to properly manage the financial gifts you have bestowed upon them.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

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source https://soutas.com/dont-use-your-retirement-to-pay-off-your-debt/

What’s the Difference Between Building Wealth and Getting Rich?

In today’s fast-paced world, the terms “building wealth” and “getting rich” are often used interchangeably, but they represent fundamentally different approaches to financial success. Your Fresno financial advisor knows that understanding these differences is crucial for anyone looking to achieve long-term financial stability and prosperity.

Defining Wealth and Richness

To begin with, it’s essential to define what we mean by wealth and richness. Getting rich typically refers to acquiring a significant amount of money or assets in a relatively short period.

On the other hand, building wealth is a more gradual process that emphasizes the creation of a sustainable financial foundation. Wealth encompasses not just money, but also assets that generate income over time, such as real estate, stocks, and businesses. Building wealth involves strategic planning, disciplined saving, and investing, with the goal of achieving financial independence and security.

The Mindset Shift

One of the most significant differences between getting rich and building wealth lies in the mindset. Those who seek to get rich often focus on quick wins and immediate gratification. This can lead to high-risk behaviors, such as gambling on volatile investments or spending extravagantly once they come into money.

Conversely, individuals focused on building wealth adopt a long-term perspective. They prioritize consistent saving, smart investing, and financial education. Wealth builders understand that true financial security comes from a diversified portfolio and a steady income stream, rather than a single windfall.

Strategies for Building Wealth

Building wealth requires a strategic approach. Here are some key strategies that can help individuals on their wealth-building journey:

Budgeting and Saving: Establishing a budget is the first step in managing finances effectively. By tracking income and expenses, individuals can identify areas to cut back and increase savings. A common recommendation is to save at least 20% of one’s income.

Investing Wisely: Investing in stocks, bonds, mutual funds, or real estate can yield significant returns over time. Wealth builders often take a diversified approach to investing, spreading their money across various asset classes to mitigate risk.

Continuous Learning: Financial literacy is crucial for making informed decisions. Wealth builders often invest time in learning about personal finance, investment strategies, and market trends.

Building Passive Income: Creating streams of passive income, such as rental properties or dividend-paying stocks, can significantly enhance wealth over time. This allows individuals to earn money without actively working for it.

Conclusion

Understanding the difference between income and net worth is crucial for achieving financial stability and long-term wealth. Your financial advisor Fresno, Ca is committed to helping you understand that while income represents the money you earn on a regular basis, net worth reflects your overall financial health by considering your assets and liabilities. By tracking your income and net worth, you can make informed financial decisions, set realistic goals, and work towards achieving financial independence.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

The post What’s the Difference Between Building Wealth and Getting Rich? appeared first on Soutas Financial.

source https://soutas.com/whats-the-difference-between-building-wealth-and-getting-rich/

A Beginner’s Guide to Investing

In 2024, watching the news may feel like a tumultuous ride on a sketchy roller coaster at a local fair. The state of the economy, housing market, and stock market is uncertain and unpredictable. However, despite the chaos, your Fresno financial advisor will discuss how now is actually the best time to take control of your finances and start saving for the future.

While investing may seem like a daunting task, it is much easier to get involved than you might think. This guide will provide you with everything you need to know to get started on your investing journey. We will take you through a step-by-step plan that will set you up for success at the starting line of investing.

Welcome to Investing 101!

Investing in your future can be intimidating, especially when it involves long-term effects on your finances. However, don’t give up just yet because anyone can invest, including you. Here are seven simple steps, along with some basic information on investing, to help you get started.

1. Determine your investment goals.

Just as we emphasize the importance of knowing your “why” when it comes to getting out of debt, having a clear goal in mind is crucial for successful investing. What motivates you to invest? Is it for retirement savings, your children’s college fund, or a down payment on a house? Clarifying your reasons for investing will guide you in the next step, which is to…

2. Decide how much you want to invest.

Your personal savings rate plays a significant role in your retirement savings, and research shows that it is the most critical factor in successfully saving for retirement.

However, always prioritize saving 15% for retirement over other goals. Just imagine, if you invest 15% of your income annually for 30 years with an average return rate of 11%, you could amass millions of dollars due to the power of compound growth.

3. Choose your investment accounts.

The next step is to decide where to invest your money. You have various options for investing accounts, also known as investing vehicles. Different types of investing vehicles, such as IRAs or 529 college savings plans, are designed for different investment goals.

4. Select your investments.

Once you have determined the type of investing account you want to open, you will need to choose your actual investments. There are numerous investment options available, but we recommend good growth stock mutual funds for consistent and long-term growth.

Conclusion

Choosing the right mutual funds is a critical step in achieving your financial goals. By understanding different fund types, assessing risk and return, and considering key factors, you can make informed investment decisions. Your financial advisor in Fresno, Ca is committed to helping you remember to conduct thorough research, analyze performance metrics, and diversify your portfolio to optimize returns and manage risk.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

The post A Beginner’s Guide to Investing appeared first on Soutas Financial.

source https://soutas.com/a-beginners-guide-to-investing/

A Great Money Habit to Teach Your Children

Your Fresno financial advisor will discuss how following these money habits can put your children ahead when they enter the real world—they might even become millionaires before 40!

Money Habit #1: Save a $500 emergency fund

Saving $500 might seem tough for a high schooler, but it’s crucial. This money habit helps handle unexpected expenses like flat tires or cracked phone screens. There are many ways to save:

Save allowance, birthday, or holiday money

Sell unwanted items online or at yard sales

Offer services like babysitting or lawn care

Get a part-time job (if schedule allows)

Ask parents for paid household chores

Tutor other students

Work full-time during summer breaks

Students should budget their earnings and save as much as possible in a dedicated account. It may be challenging at first, but reaching the $500 goal is rewarding.

Interestingly, a research team study found that students who took a personal finance course in high school were three times more likely to prefer $500 in the bank over a smartphone.

Money Habit #2: Get out of debt

Even teenagers can have debt—car payments, credit cards, or money owed to parents or friends. This money habit, the debt snowball method can help them become debt-free:

Stop accumulating debt (cut up credit cards)

List debts from smallest to largest

Pay minimum on all debts except the smallest

Put extra money towards the smallest debt

When smallest debt is paid, roll that payment into the next smallest

Repeat until debt-free

Being debt-free gives students an advantage in future financial planning and helps them cash-flow their college education.

Money Habit #3: Pay cash for your car

When it’s time for students to buy their first car, they should pay with cash.

A decent used car costs about $3,000. By saving $300 monthly, teens could buy it in 10 months, or in 15 months at $200 monthly. Saving before buying makes the purchase more meaningful and encourages responsible driving. Without car payments, they can focus on their next financial goal.

Conclusion

Determining whether you can truly afford a particular purchase is a critical step in making wise financial decisions. Your financial advisor Fresno, Ca understands that by understanding your financial situation, assessing your income and expenses, considering your financial goals, and creating a budget, you can confidently evaluate whether a purchase aligns with your overall financial well-being.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

The post A Great Money Habit to Teach Your Children appeared first on Soutas Financial.

source https://soutas.com/a-great-money-habit-to-teach-your-children/