By: Shmuel Shayowitz
A philosopher, an economist, and a politician each apply for the same job. The interviewer calls in the philosopher and asks, “What do two plus two equal?” The philosopher replies, “It’s so hard to define the word equal.” The interviewer calls in the economist and asks the same question “What do two plus two equal?” The economist says, “It’s impossible to predict such an outcome with certainty given all the variables. I would forecast four, with a margin of error of plus or minus three higher or lower.” Then the interviewer calls in the politician and poses the same question “What do two plus two equal?” The politician gets up, locks the door, closes the shade, sits down next to the interviewer, and says, “What do you want it to equal”?
I came up with that comical anecdote to prelude my serious discussion about household budgeting. I have been coaching individuals and couples on financial literacy and money management for over two decades – and have seen it all. While many of the economic choices people make are highly psychological, it would be hard to get very far if everything was tackled as a philosopher. Moreover, while it’s important to be analytical and meticulous, it would be very challenging to approach personal finance as an economist. Finally, it goes without saying that politicians are not the ones to be mimicking for honest monetary guidance.
As tough economic conditions continue to persist, it’s important for the average household to make necessary adjustments. Inflation is still running hot, and wage growth has yet to adjust to the true cost of living. As reported by CNBC earlier this year, the number of Americans living paycheck to paycheck jumped to 64% as of December. They also noted, “for the first time, more than half of all six-figure earners also said they were stretched too thin, a jump from 42% a year ago.”
My advice in a high-interest rate and high-inflation environment has been to be proactive and to take action. Examples of strategies I have utilized include an adjusted and appropriate budget, aggressive efforts to reduce expenses, increased income opportunities through savings and investing, and preemptive credit reporting management. These four pillars are essential to any financial plan to ensure success.
One of the first steps people should take is to create a formal budget. Surprisingly only 20-30 percent of Americans have a written fiscal budget. A budget is the foundation of a sound financial plan, and ensuring it is realistic and achievable is vital. When creating a budget, it is crucial to include all necessary expenses as well as savings goals. You can’t imagine how many people tell me they have a budget; However, when I ask about specific costs – such as summer camps, Amazon spending, holidays, vacations and many other blatant expenditures, it is never accounted for. Once a budget is created, one either needs to reduce their expenses or increase their income – but it’s easier said than done.
As I have not budgeted enough space for the entirety of this topic, it will need to be continued in the future. Meanwhile, as you might have noticed, I am on a major campaign to promote that I provide “More Than Just A Mortgage” for my clients. If you need any assistance with any topic as it pertains to real estate, financing, banking, financial services, investing, insurance, retirement – anything that helps you “build wealth and maximize your equity” – don’t hesitate to reach out!
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected].
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