People often want to know the exact amount of money they should save, invest, or spend towards a specific financial goal, but getting an accurate answer requires considering all aspects of your current (and future) financial situation.
Why?
Because there are many aspects of our financial life that determine how much money we have left for other specific uses, and that can differ widely from one household to another.
Even among households with similar levels of income, their lifestyle, number of children, and other financial obligations such as student, auto, or mortgage loans can be very different.
For better or worse, financial habits from the past play a big role in what our financial lives look like today.
A few months ago I spoke to Jennifer Taylor from GoBankingRates on how the cost of living in different parts of the country can play a large role in how people should budget their money.
And when my family was looking to buy a house a while back, we even encountered a common (but especially acute) version of this.
What was it?
People are aware that the cost of living can be very different in one part of the country compared to another, but the situation we encountered was local.
We were considering living in two different towns that shared a common school district, and the property tax rate of one town was almost 50% higher than the other.
Differences like this can be stark, and you may not believe it until you see it.
How did this affect our home search?
Using a mortgage calculator, we did the math and for the same monthly mortgage payment our budget was nearly 10% lower in the town with the higher property tax rate.
This is just one example of why it’s challenging to budget based upon a fixed percentage of one’s income, or even a fixed dollar amount.
Instead, we need to consider all of our sources of income, expenses, and financial obligations, and compare that to our financial goals to find the way to use our money most effectively.
Ultimately, this is about finding balance among spending, investing, and saving.
If you’d like to take control of your finances and plan for your next big financial decision, or just want to be sure that you’re on track, contact Paceline.
Read the full article on GoBankingRates
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.