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For most, managing the cost of living is as important — or more so — than managing your investments. After all, if you don't save enough, the returns you earn on those savings aren't likely to get you where you want to go.
The solution is, of course, the dreaded budget. A plan that helps you control spending and sets realistic goals for saving money is the surest way to secure your financial future. And that's equally true for both higher- and lower-income earners.
But according to certified financial planner Lazetta Braxton, founder and CEO of registered investment adviser firm Financial Fountains, tracking client spending "can be an overwhelming process." The reason, she said, is that people need to first "determine the rhythm of money coming in and going out every month."
Most of Braxton's clients are "middle-income" earners who need to plan for big purchases and their children's education, as well as their own retirements. CNBC spoke with her about how she helps clients draft and follow budgets that aid them in realizing their financial goals and life objectives.
Q: How do you get people started with a budget?
Braxton: People have to determine their "money rhythms." They need to know where they are before they can go someplace else. I get them to take a calendar month in the past and track what income they received and what committed expenses they had during that period. Committed expenses — they aren't necessarily fixed — include things like utilities, cable service or car insurance payments. The pool of money left over is discretionary income. The idea is to get a snapshot of how you're living and see whether it matches up with your goals.
Q: How do you help people stick to their budgets?
Braxton: It's the small but intentional steps of monitoring your lifestyle, without it being overwhelming, that help people be successful. You don't want to have that "going cold turkey" feeling. When people get the happy hormones of success, it becomes a way of life. That's what really changes behavior.
Q: What tools can people use?
Braxton: I help set some clients up with an online budgeting account at websites like Mint.com or Youneedabudget.com. They can set boundaries for their spending and even get email alerts if they exceed spending limits in a specific area. It helps people determine what's reasonable and where they can make trade-offs. I also use an "envelope system" with some clients. It's like a pre-paid credit card; whatever cash is in the envelope is what they can spend.
Q: How do people budget for a big purchase?
Braxton: Whether the objective is a big-item purchase, a college-funding plan or gifting to the next generation, it's about determining what's realistic. If the goal is to put a $6,000 down payment on a car, you have to determine the rate at which you can accumulate the needed money and make that a committed expense. Is it realistic to do it in a year, or do you need two years? People need a plan.
Q: How do people keep from feeling overwhelmed by their budgets?
Braxton: Some people feel handcuffed by a strict budget, and if they feel unhappy, they're less likely to follow it. I recommend people set up a monthly "splurge account" that they can spend however they want without keeping receipts. Once we figure how much money is coming in and going out, people can set aside an amount each month for the account. It takes some of the pressure off of following a budget.
Q: What's the key to successful budgeting?
Braxton: It's different for everybody. For people really committed to doing it, I give them two months to get on track. Sometimes it may take someone four to five months to get there. One benefit of working with a financial planner is that you have an accountability partner. I'm committed to doing what you've asked of me. The basic goal of budgeting is to capture wealth. To do that, you have to look at how you're living now and how you want to live in the future. A budget helps make it tangible now so it can be tangible in the future.
—By Andrew Osterland, Special to CNBC.com