5 everyday budgeting tips for the 1% that anyone can use
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- The top 1% of earners in the United States includes many millionaires and billionaires, but it also includes families that earn anywhere from $231,276 in some states.
- No matter your income, though, financial planners agree that making a budget and sticking to it ensures long-term financial well-being.
- Experts say that everyone, including the highest earners, should track their expenses, set financial goals and work towards them, build an emergency fund, and calculate your "daily rate" to preserve your fortune.
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When most people think of "the 1%," they envision the Mark Zuckerbergs and Warren Buffetts of the world. In reality, though, the nation's 1% is made up of households with a much broader range of incomes - starting at $231,276 in some states.
Based on these stats, even those who fall into the 1% aren't necessarily wealthy enough to eschew budgeting and ignore the pitfalls of modern consumerism. Heck, even some of the wealthiest of the wealthy have mismanaged their money and lost it all.
For that reason, financial experts say anyone in "the 1%" - including those at the very top of that range - needs to have some sort of budget and financial plan. And even if you don't fall into that range, these lessons still apply.
Here are some budgeting tips for the highest earners (and everyone else, too) from the experts who help them manage their money:
1. Track your expenses
Financial adviser Henry Gorecki of HG Wealth Management LLC says that even though high earners have a robust cash flow, they still need to track their spending. No, they probably don't have to log how many lattes they're buying at Starbucks, but they should still watch where their money is going - especially the big stuff.
"Suddenly, an annual $10,000 vacation becomes two $50,000 vacations," he says. "I need to have the latest Bentley because John at the club just got one and it's really cool."
When you're wealthy, keeping up with the Joneses takes on a whole new meaning, and you have to keep an eye on your discretionary spending so it doesn't get out of hand.
2. Consider your daily rate
Financial coach and founder of Financial Impact Holly Morphew says that everyone should know their "daily rate." This term is used to describe the amount of money you can spend on a daily basis based on your income, and it's meant to help people from all walks of life figure out a reasonable amount of money to spend and save each day of the month.
If you make $300,000 per year, for example, your take-home pay would be around $210,000. If you break that down by 365 days in a year, you'd see your daily rate is around $575. From there, you can subtract how much you spend on housing and other bills each day, and that's how much you have left to spend and save on a daily basis.
Morphew says your daily rate can help put any outrageous purchases you're planning into perspective in a whole new way.
"How many days would you have to work to buy that boat, go on that helicopter ski trip, or buy that geode from Pakistan?" she asks. "You might find it's actually not worth it after all."
3. Establish real financial goals
When you're a high earner, it's easy to believe your financial life will settle itself. However, that's not a fair assumption, and in reality, earning a lot of money doesn't guarantee a wealthy future if you turn around and spend it all.
"It sounds simple, but taking time to decide your financial priorities can have an immediate impact on how you spend," he says. When you know the short- and long-term goals you're working towards (such as getting out of debt, or planning for retirement), then you can use those goals to shape your budget.
If you're unsure what your goals are or what they should be, it might be time to meet with a financial adviser who can help.
4. Build an emergency fund
Debt resolution attorney and author of "Life & Debt" Leslie H. Tayne says that having disposable income can certainly help you grow your savings more quickly, but it's still crucial to build up a solid emergency fund and contribute the maximum to your retirement plans. That's because you cannot guarantee your high income will stay that way forever, and you need to have a "plan B."
Even if it feels like the good times will last forever, those who are smart will have a stash of savings they can depend on when times get lean.
5. Choose a budget that works for your lifestyle
If you're making significant money, you probably don't want to use a cash-envelope budget or track every penny. But choosing a budget type that works for your lifestyle is key to long-term financial well-being, according to financial planner R.J. Weiss of The Ways to Wealth.
"When you're budgeting with a high income, it's more about knowing when you need to correct course rather than tracking every last dollar across a wide variety of categories," he says.
As such, those lucky enough to be in the 1% would benefit most from setting up a very simple budget - for example, maybe a customized version of the 50/30/20 budget. That way, you can have a plan for the money you're bringing in without turning your budget into a part-time job.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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