The Investing Pyramid's Middle Layer: Manage Saving/Spending Rates

Budgeting is boring, which is why it's easy to give short shrift to it in favor of sexier pursuits such as trading stocks. But even if you select the very best investments, you'll be hard-pressed to make up for a shortfall if you haven't saved enough. That's why setting your saving and spending rate has far more importance in the investing pyramid than does investment selection (i.e., asset allocation).

Let the Internet help you

As a result of technological advances and new electronic budgeting tools, there have never been more ways to monitor and manage your spending. This is key to ensure that your savings rate puts you on track to achieve the above-mentioned goals. For people who prefer the pen-and-paper route, you can find budgeting worksheets online.

You still need to budget once you've stopped saving

Note that this concept matters long after you've stopped saving, too. For retirees, the difference between a 4% and a 6% withdrawal rate can be enormous when it comes to the viability of a retirement plan. Being able to adjust one's spending rate—especially downward in times of market duress—has also emerged as a best practice in the realm of retirement portfolio management because it helps a retiree avoid turning paper losses into real ones.