The Art of Successful Personal Financing25/06/2018
You definitely know that the best person to take care of your personal finances is no other than you! We have all been told to take things one day at a time, and this is of course the best way to live. Unfortunately, many people think that the ‘one day at a time’ theory includes their financial standing and future – and it doesn’t. When it comes to money, you really can’t take things one day at a time. You must look ahead to the future, and set financial goals, and then create a plan to reach those goals. Once that is done, you start meeting those goals – one day and one step at a time.
Don’t make the mistake of thinking that you will ‘cross that bridge when you get to it.’ When it comes to money, you simply cannot do that, or you will find that you will never reach your goals. You must look ahead and see where those bridges are, and start working out how you will cross them long before you get to them! When you finish your education and go to work, you must look ahead to when you will marry. When you marry, you must look ahead to when you will buy a home and have children. You must look ahead to your child’s education and their wedding, and you must look ahead to your own retirement – even if it is fifty years away! All of this takes money, and it is money that you need to start gathering right away…not on the day that you need it.
In order to plan your financial future successfully, you really must make a basic plan for your life. That plan will most definitely change over the years, but the main parts won’t change. For instance, the chances are very good that you will marry and have children. You will almost definitely reach a point where you want to purchase a home. If you have children, they will absolutely need to be educated, and will most likely marry. You will definitely want or need to retire at some point. Those things are not likely to change in your life’s plan. So, think ahead through the coming years of your life, and make a financial plan that will help you obtain your goals. The rest of life, with all of its up and downs can then be taken in stride – one day at a time.
Use Common Sense
In as simple as it sounds, financial planning is really just a matter of using common sense. For instance, why would you pay $20.00 when you could pay $10.00 for the same item or results? It’s no more than a guess that you work very hard to earn your money – so you need to make sure that your money is working hard for you in return. That’s one. Money, when it is all said and done, is a means to an end. You work to make money; you take that money and use it to make sure that you have a place to live, a car to drive, food to eat, and clothes to wear. And with luck, you take that money to enjoy some of the finer things in life. Many people believe that money is made to spend, and in a sense, that is validly true, and you will spend it – but not necessarily today.
If you are young, it is hard to imagine that you will reach a point in life when you can no longer work for your income. It may be a long way off, but that time will come, and you must be prepared for it. You cannot expect to start saving for retirement the year before you will need to retire! The sooner you start saving and investing for your retirement, the better your retirement years will be – and that should be a major goal for everyone! When you retire, you will start spending the money that you’ve worked all of your life to earn and save. With luck and planning, there will even be some or plenty left over to give your grandchildren or great grandchildren a good financial start. Just because you make a lot of money, you don’t have to spend a lot of money.
We would all like to live rich and famous lifestyles, but it isn’t very realistic. Common sense is best when it comes to money, so again, why would you pay more for something that you can have for less? If you are using common sense, you wouldn’t! If you don’t have to spend your money, don’t. It really is as simple as that. Instead, put that money to work for you, and have it make more money for you and your future.
Look For Savings
When it comes to your money, it is very important that you look for ways to save it wherever you can. In fact, even if you consider yourself financially well-off, you should still make it a habit to save money when you can. This is a great way to stay in good financial shape, and also a great way to get into great financial shape if you aren’t quite there yet. Start with your household bills, such as utilities. Turn lights off, cut down on long distance calls, and use less water. If you make a concentrated effort, and really pay attention to your monthly bills, you will see a big difference in costs. Make a list of all the ways that you can reduce your utility payments and household costs. Use coupons, and take advantage of sales. If you need new bedroom furniture, don’t just rush out and buy it. Instead, look for liquidation sales, over stock sales, or furniture stores that are going out of business. You will find remarkable savings in this way. Use store coupons whenever you can. It takes a little time to clip them, but those small savings of a few cents here and there can really add up. Make lifestyle changes that will make you healthier and richer. If you use tobacco or drink, think about how much money you spend on those habits. You must also include health care expenses that are related to those habits.
If you look at the big picture, you will find that your unhealthy habits cost a lot more than you realize! Break those habits and you will not only become healthier, your bank balance will be healthier as well. Don’t always buy the cheaper brand or version – it may cost you more money in the long run! Sometimes, buying off-brand items is a real savings especially when it comes to food items. But sometimes, cheaper things mean lower quality. This can mean replacing items more often, which in the long run costs more money than just buying a higher quality item in the first place.
If you make a list of things that you commonly spend money on, and if you really think about it, you will find numerous ways to save money. Take those savings, and put them in a savings account, and you will be pleasantly surprised at how fast that balance grows! The idea of saving can be severely criticized by big time money makers but the truth is that saving your money is as important as making money. It’s a shame some 5-figure income earners often don’t bring those five figures home at the end of the month due to horrible financial planning. While savings is not the end of the problem (in fact, just the beginning), it’s a quick defence strategy you can implement almost instantly in contrast to making money, which can take some time depending on the nature of your job or business.
Take Importance in Emergency Funds
Life throws things at us when we least expect it. It may be an illness, a car accident, or even a lay-off from a job. Whatever it is that life throws, you can bet it is going to cost you money. This is why you need an emergency fund. Everyone should have at least three to six months of living expenses in a savings account that is reasonably easy to get to. Saving up the money for your emergency funds is easier than you might expect. It all goes along with ‘Pay Yourself First.’ Set a budget and determine how much you can put into a savings account. Until you have reached your savings goal of having three to six months of expenses in your savings account, save every extra dime that you can lay your hands on – even if this means not going out to a nice dinner or seeing a movie.
Getting your emergency funds saved should be your utmost priority. Once you have your emergency funds saved, preferably in an interest bearing savings account, make sure that you leave it alone. Remember, it is only for emergencies. Needing to buy a new dress for a date is not an emergency. Needing to pay for car repairs, however, is an emergency. Really think long and hard before using your emergency funds! When you must use your emergency funds, make sure that you replace those funds as quickly as possible. This probably means that you will have to really tighten your belt, and forgo the dinners and movies again – for a while. But when you have an emergency, you will be thankful that you did save the funds, and you will realize just how important doing so really was.
Your emergency savings should not be invested. Again, it needs to be readily accessible, in a savings account. It is also a good idea to have a debit card for that savings account, in the event that your emergency occurs outside of banking hours. However, use caution, and put that debit card away – don’t use it unless there is an emergency!
The Art of Budgeting
A carpenter uses a set of house plans to build a house. If he didn’t the bathroom might get overlooked altogether. Rocket scientists would never begin construction on a new booster rocket without a detailed set of design specifications. Yet most of us go blindly out into the world without an inkling of an idea about finances and without any plan at all. Not very smart of us, is it? A money plan is called a budget and it is crucial to get us to our desired financial goals. Without a plan we will drift without direction and end up marooned on a distant financial reef.
If you have a spouse or a significant other, you should make this budget together. Sit down and figure out what your joint financial goals are…long term and short term. Then plan your route to get to those goals. Every journey begins with one step and the first step to attaining your goals is to make a realistic budget that both of you can live with. A budget should never be a financial starvation diet. That won’t work for the long haul. Make reasonable allocations for food, clothing, shelter, utilities and insurance and set aside a reasonable amount for entertainment and the occasional luxury item. Savings should always come first before any spending.
Even a small amount saved will help you reach your long term and short term financial goals. You can find many budget forms on the Internet. Just use any search engine you choose and type in “free budget forms”. You’ll get lots of hits. Print one out and work on it with your spouse or significant other. Both of you will need to be happy with the final result and feel like it’s something you can stick to.
No matter how much money you have, or how much money you don’t have, you must have a budget. If you find that you don’t have much money, a budget can actually help you save more money. A budget will also help you become more aware of how much money you are unnecessarily spending each month. Your budget can be very simple, or very detailed. People with a larger income tend to have more detailed budgets, but people with modest incomes will usually do well with a simplified budget.
Your budget can be typed in a document on your computer, written out on paper, or set up in a money management program on your computer. Whatever works best for you and your situation should be used. Don’t make it harder than it has to be. Start by making a list of your income. Include all income that you know will be coming in, including income tax refunds and cash gifts that you know you will receive from Grandma at Christmas. Some income will have to be estimated, and this is fine. After you know what is coming in, make a list of what is going out. Start with the basics.
Of course you know that you will pay utility bills, insurance premiums, a mortgage or rent. If you have credit cards, you know that you will have payments to make on those. Outstanding loans must also be paid. List all of your monthly bills, but don’t forget about those other expenses as well, such as groceries, gasoline, household items, and entertainment. Save these expenses for last, so that you can see how much you have to allocate to each expense – and then live within those allocated amounts. At the top of your list, you should have one very important bill to pay… yourself. Pay yourself first! Determine how much you can afford to save each month, and then take that money out first and put it in an interest bearing savings account. Do this before you pay any other bill on your list!
For full coverage of the subject matter of successful personal finance, Living Big on a Small Budget is a good read. Get a copy!