Financial Planning

Do you find that staying on a budget makes you ill? Budgeting is necessary to help you keep track of your income and expenses. What financial goals do you have? You’ll never get there if you can’t plan it. If images of bad credit reports and working until your death bother you, there are solutions. That doesn’t have to become a reality. Here are six pointers that actually work.

1. Figure out your income Before you do anything you need to know exactly how much money you earn. There are two numbers you want to learn. What are your gross and net income amounts? If you don’t know this, you could put yourself in financial ruin. Look at your paycheck stub or if you work for yourself subtract your expenses from your gross income to determine your net income amount.

2. Determine your outflow Where is your money going each month? You need to know what you are spending your money on. Expenses are just as important to figure out. Utilities are unfortunately bills that you cannot eliminate. Credit cards and car loans are some that you can. If you are also losing money to unnecessary items you can eliminate these to help pay down any debts that you have.

3. Savings is necessary

You should have a savings account. This is vital to budgeting. You need to plan for unforeseen events. If your car breaks down and not covered by a warranty you can pay for it with cash. You can eliminate the use of your credit card except in extreme emergencies. It might take you a while to build this up. Start with any money you can. A few bucks a month will start you on your way.

4. Keep records

You must keep records to be successful. When you are starting out, it might seem a pain to write every little detail down in a log. But once you start to see a pattern of your spending it will help you to eliminate any bad habits and minimize unnecessary spending.

5. Communication is vital

Communication is the key to staying on a budget. If you share a budget with others you cannot do this alone. Everyone needs to be in agreement for this to work. If you make decisions for someone else they will resent you and it will fail.

6. Treats keep you on track

Budgeting is not a bad word. You can make it useful and fun. Make sure that you do keep aside money for fun treats. You should pick a figure that won’t derail your goals. This will allow you to stay on track and won’t make you feel like you are on a budgetary diet.

It is true that is always easier to skip planning, since it requires time, effort and checking how we managed versus what we initially planned. For example, if you go on picnic for barbecue it is the most easily just to get into a car and stop by to buy a few things. But when you get to your place, you can realize that you bought meat, but you forget spices, or that you bought coal but forget the grill. So, you must admit that some planning prior to your trip should be good.

Planning is important in every aspect of your life. Especially it is important because of your financial health. Without planning you will not have real control over your incomes and outcomes. Money will be just coming in and going away from you. Whether you will have money leftover or be in debt at the end of the month is only matter of coincidence.

You need to plan your personal finance in specific periods and to revise periods after they are gone. Example, you set up income and outcome plan for a month and after the month has ended you can check how was your spending and saving vs. plan. You will be amazed how much money you loose on trivial things, that you bought simply because you were probably bored at some moment and went for shopping, or you didn’t re-think before buying something.

As an example of personal planning it is good to take a look on finance planning of the companies. Business planning is very structured and rigid, but is highly effective. You do not need to be so strict, e.g. to sign allowance to your self and to take receipt just to go to watch some movie. But still you can learn a lot from Business planning model of financial management and apply it in your personal finances.

Business financial planning is divided in several dimensions. Time dimension covers a full year, divided in quarters and months. During the business planning mid term period of, for example, 3-5 years is considered for setting the strategic guidance. Second dimension is the balance sheet that have incomes on one side and expenses on other side of the sheet. At the bottom of the sheet some profit should be generated. The income side of the balance sheet should contain income channels, e.g. sales, interest rates, rent, royalties, … The expense side should have budget lines with allowance for different purposes, e.g. utility costs, salaries, investments, raw material…

This should give you a glimpse into the structural approach of financial management that you can use for your personal financial planning.

First, define your time periods and goals for every period. You do not need to specify goals too accurately, but at least set them roughly.

- Short term – Monthly Financial Planning should be the basic period, simply because usually you receive salary in monthly periods, as well usual monthly bills. Try to make monthly plan by setting the goal in term of spending. Probably you cannot make too big changes on income side in a single month.

- Long Term – Annual Financial Planning should cover summary of the monthly plans. But at same time you should expand your perspective toward investment of saving, as well as setting goals to construct auxiliary income source.

- Strategic Planning – Is the long term e.g. 5 – 20 years financial planning where you should include planning of capital expenditures like a car, house, scholarship, retirement plan, …

Now, since you got basic of temporal planning, try to involve some tools in your planning. You do not need some sophisticated accounting software. You can use simple tools like excel sheet.

Try to record your financial traffic in your personal accounting tool as much as possible. These records will help you to identify budget leaks, meaning expenditures that are not that necessary. At same time you will have a chance to plug these leaking holes in your budget.

In time, you will perceive you own financial flows from higher perspective. This strategic perspective will develop your sense for financial management. It might be unpleasant at first, since it is easier to close one eye and to spend without to much thinking. Still, personal financial management requires some discipline.

Try to identify your financial areas of improvements. For beginning use easily achievable targets e.g. save 100

Are you disorganized when it comes to your personal budget? Maybe you are just looking for ways to improve your organizational skills when it comes to budgeting and paying your living expenses each month. Creating a personal budget for your monthly living expenses is a great way to keep track of all of your debits and credits.

The Excel software program is a great way to help you organize all of your living expenses and make it easier to simplify your bill paying process each month.

To get started, you need to have the excel software program installed on your computer and you also need to have all of your monthly bills and bank statements in front of you to begin to create your personal budget.

If you choose to list your monthly bills and expenses alphabetically, do so before you begin to create the personal budget. If you wish to list them by date, organize them in chronological order by date. Set these aside.

Open up your excel program on your desktop. Once in the program, open a new document, then click to open up a new worksheet. You will want to save the worksheet right away. You may name the worksheet whatever you want, but try to name it something you will remember such as “My personal budget” or “Jane’s personal budget.”

From the top of the worksheet you will see a number of lettered boxes and numbered columns. Take your cursor and place it in the first box (A) highlight the corner of the box and pull the box to the right for about the length of four columns. This is where you will write the names of the bills either alphabetically. Proceed to enter in all of your bills.

Create headers at the top that will have the following categories such as due date, date paid and amount paid. You can add other notes or categories that will better help you to better organize or keep track of your monthly living expenses.

You can create a “grand total” box at the bottom of the spreadsheet and place the amount of all combined bills at the bottom. You can highlight all of the entered amounts and select the auto sum button to have the excel program configure all of the amounts for you. Save all changes.

By using an Excel software program to create a personal budget for your lifestyle, you will soon realize how easy it is to keep track of all your expenses and make your busy financial life work for you.

Well, I went to Wal-mart today and thought on how I can save a little money. I decided to buy the second to cheapest toilette paper to try it out. I found out that this paper feels that same as the more expensive brands. I just saved about $2-$3 for the same amount. I think of toilet paper as an essential, however, I really believe after my new experience that one can save money and still have comfort. I was just reading on the Wikipedia and here is what I found.

Regarding toilet paper, as with any commercial product, deceptive marketing techniques are used. One of the most common is to increase the size of the empty hole or narrow the width and size of the paper. Fancy packaging is another common method, allied with carefully placed advertisements and publicity techniques.
(Source Wikipedia)

So, in short I save $2-$3 on toilet paper for the same amount but a cheaper brand. Now I can use that money to help me pay for an extra gallon of gas. We don’t want to talk about that at $2.97 a gallon where I am at!!!!

Well, I believe that I have saved a lot of money not using shaving cream Ever since I visited Madagascar in the late 90′s I have not used shaving cream. Instead I just use either bar soap or shampoo. The trick is to make the soap really foamy so that one can shave with it. So here is my calculation of saving money. Let say that I one goes through a can of shaving cream a month (since we are in the military we have to be clean shaven each day.) Since 1998 I have not used it so the calculation would be 12 X 10 X $4.00 (rough estimate for shaving cream) = $480.

I have save $480 dollars with several years. If I were to put this money away I would have have a few thousand. I am not saying do not go without shaving cream but it sure does save a lot money if you don’t have that much plus if you save money with toilet paper then you will money for gas. That is money money saving tip for the month. Could you live without shaving cream?

Planning the Budget

In the previous exercise, we have identified all costs and all income and now have a clear picture of the current situation. Using this information, the budget we set will, in effect, be an overview of how we live our lives from this point on. There will be certain rules that we have to stick with, but we will know that sticking to the rules will allow us to achieve our future financial goals.

The next part of the process is a little more painful and certainly more laborious than the last, but nevertheless must be done. Begin with the easy stuff first. This is the middle section on the budget sheet, i.e.:

- motoring expenses;

- food and housekeeping;

- miscellaneous goods and services;

- personal and leisure;

- sundries and emergencies.

There will be lots of low hanging fruit here (easy savings to be made).

For example, let’s say your daily expenditure diary reveals that on your commute to work you buy a newspaper at the railway station and a coffee while you wait for the train. You buy lunch at the deli around the corner, but go to the local pub for a sit down lunch and a drink on a Friday. You have a drink with colleagues after work on average 2 nights a week and buy an evening paper to read on the train on the way back from work. This is what this expenditure looks like over the week:

Morning coffee: 1.50 x 5 = 7.50

Morning paper: 0.60 x 5 = 3.00

Lunch at the deli 2.50 x 4 = 10.00

Bar lunch: 7.50 x 1 = 7.50

After work drinks: 2.80 x 2 = 5.60

Evening paper: 0.50 x 5 = 2.50

Weekly total: 7.50 + 3 + 10 + 7.50 + 5.60 + 2.50 =