Financial Planning

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In today’s world it can seem almost impossible to have freedom from debt. But you can live debt free with a little discipline and knowledge in the right areas. You need to learn some real world skills that can give you the most out of the money you make. Many of us make enough money to live a comfortable life.

First thing you need to do is make a list of all your debts: mortgage & auto loan, credit card and other personal loans. Prioritize your debts. Decide the debts that you want to pay off first. Some financial experts say freedom from debt is possible. But recommend paying the debts that have higher interest rate while making minimum payments on the rest. While there are others who suggest going from the smallest debt to the largest one, because this helps to give you a sense of accomplishment that can help you stay with the plan.

The next step is to list down all the priority expenses such as phone, electricity, food, clothes and other non-priority expenses such as entertainment, gym, dinner at restaurant & etc. Then record down your monthly income. Decide how much money you are left with at the end of each month to pay towards your debt. Are you charging your purchases instead of paying in cash or debit card? How often do you use your credit card on those insignificant purchases when you could have just as easily used cash or even your debit card? This raises your balances and costs you more money in interest. Use cash, check, or a debit card and save yourself some money. Then freedom from debt is possible.

You need to make a budget. Many people feel that budgeting is just a waste of time, but in all actuality budgeting will show you exactly where your money is going and benefit you greatly. It will stretch your dollars further and help you keep track your spending. Budgeting is a very useful and should be used in your home every month. You will be surprised by how much you spend and you will be even more surprised by how much you save if you set up a reasonable budget that the whole family can live within. Freedom from debt is possible. All you need to do is make a list of all your debts. Decide the debts that you want to pay off first. You need make a list of your priority and non-priority expenses and set up a reasonable budget that the whole family can live within. It’s a great feeling when you can live free of debt. You can do it, you just need to get started and the rest will be easy.

Making a budget is not complicated. You can either do it the easy way or the slightly more tedious way. The slightly more tedious way is to do it with a pen and paper or notebook. You have to write everything out by hand and use a calculator. A bad thing about this besides getting a cramped hand is the increased possibility for errors.

The easy way to keep your budget is to use the computer. I like to use an Excel spreadsheet, but you can use any spreadsheet program. You have a few options for creating your spreadsheet budget. You can search the web for a premade template or you can make your own. I prefer to make my own because I can make it exactly to my specifications. Usually the free templates include things I don’t need and exclude things I do need.

You can use a premade template to get some initial ideas. Some are very complicated and some are simpler. By looking at a few, you can tailor them for what you need. For example, if you have a family that you support and have several sources of income and several different expenses, you will probably need to devise a slightly more complicated plan. If you are single, live by yourself, and have one source of income, you probably don’t need as complicated of a plan.

When you create your spreadsheet, you need to have two basic columns, your cash inflows and your cash outflows. Cash inflows include every source of income and for how much. You will list your salary, interest income, dividend income, part time jobs, tips, royalties, and any other revenue you take in every month. Your cash outflows are all your expenses. Include your mortgage or rent, utilities, phone, internet, cable, food, clothes, etc. You can be broad, but I prefer to be as specific as possible. You could put a certain amount for ‘extras’, but I prefer to state a specific amount for books, a specific amount for clothes, music, eating out, etc. Be as specific as you feel you need to be to help you save money.

Finally, have each column add up and subtract your cash outflows from your cash inflows to get your net cash flows. This is what you have extra for saving. You may be wondering where to include investments. If you contribute to a 401k or IRA that is directly withdrawn from your account, this should be included in your inflows anyway. Just include your take-home pay in your income. Keep in mind that you have this money set aside for retirement, but don’t assume this is all you need to be saving. Also save money for emergencies, college, vacation, and you can also invest other money to build your wealth. I would suggest not including this in your cash outflows.

School is right around the corner. If you’ve got one or more kids returning to school, then you’re probably looking at your monthly budget and trying to figure out ways to budget those back-to-school purchases. The National Retail Federation estimates that parents will spend on average $548.72 per K-12 student to send them back to school. If you’ve got two kids, that’s $1,097.44, and if you’ve got three kids, you’ll spend $1,646.16. Total spending for back-to-school purchases is estimated to reach $17.42 billion.

In this recession, those back-to-school purchases can seriously throw your household budget out the window. However, before you start dipping into savings or charging these purchases on a credit card, try these five tips for budgeting back-to-school purchases:

Recycle, Reuse & Borrow
Go through your kid’s closet and see what still fits from last year. Make a list of items that you can reuse this year. Go through your office supplies and compare it to what your student is going to need for the classroom. Try to use what you already have before going out and buying more. Also, talk to other parents and friends. Maybe they have an older student and don’t mind handing down clothes and school supplies that they don’t need.

Watch for Sales
Now that you know what you need, you can start to watch the discount stores for sales. Look in the newspaper or go online to get the latest information on sales. Some of these retailers will also post upcoming sales in their Twitter feed or on Facebook, so become a fan or follower and find out about the sales before others do. Plan your shopping strategy to get the best deals on the items that you need.

Check for Coupons
While you’re shifting through the newspaper or looking on their sites for sales, check out their coupon section. A few cents and dollars can add up to real savings. There are some real recessionistas on Twitter looking out for the best coupons and deals, such as @bargainbriana or @ncheapskate. Get a Twitter account and get the latest on coupons.

Buy in Bulk
You can save some serious dollars on your budget if you buy in bulk. Get together with some of the other moms in your neighborhood, and set a date to go shopping at Costco or some other wholesale discounter. You’ll be able to get what you need, below retail prices.

Buy Only What You Need
Retailers are going to constantly try to up-sell your back-to-school purchases. Whatever you do, try to only buy what you need. Bring your shopping list with you to the store, and stick to that list. Avoid temptation in the checkout aisles, and if possible leave the kids at home when you back-to-school shopping. You’ll get through the store a lot faster if your kids aren’t tagging along, asking you to buy this or that.

Remember, try to avoid putting those purchases on a credit card. If you put that $548.72 on a credit card with a 14.99% APR and only make the minimum payments of $15 per month, it is going to take you 4 years and 1 month to pay off that back-to-school purchase. You’ll pay $176.57 in interest. If you do put those purchases on a credit card, try to pay it off as soon as possible.

One thing many people are never taught is how to stay out of debt. If you know what it is like not being able to pay your bills, know how it feels to have TV, phone, and electricity turned off die to non payment then now is the time to learn. Because you never want to experience this again.

Now you may not like the idea of not being able to have what you want,when you want, but restoring your credit is necessary if you want to actually afford a new car or home someday.

Setting Up A Budget Plan

It is likely that you’ve heard that making a budget is difficult, but if you start by keeping close track of your normal spending habits for a couple of weeks, writing down every little thing, when you have one months worth of data accumulated you can work off of that. By going back two weeks from now and then the coming two weeks you can figure out how much you actually spend in a month and determine where you need to make changes in your spending habits.

You figure your spending this way because the past two weeks you’ve spent money in your usual fashion, but the next two weeks you’ll be more aware and should be cutting back where ever you can while still living more or less as you like.

Also important is the way in which you budget. Your budget needs to include everything that you spend money on. It shouldn’t just have fixed bills such as rent,TV,phone, and utilities. It should have all of these plus your clothes, gas,groceries,take out and whatever else you can think of, Whatever you spend money on whether it be a necessity or just nickel and diming you must write it down. With the info you have, watching your spending habits, and all your bills you should be able to work out a budget you can stick to. Setting up a budget plan isn’t real difficult you just need do it.

You really should be saving money too. At best you should have several different saving accounts, a retirement fund (ideally 10%), an emergency fund for unexpected events such as a job loss equally six months of salary, and a savings account for expensive things you’d like to have like televisions, home entertainment systems, and appliances.

Add to these accounts every paycheck until you’ve saved the six months worth while contributing to the other accounts as well.

You do not want to go back into debt again once free, you could lose everything and it just isn’t worth it. The time is now, sit down and figure your finances and spending habits, make that budget and stick to it. Even if you can’t have everything that you want you can have financial security and that’s what’s important.