| |
Home Personal Finance Money
Management
begins with having realistic picture of your income &
spending
Learning
valuable tips and techniques for smart personal finance management is
essential to having a successful financial life. It is a
process
though and requires a mindset of determination and
persistence to follow certain
basic principles and obtain your personal goals.
We show you a five step process to establishing your financial plan.
Identify
Present
Financial
Situation
Let's start with figuring out exactly what really
is your present financial picture. First let's look at what
you own and what you owe.
Print these
worksheets to help you identify all your assets and liabilities.
You
will need Adobe Reader (the latest version is recommended) installed on
your computer in order to open and print these worksheets. You can get
Adobe Reader here (a new window will open so
you can download it without leaving this page). If you want to open the
file in your browser window, just click on the link. However, if you
want to download the file to view later, then right-click on the link
and choose "Save Target As" or "Save File As." Then select where you
want to save the file on your hard drive.
First fill
out the net
worth worksheet.
This will help you get a snapshot of your present financial
situation. You'll list all of your assets (cash, savings,
land, home, investments etc). Next you'll list all of your
present debts or liabilities (home mortgage, car payments, credit card
balances, any loans you might have etc). Liabilities don't
include monthly expenses such as utilities, groceries, clothing etc.
Expenses are those which will never be paid off.
Liabilities have a finite balance due. Expenses do
not.
Your total assets minus your total
liabilities equals your net worth. This is the snapshot of your present
financial situation.
Establish
Your Financial Goals
Next let's explore what are your
financial goals. From a long term perspective these should
include:
- Financial Independence
- College
Education for Children
- Paying Off Debt
- Major
Lifestyle goals
- Major Charitable giving
- Owning
Your Own Business
Use the Saving Goals Worksheet
to list your long term and short term savings goals.
Our income
is used in the following categories:
- Pay
taxes
- Savings (including emergency fund and saving
for long term goals)
- Debt repayment
- Living
expenses
- Charitable contributions
You
can figure your expenses by using the using the Money Tracking Worksheet.
Calculate your debt repayment by using the Debt repayment spending
plan worksheet.
Determine Your Budget
Let's
figure out what is your REAL budget. We are going to define
your budget as the following:
Income
less
Giving
less
Savings
less
Taxes
less
Debt repayment
Equals
Balance to live on.
You need
to adjust your lifestyle choices to fit within this balance that is
left. People will often go about living the lifestyle choices
they wish to have and then looking to funding taxes, giving, savings
and
debt repayment with what's left. Consider that, that mindset is the
exact opposite of reality. This "Balance to live on" includes
your housing, food, clothing, transportation, entertainment, medical,
insurance, children, gifts, and miscellaneous expenses. You
must fit your lifestyle to the "balance to live on" .
Use
the Budget
Worksheet to determine your real budget.
Increase Cash Flow
The
last step in determining your financial road map, is identifying ways
to
increase your cash flow.
Let's find ways
to increase the amount of money you have able for living.
- Reduce
rather than eliminate (eliminate eating out one night a month).
Forgo a desired consumption or purchase.
- Be
careful not reduce or eliminate an expense this year that would be more
costly later. This is especially true for maintenance and
repairs on
automobiles and homes
- Rent rather than buy.
Vacation homes, timeshares, major tools, hight ticket
sporting equipment
- Buy used goods.
Consider buying used automobiles, television, stereo
equipment, refrigerators, freezers, furniture, children's clothing and
tools.
- Stock up on gifts for birthdays, showers and
Christmas. Buy items when they are on sale or at the end of
the buying season and storing them until needed.
- Buy
products in bulk - canned or dried foods, paper goods etc.
- Comparison
shop - some costs can be cut just by shopping better or buying more
wisely. A prime example is insurance. Buy term
versus whole life insurance.
- Learn
additional valuable and useful tips for saving
money here
- Produce more income
Implementing
and Controlling Your Financial Plan
Implement
your plan. Build in controls
to force you to stay on your road map. You have developed a program
that calls for planned spending not restricted spending. Work
your
plan and trust the process.
One
set of controls would be to implement the envelope system.
Cash
money is pre allocated to categories. When the envelope is
empty
there is no more spending in that category.
An
envelope equivalent system for tracking spending with the use
of debit and credit cards is the MVelopes.com
site. This allows you automatically track what categories
have
had spending, how much is left to spend and automatically transfer
corresponding amounts into your checking account ledger, so you'll
completely pay off your credit card at the end each month.
After
you've
completed all your worksheets, it
is highly suggested that you use one of the popular computer
financial programs to help you track your financial plan. One
recommended
program is Quicken.com
Debt Recovery
is a issue of major concern to many people. With persistence
and
a good plan, you can pay down your debt and become completely debt free
including your mortgage.
Return
to Teach Money
Management
|
