As I am always reviewing my finances, I came to realize few things that I may have been falling short of.I have short-listed some of the mistakes I kept on going back to:
- Lack of Self-Control – Setting aside funds to cover my bills, but used it for something totally unrelated. Each salary day, I set aside money for all the bills and other expenditures. However, there are just moments that I could not control spending on something that is beyond the budget allotted for the month.
End result: more overdraft fees, penalties and panic attacks than I wish to reveal.
- Unrealistic Spending – I set aside a grocery bill every week. But I always end up adding little items at the store, and tend to forget occasional dining out, gas, or entertainment. These small amounts added to the weekly spending (let’s say $25 per week that is already a $100 in a month!), is already something that could have been used to cover for the debt payments.
- No Blow Money – In life, things happen! But the real test is whether or not we are prepared financially or not. No matter how much we have saved in our emergency fund, budget needs a cushion each month to cover the small, but unexpected increase in expenses. Otherwise, we’ll continue to dip into the savings account until it no longer exists, forcing us to resort to credit cards or personal loans.
- Base the Funds on Gross Amount, Not Net – Once we are employed, we have the tendency to plan our regular spending based on the gross monthly income. We tend to forget to account for the taxes, retirement deductions and benefits, which definitely steal a portion of the salary! It is a simple thing but yes, we tend to forget all about it.
- Pessimist’s Mentality – I believe in the old adage “Your attitude determines your altitude”. This definitely applies to budgeting; if you view the entire process in a negative light, chances are it won’t work out for you and you’ll continue to live in dire financial straits. By contrast, constantly reminding yourself that it’s totally possible to follow a spending plan is one of the most important things you can do to stay motivated.
At the end of the day, before I completely overhauled my budget, I spent few moments scribbling financial goals I wanted to accomplish in the future. Some could be as simple as saving for a family vacation fund, but, it became a great way to stay motivated every month!
When dealt with financial troubles, we could use all help we could get. These days, we now have more control of our money than ever before. But that convenience could mean disorganization, reckless spending, borrowing and debt.
Having poor money management techniques to your personal accounts is one thing, but doing the same to your small business funds could be disastrous. We may not be able to help you to become sensible because that’s on you. But, here are selected tools which can make a difference on how you think and act with your capital.
QUICKEN Premier – One of the most popular name in personal accounting. Quicken’s desktop tool is well-aged, feature-packed (though a bit outdated). It neatly links transactions between your accounts – so transferring from savings into a current account is one entry, with a ‘from’ and a ‘to’ rather than a pair –provides various budgeting and prediction tools to keep on track.
Personal Capital – Primary function is to track your investments, assets and savings, rather than specifically looking after your current accounts. Personal Capital offers specific advice and statistics based on your goals and current standing, but access to human financial advisors is where the company makes money. Anyone is welcome to use its website, but only accept you as a customer if you have at least $25,000 in liquid assets, and there’s an annual fee (a percentage between 0.89% and 0.49%) to pay for your assets’ management.
Buxfer - An online service that does a good job of presenting your finances in a clean, professional manner. No need to provide your exact banking details if you are not comfortable. You have the option to go offline on your bank account, but if you are comfortable, there is a security encryption to protect your data and company is regularly edited.
You Need A Budget – YNAB’s primary mission, is to help you curb overspending and avoid living from paycheck to paycheck. Stick to the program, temper your spending appropriately, and eventually YNAB will see you spending last month’s money rather than that which you’ve just earned. If you get off track, YNAB will tell what’s need to do to get back to where you need to be.
Mvelopes - One time-honored technique is the envelope budgeting system: split funds, as they arrive, into various envelopes marked for specific purposes, never dipping into an envelope to spend cash on anything other than its designated use. Mvelopes is a way to put a representation of your sectioned-off income. Designate an envelope for working capital or savings and you can grow your personal wealth or business funds surprisingly quickly. Anything you don’t spend in an envelope stays there, giving you more to play with in your next pay cycle.
Managing your personal finance like a pro is important for paying bills, creating savings, gaining wealth, and savoring the long and comfortable retirement. Banks may provide professional handling of your finances; however, in this age of the Internet, you now have the freedom to choose from various types of resources in seeking to increase financial knowledge without shelling out funds.
Here are 10 highly reliable personal finance websites offering resources and information to help you attain your goals, from spending and investing funds:
1. BankingSense.com – Banking Sense has a unique way of presenting valuable financial news, tips, and advice without using highly technical jargon or phrasing that’s difficult to understand. Covering topics such as credit cards, insurance, small-business finance, personal finance, taxes, and more.
2. CashMoneyLife.com - Featured on top media websites like The Wall Street Journal, The New York Times, Yahoo! Finance, MSN Money, and more, Cash Money Life stands out as a reliable source of advice on personal finance and small business set up in a typical blog format without all the bells and whistles that make other sites so confusing, for clearer info.
3. MyMoney.gov – The only government-operated website on the list, MyMoney.gov offers its own unique spin on personal finance. It has information about earning, borrowing, saving, investing, spending, and protecting your money.
4. CreditCardForum.com – If you’re really into personal interaction and online communities, and for people who loves credit. It provides posters of tips and tricks for acquiring cards.
5: DoughRoller.com – This blog gives information, resources, and tips on how to make, donate, save, and spend money in fiscally smart ways. People who regularly read Dough Roller are intensely loyal because they appreciate the broad variety of content.
6. Wisebread.com – It is an extremely popular personal finance community that includes bloggers and experts in its membership. The most popular areas of the site are the “Personal Finance” and “Frugal Living” sections. It also offers a “Life Hacks” area that covers everything from technology tips to managing an organization.
7. TheMilitaryWallet.com – The site’s goal is to assist the military community in becoming fiscally smart and informed about the variety of benefits and programs available to it. Financial topics such as investing, insurance, and retirement are covered in detail, military discounts and post-military money management.
8. Kiplinger.com – Kiplinger gives you solid and accurate business forecasts. It’s seen as a trusted thought leader. One of the greatest benefits of Kiplinger is the variety of content available to the visitor.
9. Bankrate.com – Bankrate supplies plenty of information on bank rates, mortgages, and credit cards, but it’s also a source of personal finance advice in such areas as financial planning, retirement, and investments.
10. ModestMoney.com – Readers will appreciate this site for its honest and unassuming approach. Started by an average guy, this blog provides an unbiased and simplified look at financial product reviews, credit card deals, and other finance blogs.
Financial planning is an ongoing process. It’s important you take the time to create a financial plan that works for you, and make sure it meets your needs and financial goals. It involves these key steps to draw up a basic financial plan:
Evaluate your Financial Condition
First step when developing your financial plan is – assess your financial situation. With a clear understanding of your current financial situation, you can decide where you should start from, and what you need to achieve your financial goals. Knowing your net worth is important, make a list outlining all your assets, as well as your liabilities such as loans and outstanding debts.
Work on a Budget
Track all the INS and OUTS of your money to understand your financial habits and take control of your spending and savings. Prioritize needs and wants and look for any unnecessary expenses you can cut to save money.
Set your Financial Objectives
Comprehending your financial situation helps identify short and long-term financial goals. It’s important to know what you are planning for. Key thing is to set and prioritize realistic objectives, and need to map out cost for each goal and your timeframe to save or invest before you need the money to cover for that goal.
Know your Risk Endurance
Risk is the potential threat that may impact the expected outcome of your investments. An important part of your financial planning is to understand your tolerance for risks. You may wish to consider:
> Financial goals and timeframes – Allocating a timeframe to each investment goal will enable you to think about how much you can afford to invest and how long it will realistically take you to reach your goal.
> Your personal profile – This includes your stage of life, profession, source(s) of income, financial commitments, etc.
> How do you feel about putting your money at risk – If you are worried of the implications, you will not be able to handle high-risk money matters. Risk tolerance is classified into the following:
– Conservative: Not willing to take up risk and see loss in investment
– Moderate cautious: Willing to accept limited amount of risks to improve long-term investment returns
– Balanced: Weighing the risks and returns
– Moderately aggressive: Taking on greater investment risks, don’t mind accepting more risk or loss than the market bears.
- Aggressive: Ready to take on higher levels of risks in order to substantially outperform the markets.
Work Out and Implement Basic Financial Plan
– Prioritize your needs and goals.
– Identify action steps to reach your goals.
– Know the risks, understand your responsibilities and think before you invest.
– Maintain a diversified portfolio of investments.
Regularly Review your Plan
You should exercise strict discipline to follow the financial plan. Always review existing budget to make sure it works and review your financial plan regularly and adjust when resources, needs and situations change.
WHAT IS FINANCIAL PLANNING?
Financial planning is the process of setting, planning, achieving and reviewing your life goals through the proper management of your present and future finances.
A holistic financial plan involves investing money and building your wealth, credit and tax obligations, daily and future big spending involving home, education and family. These facets of financial plan are interconnected.
Financial planning is an important life skill to help you plan your future and take better control of financial goals by helping you to set realistic plans and take effective measures.
Prudent financial planning will help you to:
> Satisfy today’s financial needs - Can you balance your monthly expense? Do you often spend on credit cards? Create budget planner to plan and monitor savings and expenses.
> Meet future financial goals – What are your financial goals? Are these goals realistic under your financial position? Set savings goal calculator to help you plan ahead.
> Save for emergencies – Most don’t take a step back when everything is good and forget to realize if there’s enough financial cushions or contingency funds for living expenses to deal with any unexpected crisis.
> Protect you and your family in the event of something going wrong – Financial planning involves having the right insurance in place to protect you/dependents if something goes wrong with your health or with your property; and conducting estate arrangement.
> Plan for your retirement – Assess your retirement needs and estimated the future value of your retirement savings including investments/other retirement schemes plus your other savings and investments. Build your wealth through savings and long-term investments to meet your retirement needs. Starting point for your financial planning process – gain an accurate understanding of your current financial position, including your net worth.
Net worth is calculated as your assets minus your liabilities. Asset is what you own, including, savings, property, investments; liability is what you owe(mortgage, tax bills/outstanding debts).
Through sound money management and investments, you build savings which contribute towards your assets. In terms of the money you can spend/live upon, you may carve out from your net assets, estate you want to pass down to heirs or donate to charity.
COMPONENTS OF BASIC FINANCIAL PLAN
> Responsible borrowing: Responsible borrowing is an integral part of financial planning. Personal loans and credit e.g. mortgage loan and car loan can help you achieve your financial goals, but over-indebtedness can jeopardize your life plan.
> Managing day-to-day finances: Managing your money with an effective budget planner helps you identify where you can set aside funds to build your savings while tracking down your expenses.
> Future consumption: Future consumption includes life events such as education, family and home/car. These expenses may deplete your assets and can be long-term financial commitments.
> Insurance: Unexpected incidents/emergencies in life such as accidents, illness and death can deplete savings and erode assets. Risk management is a component of overall financial planning, financial protection against unforeseen circumstances and risks in life.