There are many people out there that really try to clean up their finances, but they just don’t get it done. The repeat budgeters sit and figure out budgets just to abandon them within the month. They may do this several times in an effort to find something that works.
Others really try to tell you that they are changing their finances. They will get out of debt as soon as they get a raise or a bonus or life slows down.
I feel bad. Because I know for most of these people, it won’t all come together. Not until they hit rock bottom and decide to make a real change in their lives.
But I’m not saying that the best of the financial managers and budget masters don’t fall of the financial wagon every now and then. It is easy. There are just things that are so very tempting.
And there are a lot of bumps in the road that seem to be smoothed out with a credit card.
When you’ve been there before, the guilt is a lot worse. Sometimes we just make bad decisions. It is part of life. You just have to find a way back on the wagon. Take responsibility. Say that you knew better. And pay for what you have done.
Then make a change. This time you will know how easy it is to fall off, so you will hopefully be more cautious. Remember what you’ve been through.
Take the time to keep looking at your priorities. It is easy to stop doing this when your finances are in good order. But if you stop, you will often slip back into old ways of thinking. Hey, we have plenty of money. One little thing charged on the credit card won’t hurt anything.
But it will. Because that is how it started the first time around. Take the time to keep yourself going where you should be. I know that it sounds so money-focused, but money is important in your life. You need it for retirement. You need it to survive. How much you need depends on you. How much you want depends on you. You have to make the choices. And get back on the wagon.
Start all over again with creating a budget that works for you. Ask yourself what made you go off of your perfect plan? Did you splurge on a large ticket item, or was it little spending over time? Should you revise your budget to help include more for yourself? Was it a one-time thing or has it built up over time?
Look at where you are in regards to your goals. Perhaps your goals have changed over time. See if you are going in the right direction.
If you have amassed new debt, take the time to get rid of it. Devote as much as you can to paying it off as quickly as possible. I really hate to tell you to touch your savings, because that seems like a quick fix. Depending on how much you have, often it is better to make yourself sacrifice a bit to pay it all back off. Cut your spending in other areas to make up the difference. Keep putting money in savings and towards your debt if possible. Not the best advice financially (many say get rid of the debt at the cost of your savings to pay less interest), but emotionally and psychologically, it might work.
Remember why you want to even bother with managing your money. Are you looking forward to an early retirement? Do you like the idea of having money in the bank? How are you going to get there?
Friday, July 25, 2008
Friday, July 18, 2008
Budgeting - Why It Is So Important To Financial Success
Budgeting, though tedious, is probably one of the most important actions an individual, couple, or family performs - or SHOULD be performing. Without proper tracking of where you spend your money, you can never make much progress towards your Goals. Without knowing how much money is coming in vs. how much money is going out, it’s tough to progress financially. Instead, the majority of Americans resort to Credit Cards or consumer debt and dig themselves into bigger holes.
“A fool and his money are soon parted.” - Unknown
So I’m going to briefly cover some of the important points of Budgeting and learning to control your finances. Keep in mind that the majority of lottery winners end up broke again only a few years later, and it’s common for professional athletes who had earned MILLIONS of dollars over just a few years to lose it all and end up bagging groceries. This is proof enough that MORE MONEY will NOT solve your financial problems - unless you learn how to manage the money that you DO have.
First, make a general list of the financial obligations (monthly expenses) you currently have, such as: rent, power bill, food, gas, car payment, entertainment, etc. and write down or estimate how much you spend on each. (for non-monthly expenses, divide them to figure out a monthly cost - ex. A yearly magazine subscription of $50 = $50/12 = $4.16/month. I pay my car insurance only twice a year, so I divided it so I could set aside a set amount per month.)
Be sure to add in a column for all sources of income you have (monthly) so you can compare the two.
Now, the second step is to meticulously keep track of every dollar you spend for an entire month or more (as best you can). This way, you will often discover cash that you spent that you didn’t even know about. Often these are little things, like a cup of coffee every morning, or donating money to the Salvation Army at Christmas. These things aren’t necessarily bad, we just need to account for them. For many people this involves writing checks for everything and balancing their checkbooks. In my case, I pretty much use my Debit Card for everything, so my bank keeps track of most stuff for me. If you use mostly cash, or ANY cash, this means you must keep and save all receipts (many times you should anyways). Find a multi-sleeve binder or something to keep them all in one place.
Now, at the end of the month, or at the end of each week (to make it easier), record each transaction, the amount, and a category (ex: entertainment or car maintenance). Then add them all up, and you can see how much money you’ve spent, and where it went.
I use Quickbooks Online for this process. Once you set up your account, and set up the category accounts, I just enter in each transaction I made, and Quickbooks sorts them all into the categories and I can view my monthly or yearly “income statement” with the click of a button! I can also access it from anywhere I can get the internet.
Finally, the last step is to examine your own “income statement” and see if you are being responsible with your income, or if there are areas you can eliminate or cut back on expenses. Then you can set your final Budget and practice sticking to it.
CAUTION: Be sure to be consistent every week or month in accounting for your money, and review your budget often! It’s very easy to forget about it, or get out of the habit. Practice being diligent and set reminders if you must. Because once it becomes habit, you will be well on your way to your Financial Success!!!
One good book I’ve read recently regarding budgeting and personal finance was “Start Late Finish Rich” by David Bach.
In my opinion, it’s wise to master good money management before trying to make more money. But once you have it mastered, it’s time to MAKE MORE MONEY! If you don’t have much spare time, much desire, much risk tolerance, much ambition to study and acquire new information, or much care to do things on your own, then I recommend sticking to the “Get rich slowly” method of earning more and investing. However, if you have a mind open to new opportunities, and like to learn and search for new valuable information, and seek financial independence at a younger age, then I recommend forming a solid base of “Get rich slowly” investments, and then finding new streams of income or businesses that interest you.
“A fool and his money are soon parted.” - Unknown
So I’m going to briefly cover some of the important points of Budgeting and learning to control your finances. Keep in mind that the majority of lottery winners end up broke again only a few years later, and it’s common for professional athletes who had earned MILLIONS of dollars over just a few years to lose it all and end up bagging groceries. This is proof enough that MORE MONEY will NOT solve your financial problems - unless you learn how to manage the money that you DO have.
First, make a general list of the financial obligations (monthly expenses) you currently have, such as: rent, power bill, food, gas, car payment, entertainment, etc. and write down or estimate how much you spend on each. (for non-monthly expenses, divide them to figure out a monthly cost - ex. A yearly magazine subscription of $50 = $50/12 = $4.16/month. I pay my car insurance only twice a year, so I divided it so I could set aside a set amount per month.)
Be sure to add in a column for all sources of income you have (monthly) so you can compare the two.
Now, the second step is to meticulously keep track of every dollar you spend for an entire month or more (as best you can). This way, you will often discover cash that you spent that you didn’t even know about. Often these are little things, like a cup of coffee every morning, or donating money to the Salvation Army at Christmas. These things aren’t necessarily bad, we just need to account for them. For many people this involves writing checks for everything and balancing their checkbooks. In my case, I pretty much use my Debit Card for everything, so my bank keeps track of most stuff for me. If you use mostly cash, or ANY cash, this means you must keep and save all receipts (many times you should anyways). Find a multi-sleeve binder or something to keep them all in one place.
Now, at the end of the month, or at the end of each week (to make it easier), record each transaction, the amount, and a category (ex: entertainment or car maintenance). Then add them all up, and you can see how much money you’ve spent, and where it went.
I use Quickbooks Online for this process. Once you set up your account, and set up the category accounts, I just enter in each transaction I made, and Quickbooks sorts them all into the categories and I can view my monthly or yearly “income statement” with the click of a button! I can also access it from anywhere I can get the internet.
Finally, the last step is to examine your own “income statement” and see if you are being responsible with your income, or if there are areas you can eliminate or cut back on expenses. Then you can set your final Budget and practice sticking to it.
CAUTION: Be sure to be consistent every week or month in accounting for your money, and review your budget often! It’s very easy to forget about it, or get out of the habit. Practice being diligent and set reminders if you must. Because once it becomes habit, you will be well on your way to your Financial Success!!!
One good book I’ve read recently regarding budgeting and personal finance was “Start Late Finish Rich” by David Bach.
In my opinion, it’s wise to master good money management before trying to make more money. But once you have it mastered, it’s time to MAKE MORE MONEY! If you don’t have much spare time, much desire, much risk tolerance, much ambition to study and acquire new information, or much care to do things on your own, then I recommend sticking to the “Get rich slowly” method of earning more and investing. However, if you have a mind open to new opportunities, and like to learn and search for new valuable information, and seek financial independence at a younger age, then I recommend forming a solid base of “Get rich slowly” investments, and then finding new streams of income or businesses that interest you.
Tuesday, July 15, 2008
Start Teaching Your Kids Early To Build A Strong Financial Foundation
Everyone knows at least one person like this: never had responsibilities as a child, got everything handed to them no questions asked, cruised through college without having to work, got set up with a job and a plush salary, purchased clothes, cars, toys, and a huge house, then suddenly they start getting overdue notices and collection calls, and finally have to declare bankruptcy and lose everything. It is not too uncommon to hear stories similar to that brief outline, especially over the last twenty years or so when it seems that financial responsibility has not been taken as seriously as it had been by older generations.
My parents were old-school. When I started getting into comic books and baseball cards around 10 or 11 years old, they told me that I would have to start earning the money to spend on those items. Growing up in New York, it was fairly easy during the fall to rake leaves and in the winter to shovel snow for the cash, and I also had a paper route to cover the spring and summer as well. They took me to the bank and opened a savings account for me to teach me how to save and manage my funds. It was a joint account so that I would have to go to the bank in order to make transactions in order to teach me the ropes.
By the time I was in high school and turned 16, looking forward to taking a drivers education course, they signed the working papers so that I could start working at McDonalds in order to teach me about salary, taxes, and saving for a specific purpose. When my 17th birthday cam and I had earned my drivers license, I was not just handed the keys to their car while they went out and purchased a new one like so many of my friends’ parents had done. On the contrary, I raided my savings account and paid for my own car, a burgundy, oxidized 1986 Pontiac Sunbird.
In conjunction with my college application, I also submitted the necessary paperwork to get into the work-study program working for the Dean of the Business Department. I wasn’t going to have my way paid for me, I would have to earn a portion of it myself. It wasn’t all fun and games; the student-employees had to file papers, deliver memos, and stock supplies rather than sit around for 3-4 hours a day playing games in the office.
By the time I got out into the workforce, I had already had both savings and checking accounts, established lines of credit, filed tax returns, and actually understood what taxes were being witheld and why. I had already built a credit history to enable me to rent an apartment as well as lease a car without a co-signer. When it came time to purchase my first home, the woman representing the bank for my pre-approval almost couldn’t believe that at my age (I was 29 at the time) I walked in with credit scores over 800, the required bank and brokerage statements, pay stubs, and tax returns without even being asked, and the ability to make a down payment on the spot.
This little story isn’t meant to brag or boast, but to outline one simple truth. If you get involved early, and start teaching children about money and financial responsibility before it truly becomes necessary, there is a greater chance that they will not deal with the fiscal issues so many people today deal with. There is a saying about it being easier to prevent a problem rather than allowing it to occur and then facing the task of solving it. I’m willing to bet that when it comes to finances, especially in this economy, most rational people would agree that this saying is dead on.
My parents were old-school. When I started getting into comic books and baseball cards around 10 or 11 years old, they told me that I would have to start earning the money to spend on those items. Growing up in New York, it was fairly easy during the fall to rake leaves and in the winter to shovel snow for the cash, and I also had a paper route to cover the spring and summer as well. They took me to the bank and opened a savings account for me to teach me how to save and manage my funds. It was a joint account so that I would have to go to the bank in order to make transactions in order to teach me the ropes.
By the time I was in high school and turned 16, looking forward to taking a drivers education course, they signed the working papers so that I could start working at McDonalds in order to teach me about salary, taxes, and saving for a specific purpose. When my 17th birthday cam and I had earned my drivers license, I was not just handed the keys to their car while they went out and purchased a new one like so many of my friends’ parents had done. On the contrary, I raided my savings account and paid for my own car, a burgundy, oxidized 1986 Pontiac Sunbird.
In conjunction with my college application, I also submitted the necessary paperwork to get into the work-study program working for the Dean of the Business Department. I wasn’t going to have my way paid for me, I would have to earn a portion of it myself. It wasn’t all fun and games; the student-employees had to file papers, deliver memos, and stock supplies rather than sit around for 3-4 hours a day playing games in the office.
By the time I got out into the workforce, I had already had both savings and checking accounts, established lines of credit, filed tax returns, and actually understood what taxes were being witheld and why. I had already built a credit history to enable me to rent an apartment as well as lease a car without a co-signer. When it came time to purchase my first home, the woman representing the bank for my pre-approval almost couldn’t believe that at my age (I was 29 at the time) I walked in with credit scores over 800, the required bank and brokerage statements, pay stubs, and tax returns without even being asked, and the ability to make a down payment on the spot.
This little story isn’t meant to brag or boast, but to outline one simple truth. If you get involved early, and start teaching children about money and financial responsibility before it truly becomes necessary, there is a greater chance that they will not deal with the fiscal issues so many people today deal with. There is a saying about it being easier to prevent a problem rather than allowing it to occur and then facing the task of solving it. I’m willing to bet that when it comes to finances, especially in this economy, most rational people would agree that this saying is dead on.
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