Archive for the ‘Financial Budgeting’ Category
Using zero-based budgeting can be a little complicated, but it’s absolutely the most effective way to keep your spending in control. Don’t stop reading because this type of budgeting can be difficult because it can actually help you get prepared for financial emergencies and save up for things you really want to do in the future.
If you have big dreams about buying a new car or going on a fantastic family holiday, zero-based budgeting will make them achievable. When you use this kind of budget to really take control of your finances, anything is possible.
How it works
Any kind of budget is based on what you money you make and what you spend. The goal is always to spend as much as or less than you spend. However, with most budgets, there’s some wriggle room left at the end. You may end the month with
Every one seems to be looking for the best budgeting tips that they can use in their daily lives. Of course, what with the financial status of the entire globe going haywire, it’s only understandable why most of us are searching for ways to be able to have stable finances. Additionally, budgeting is a good way to go if you don’t like to see your hard-earned money to be spent recklessly. So, I have taken the chance to pick two budgeting tips for you to keep in mind when you are going to do anything that will need money.
First of all: Plan every single thing. Whatever you wish to do or purchase, always plan. Budget planning is not something that you should do based only on occasion. You don’t need a plan when you are going to a party, you need a plan every day of your life. Having a plan makes you be able to stick by a certain budget and the certain things that you need. For example, you are going shopping, don’t just plan for how much you are going to spend but also with what you should buy. This way, you will not lose track of the things that you really must have.
Second: Choose practical. For every product available in the market, you always have a choice whether to go with the most expensive brand or the most affordable. A lot of people believe that they can go for the most expensive purchases just as long as they still stick with their budget plan. On one hand, it is not completely a bad thing because the most important matter is to abide by the budget. On the other hand, if you can choose a cheaper purchase without compromising the quality of what you wish to avail, then that would be friendlier for your finances.
These are just two budgeting tips. However, if you can practice incorporating them in your life, you will surely not have any big problems with your financial management plans. Remember, budgeting is more than just cutting off extra expenses, it is adapting a lifestyle of discipline. These aforementioned tips are some things that you have definitely heard before, yet you forget to really think about. Well, now is the time to recognize them. Take these two budgeting tips anywhere with you, and budgeting will no longer be so difficult
When it comes to financial planning, there are many reasons people often give for not making a financial plan. They can range from “I don’t have any money” type objections to “I don’t have any time right now” excuses. But, in today’s turbulent financial world, you must be very careful. Many Middle-Class Americans are one month away from living on the street. The perceived security and safety of a job is illusory (just ask any unemployed American).
Why Do You Need Financial Planning?
In short: life requires self-generated, goal oriented action – a plan. This extends to every area of our lives, including financial. The degree of our planning will determine – at least in part – the degree to which we are successful. And, although a financial plan does not guarantee success, it is necessary for it (at least in the long-term).
Those who scoff at this need to realize that life is motion. It will not stop or slow down for you. If you do not consciously make a financial plan, you will make one for yourself perhaps subconsciously, and randomly, and usually to your own detriment.
Consider the case of “John”, who sees no need to meet with a professional financial advisor or learn anything about financial planning. He believes himself to be “small potatoes”, or he perceives financial planning as “unnecessary” or “boring” and thus he avoids it – at least for a while. However, what John does not realize (or was not paying attention to) is the fact of reality that life demands that we make decisions every day in a variety of different ways and in different areas of our life.
Money happens to be one of those areas that we are forced to deal with almost constantly, and usually multiple times throughout the day. How do we make the decision to grab a cup of coffee from the local donut shop in the morning vs. putting that money back into our pocket and simply make it at home instead? For John, this decision making is done pragmatically, and emotionally. Whenever he feels like buying a cup of coffee from the local donut shop, he will. If anyone asks him why he spends so much on coffee every day, he rationalizes it: “$1 isn’t that much.” he tells himself (and anyone that dares to ask).
But John’s statement is void of any context. Consider, if we were to put that $1 spent on coffee into an investment yielding 8%, that $1 would become $1,500. Strategically placed at 20%, it balloons to well over $20,000 after 30 years. Would you consider $20,000 to be “not that much money”?
But to be completely honest, this isn’t about whether John should or should not buy that cup of coffee, it’s about his reason for doing so. His disastrous “reasoning”, which attempts to replace a truly objective approach to his financial life, can very easily spill over into other areas of his life. The coffee issue is “small potatoes”. The line of “reasoning” is not.
Coffee is not John’s problem. What if we were to take a look at another common dilemma in John’s life (as well as many other American’s lives)? Suppose the decision is whether John and his wife should pay off their mortgage as quickly as they can so that they can be rid of that “evil” mortgage payment and all of the interest that they are paying. As a result of his upbringing, or some in vogue article his wife read in a magazine, or just on a mere whim, John arbitrarily decides that paying off the mortgage quickly is a good thing. He and his wife have a 15 year mortgage, and are making payments on it as quickly as they can. They don’t realize that they are losing many hundreds of thousands of dollars by financing a home this way. John is confronted by either a friend or a financial planner who tries to show him how would be better off if he just held onto that mortgage and invested the difference.
Now, John and his wife can rationalize their actions (being afraid to admit to having made a mistake at all) by saying “yeah, well…we just like the idea of having our home paid for”. Yet, if pressed for a more thorough answer, they don’t have one. When the facts of reality confront them that dumping their 15 year mortgage and carrying a big long mortgage instead (even well into retirement) and investing the difference is much better for them financially, they squirm and cringe and retreat into a mental fog. They no longer have any idea why they like the idea of having their home paid off.
John had decided long ago that he didn’t need financial planning. That he had a handle on everything. Now perhaps John, like many other Americans do, continues to ignore or simply continues to dismiss the idea that financial planning is like any other subject – it needs to be learned. What are the consequences of not taking responsibility and the initiative to meet with a financial advisor (one that can teach them how to prepare for financial uncertainty as well as teach them sound financial planning strategies)? Well, in John’s case, he eventually retires and without a mortgage. He has lots of equity in the home, but virtually no savings. His home has appreciated and depreciated with the real estate market, but even if he wanted or needed to cash out the money, he would have to take out a loan and pay it back (or sell the house). John and his wife were able to scrape together something that resembles a savings, but because they didn’t pay much attention to the real effects of inflation, their nest egg is substantially smaller than what they had hoped for.
In addition to all of this, it’s looking like John’s wife’s health is deteriorating, and she may need long-term care (statistics from major life insurance companies – like Met Life – suggest that 1 out of 2 people – 50% – will need long-term care at some point in their lives). Or expensive medication. Where do they get the money to pay for these things? Perhaps they go without. Perhaps they die prematurely because of it, taking to the grave the erroneous idea that financial planning never could have helped them. Never could have saved them. Never could have helped them live a better life. Yet the truth is the opposite. It could have helped them, and it could help you too.
Financial Planning As Practical
Many people don’t think in terms of financial planning as being “practical”, yet this key mistake is what keeps many individuals from becoming financially successful. Unless we make it a point to study it in school, our only formal education in finance and economics is perhaps from the worst of all teachers – the Government.
Governments do not induce better money management habits. The concept of deficit spending and the growing national debt that is a result are prime examples of why. They aren’t very good at teaching individuals the value of investing either, and the ill-fated Social Security program is a good demonstration of what happens when Government allegedly invests our money for us.
Banks and certain other financial institutions regularly fail during recessions despite the fact that they are heavily regulated by the Government. In fact, at least for the banking industry, it is the Government that promotes such reckless lending and investing policies that lead to such failures. By forcing everyone to comply by the same irrational rules, chaos is inevitable.
The fact that these institutions are supposed to represent the hallmark of good money managers, it should be no surprise that many individuals are completely lost when it comes to personal financial planning. The folks who are supposed to be the experts can’t even do it themselves.
The only individual that can help them is the financial advisor. By the very nature of the profession, financial advisors promote thrift, savings, and sound, rational investments and speculations. These are the essential concepts that are necessary for an economy to grow and thrive. If a nation is conserving it’s finances instead of consuming them, it has a much better opportunity for growth.
For the individual, the financial advisor promotes personal growth – personal financial growth. And, without growth the only thing open to us is death.
Many government entities use performance based budgeting and while it is not the traditional method for individuals to use, there are components of this method that can help you to achieve your financial goals. This type of budgeting is geared toward results, meaning the type of budgeting that is chosen is selected specifically to achieve a certain result. While you may indeed be adhering to a strict line item budget, if the results are not moving you forward financially, your budget is not doing its job.
Performance based budgeting is goal oriented. In other words, you tell your money how to perform in order to achieve the desired result. For example, if the only way you can squeeze money out of your budget to go on vacation is to cut into your grocery bill then you may decide to eat beans and rice or hot dogs two nights a week for several months and then bank the grocery savings for your vacation.
Incentives based on performance are valuable. Some companies that offer tuition reimbursement do so on a graduated scale. That is, if you make an A, you get 100% of your tuition back, a B nets you 75% of the cost, and a C will repay 50% of your tuition costs. Anything less than a C and you’re on your own. While not all companies that offer tuition reimbursement do so by this model, for the ones that do, it is a powerful incentive for employees to study hard and make the grade.
Performance based budgeting offers a way for you to save for the things you really want instead of letting your money fritter away on inconsequential expenditures. Instead of falling prey to every sale that comes along, reward yourself with one item that you truly want and can use. However, the reward only comes along after your budget has performed the way you have set it up to perform.
Budgeting, in general, is not especially hard but it can be difficult to change spending patterns that have been allowed to run free for years. While total denial usually doesn’t work, a reasonable budget that covers every aspect of your living conditions is a great tool to use to reach financial independence and prosperity. Setting goals along the way offers a powerful incentive to stay on target. While you may need to tweak your budget from time to time, performance based budgeting offers a system that can help you to get what you truly want.
You may think that only people who have a great deal of money need to hire a financial planner. The truth, however, is that most everyone can benefit from advice and guidance from a financial planner to help them with everything from budgeting basics to investing to retirement planning.
So the question is how exactly do you go about hiring a financial planner. It’s really a quite simple.
The first place to look is at your local bank or credit union. Most of them have financial planners and advisors on staff who are available to help customers. In many cases, their services are free and it is well worth your time to make an appointment with them to go over your finances and get their opinion on your short- and long-term financial goals.
Other places you might look into to hire a financial planner are independent accounting firms and financial institutions. Most accounting firms now have financial planners who can help clients make the most of their finances. Also, ask your friends and family members for recommendations.
You can also find many financial planners who offer their services online. The key to hiring a financial planner online is to look at their reputation and the length of time they’ve been in business. As many of the top financial institutions make their services available online, you don’t have to go with a fly-by-night operation that doesn’t have a proven track record of service and success.
Other than a record of reputable service and successful financial planning for their customers, you want to hire a financial planner you feel comfortable with. After all, you’ll be sharing your most confidential information with them, as well as investing in their expertise. When you hire a financial planner, you should feel they have your best interests at heart–not their own wallets. So avoid hiring a financial planner who is pushy or charges an enormous fee for their services. With so many great ones to choose from, don’t settle for less than the best fit for you and your financial goals.
Emergency funds are considered to be a necessity as far as financial security is concerned, since it can provide one with financial resources that one can resort to and depend on when an emergency arises such that when one is sick and have the burden of paying huge medical bills, or unexpected home or major car repair.
When one has no emergency fund, one can be obliged to acquire debt on your credit card that might take several years to repay with interest that would later cost so much more.
However by putting an extra thirty to fifty dollars every month in an individual “emergency savings account” one can be secured with what emergency the future may bring. In doing this, it is recommended that one regards them as an additional bill, to be punctually paid each month.
Yes, one can and should budget and allocate the extra money for emergency fund, as this is very significant when one refers to his “financial future”. Here, the goal is to create savings from budgeting your income; the emergency savings should ideally be equal to at least three months your living expenditures.
What’s important is that you should steadily put a certain amount of money aside, and only use it for real emergencies.
Not like an investment, the success of one’s long-term savings funds does not really count on the amount of return or interests but on placing a fixed amount of money away constantly and steadily so to have immediate access to it at all times. In spite of one’s financial status, the initial step in the process of constructing one is by knowing where your money is presently being consumed or spent.
When one recognizes and determines where one’s earnings are spent, then it will be easy for one to choose and make a decision where to trim down expenses. In other words, budget. Budgeting is putting or setting aside money for anticipated and unanticipated future use. It is here that one sets up a goal so as to save. So set an emergency fund as your goal.
Checking, savings, money market accounts and “certificates of deposits”, are great places to keep one’s cash that might be needed on quick notice.
The amount saved from budgeting can either go to your savings goal, emergency fund or both. One could utilize the money saved from budgeting financial expenses by saving half of it to your savings account and half of it for emergencies. This way, you achieve your goals in savings and at the same time put in funds for emergency use. It’s your choice.