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Who needs a plan? You do! If your employer or clients told you they were going to start paying you 25% more right now would that make a difference in your lifestyle? What if you knew how to get that extra 25% on your own without someone giving you a raise? That can happen when you budget your money and take control of how your money is being used.
One thought you need to overcome is that your goal doesn’t necessarily have to be accumulating more actual dollars, but rather constantly improving your purchasing power. Making your money do the right things will give you much more purchasing power by lowering costs and identifying ways to increase your income. Having a thought out, written plan for your money is the first step in making that happen. What is a financial plan?For the basic purpose of getting more for your money, cutting costs, and putting yourself in a stronger financial position you can create a basic plan of action on your own this year. One of the best things about a financial plan is that any effort you make, regardless of how little, will typically pay you back. Of course, as with all projects, the more effort you put in the better results you can expect. When you think about a budget what comes to mind? If you are like most people words like “restriction”, “limits”, “cutting back”, or even “doing without”. These descriptions have a negative connotation and can lull people into putting off budgeting their money. However, have you ever thought of a budget like this: “opportunity”, “more spending money”, or “savings”? Your 2010 financial plan will be an overview of all your activities as it relates to your money. A realistic, written budget is an excellent first step. The plan you create for yourself takes into consideration your individual situation, needs, wants, goals, etc. Think about your shopping behaviors, for example. You may have budgeted $100.00 for food this week, but is that too much or too little? If you have been shopping for convenience you have probably been paying more than you should be. If you just had a baby you may need to be spending more than the $100.00 on food.
A budget
By researching ahead of time in order to discover how much money you will need for expected purchases in 2010 you will be better prepared to pay for them. Looking back at what things have cost you in the past will also give you an idea of how much to set aside. Don’t forget that there may be something coming this year, like the need to replace an old refrigerator, which you will need to budget for. A credit report and score check Practicing behaviors that improve your odds of a better FICO score can pay off in the form of things like lower interest and insurance rates. An error free credit report is essential in keeping your score higher. The first step is to get your free report and take the necessary steps to ensure it is accurate. Next, learn how to arrange your financial affairs in such a way that will boost your score. Maintaining a higher credit score with a clean credit report will allow you to lower your borrowing costs and has an emergency fund like affect. That means it will be a lot easier to refinance debt if you need to during harder economic times. Creating or cleaning up a recordkeeping system A record keeping system gives you an advantage when you are faced with a situation where you must prove something to yourself, a court, a store, an employer, or some other entity. So many expenses and legal hassles could be avoided if only people kept better records of their financial activities. Keep a separate folder for each of these items: 1) Your monthly statements for items like electric, natural gas, water, and mortgage 2) Receipts for items you purchases each month such as an oven or vacuum cleaner 3) Tax records such as an occupational tax you may have paid 4) Payroll information such as your pay stub or extras you had taken out of your pay 5) Insurance records such as your renter’s insurance or car insurance policy 6) Correspondence you may have sent to or received from a credit bureau, bank, or credit card company
Having these records available to you can help you more accurately budget your money and answer questions about your finances that may come up months or years later. Take your record keeping a step further and document on your paperwork things like who you spoke to and their contact information, physical and email addresses, websites, what check number you paid with, receipt numbers, times, dates, mileage, and other details of your activities. A back up plan Ask yourself “what if?” questions and plan how you will respond to those challenges. Even if you are not in a position to save for emergencies it is psychologically beneficial to have at least a symbol of an emergency fund. That symbol could give you the reminder you need to start putting more aside. Even if the $25.00 Wal-Mart gift card you received for Christmas is going to be the start of your emergency fund you will be better off. That Wal-Mart gift card can represent being able to buy food if your situation gets extremely bad. Investment
planning Describe how you will invest financially. If you are an employee will you invest more in a 401k program? Does it make sense to invest in a small business this year? While important, investment planning is not just investing in a 401k, stocks, or business ventures. It is investing in yourself. Invest in education and health. Invest in relationships. Invest in your home. Invest in your spouse. Those kind of investments always pay you back richly in many ways. Why do you need a financial plan?You may have heard “If
you fail to plan, you plan to fail”. It certainly is true when it comes to
your money. A financial plan answers these questions. Where is my money
coming from? Where is my money going now and where would I like it to go
from now on? Am I spending too much for particular things? Should I be
spending more on particular items? A thorough financial plan as described above will identify costs, identify opportunities to do better, save money with better record keeping such as warranty or insurance or tax information, and give direction and focus to your spending versus random convenience and desire based spending. Also remember, that while anyone can tell you what to spend your money on, your values may be different than someone else’s. You can tailor a plan toward your goals, but remember that there is a trade off. If you want to pay for an exotic vacation now you may be taking money away from your future. With a financial plan in place you have completed the most important step in improving your financial situation. It has allowed you to study your income and expenses and then budget and plan for them. Armed with this knowledge you are ready to find new ways to reduce your expenses and leave more money for the things that are important to you. For more information visit BowmansMoneyCollege. You are invited to join me at LinkedIn! |
Is Fair Isaac Being Fair With You? The secrets of getting the best deals
Doing better in 2010: 1. Create a financial plan 2. Reduce costs 3. Sharpen your expertise 4. Reduce your tax liability |
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If you are not managing
your money your money is managing you. Ever see a new puppy’s owner taking
their dog walking for the first time? The puppy is pulling its owner in
every direction and if he is big enough can end up dragging the owner way
off course! The same can happen with your money. If you are not guiding
your money in the right direction you’ll be going in directions you didn’t
want to go. 
