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The thought of money management, budgeting, saving, etc. is on the minds of many of my clients. Consistent news of our economic recession forces many to think about their personal finances as a whole. As I advise my clients from the financing perspective of real estate, a personal budget or financial plan plays a large part in the analysis. Regardless of how much money one makes or how much debt one has, a common theme I can see in our culture today is that it is easier to make money than it is to manage money.
Money management/financial planning/budgeting are simply missing from our basic fundamentals of education in our country. Because the lack of financial education has been prevalent for so long, we are now seeing the consequences. One of the easiest ways to start taking control of your money management is to create a budget. Below I have outlined a basic 7 step plan to help begin a strong financial foundation.
Some tools that may be helpful in creating your plan: a calculator, pencil and paper or an excel spreadsheet.
1. Analyze your INCOME. Write down your monthly income. Make sure you using your net income (after tax). Add any steady miscellaneous sources of income to this number.
2. Make a list of your EXPENSES. Begin by writing down your fixed expenses (i.e. mortgage payment, auto loans, insurance). Next, write down your variable expenses (i.e. eating out, entertainment, or any other bill or expense that doesn't have a consistent payment). It would be very helpful to spend some time looking through past bank statements and credit card statements to get an average of these numbers.
3. Identify NEEDS and WANTS. Clearly define what you absolutely need and categorize the rest as "wants". As you look through your expenses be honest about the category for each of those expenses. The perception of a "need" has changed over the past couple of decades, going "back to the basics" will help you with this categorization. Get rid of anything that you can pinpoint as a clear waste of money.
4. Analyze your SAVINGS. If you have a savings plan, review it and make any necessary adjustments. If you don't have a savings plan, begin with the goal of having $1000 set aside for emergencies. Step up the goal as you can (three, six, or nine months of income saved).
5. Define short term and long term GOALS. Start by making a list of short term goals (i.e. starting the savings plan, paying off a credit card, saving for a vacation). Then move onto long term goals (i.e. retirement, college tuition). Review these goals at least every three months.
6. COMMUNICATE: Talk about it. Communication between spouses is absolutely vital. Everyone must be on the same page in order to be successful. Use your budget or financial plan as a educational tool for your children. It is never too early for children to begin learning how to manage money.
7. If necessary visit an ADVISOR. There are many areas of needs that can come to the surface when revisiting or starting your financial plan. If you need help with determining tax question, call your CPA; if you need help with investments, call your financial planner; if you need help with real estate questions, call your real estate agent; if you need help with your mortgage, call your mortgage advisor. These are just a few examples of advisors that may help you build your strong financial foundation.
I am here as a resource for you. Please ask questions regarding any of this information. If you need help in finding an advisor to meet any of these needs I would be happy to pass along the name of a trusted professional.
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