Financial Planning And Budgeting
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Personal financial planning and budgeting begins with understanding the current economic situation for the household. Though different families have different financial concerns, certain basic principles apply to the recent college graduate as much as the middle-aged couple with children and the retired senior citizen. A solid economic foundation is built by spending less in expenses than comes into the household whether the income is from a wage or investments. Of course, a young adult has more time to recover from mistakes, learn important lessons, while still saving for future goals such as retirement. A senior citizen on a fixed or limited income may need to be especially careful in tracking expenses to avoid indebtedness. Fortunately financial planning and budgeting resources are readily available for all types of households, whether newlyweds, single parents, or empty-nesters. Online sources, books, magazines, television programming, and seminars provide useful information on money matters.
The apostle wrote to his young protege Timothy these words: "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows" (1 Timothy 6:10). Notice that it isn't money that is evil, but the love of money that is at the root. Money is a tool that can be wisely or foolishly managed. Good stewardship means implementing a workable financial planning and budgeting strategy that takes care of the needs of one's family while also blessing others. A good first step, no matter a person's age, career, or financial status, is to assess the personal economic situation. This is accomplished by making a list of all sources of income, the amount from each source, a separate list of all types of expenses, the amounts of expenses. When calculating monthly income, the net figure should be used as this is what is available for the monthly expenses. The net salary is the gross salary minus federal withholding plus other payroll deductions. To get an accurate accounting of monthly expenses, it might be necessary to save all receipts, plus track the spending of every penny for a month or two. Many people spend much more money than they realize throughout the month. They may be surprised by how much of their cash is spent on high-priced coffee or movie rentals. Of course, the goal is for the total income to exceed the total expenses. If that's not the case, financial catastrophe is almost certainly lurking around the corner.
In addition to statements of monthly income plus expenses, a competent financial planning and budgeting strategy also includes a net worth statement. This financial document lists each asset's value in one column. Each liability amount is listed in a second column. The total assets minus the total liabilities equal the individual's net worth. Assets include property, such as real estate, vehicles, investments, other banking accounts, such items as artwork, jewelry, furnishings, or other tangible belongings. A person may also have intangible assets, such as patents, trade secrets, and/or copyrights. Liabilities include mortgages, the total of car loans, plus credit card or other indebtedness. As part of the ongoing financial planning and budgeting process, the net worth statement should be updated at least annually if not more often. The initial income/expense statements provide a springboard for further money management decisions. By continuing to track income plus spending on a daily basis, an individual can quickly see a snapshot of her financial standing. This process is made easier by utilizing one of the many financial spreadsheet software applications that have been developed especially for individual households.
It seems that many people don't like to prepare budgets or to follow them. But implementing a workable financial planning and budgeting strategy that ensures income exceeds expenses requires the development of some time of spending plan that takes into account weekly, monthly, plus annual expenses. There are so many ideas for creating a record-keeping plan of one's own or consumers can purchase a flexible plan, then modify it to fit their individual circumstances. The plan should have two major expense components: 1) savings; 2) spending (which includes tithing and/or giving). The savings component should include long term investments for future goals such as retirement accounts, children's college funds, etc., plus short term investments for goals such as home remodeling, a major vacation, replacement of vehicles, plus an emergency fund. The spending component, besides charitable contributions, includes regular monthly obligations, regular annual obligations, plus daily living expenses. Dividing the spending component into these three categories may assist in making the financial planning and budgeting process less of a chore.
Monthly obligations are set expenses such as mortgage payments, car payments, utilities, cell phone, plus any other regular occurring items. Fitness club membership fees, minimum credit card payments plus any other items paid every month that remain more or less fixed belong in this category. The total of this amount is deducted from monthly income. Annual obligations are items that are paid once a year, such as homeowner association fees, flood insurance premiums, termite inspections, automobile club or other types of membership fees, and automobile licenses. As part of a solid financial planning and budgeting strategy, the total of all annual obligations should be divided by the number of paychecks an individual receives in a year. For example, if the amount totals $1040 annually, an individual who gets a paycheck every other week would divide that amount by 26. The result, $40, should be placed in a separate account so the money is available to pay these annual obligations as they come due. Daily living expenses includes groceries, clothing, entertainment, plus other miscellaneous items. Since the money has been set aside for the regular monthly and annual obligations, the individual can see how much discretionary money is available. Another aspect of this discretionary money, however, is debt relief. A solid budget strategy will allocate as much money as possible to reducing indebtedness in order to secure a more solid economic foundation for the household.
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