A personal budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment.
Importance
A budget should have a purpose or defined goal that is achieved within a certain time period.The more complicated the budgeting process is, the less likely a person is to keep up with it. The purpose of a personal budget is to identify where income and expenditure is present in the common household.
Flexibility
The budgeting process should be flexible; the consumer should have an expectation that a budget will change from month to month, and will require monthly review. Cost overruns in one category of a budget should in the next month be accounted for or prevented. For example, if a family spends $40 more than they planned on food in spite of their best efforts, next month's budget should reflect an approximate $40 increase and corresponding decrease in other parts of the budget.
Budgetting in case of irregular income
Special precautions need to be taken for families operating on an irregular income.People with an irregular income should keep two common major pitfalls in mind when planning their finances:
Spending more than their average income, and
Running out of money even when income is on average.
Allocation guidelines
**The 60% Solution
The 60% Solution suggests on spending 60% of a household's gross income (before taxes) on fixed expenses. Fixed expenses includes federal, state and Social Security taxes, insurance, regular bills and living expenses- like food and clothing, car and house payments.
The other 40% breaks down as follows, with 10% allocated to each category:
Retirement: Money set aside into an IRA (Individual Retirement Account).
Long-term savings: Money set aside for car purchases, major home fix-ups,or to pa down substantial debts.
Irregular expenses: Vacations, major repair bills, new appliances etc.
Fun money: Money set aside for entertainment purposes.
*Another allocation principle is that housing expenses (mortgage or rent) should be limited to 25% of spendable income.
Quote of the Day
Friday, April 3
Monday, March 30
Secure Your Financial Future
Is building a Secure Financial Future akin to rocket surgery ???
Absolutely not— you need to do five key things to get started:
1. Determine your short and long-term financial goals.
Start by taking a comprehensive snapshot of your current situation—your assets, net income, debts and living expenses. Once you’ve done this you can start setting long and short-term financial goals. Decide what lifestyle you want to enjoy between now and when you retire; what retirement lifestyle do you expect to have and what sort of education do you expect to provide for your children.
2. After you've assessed where you are now and where you want to be in
the future take steps to protect your ability to get there--and stay there once you’ve arrived. A major part of your family’s financial program is to insure against major financial loss. There are simply no guarantees against serious illness, accidents or untimely death. So take the steps necessary to insure against loss of life, loss of income and loss of physical assets.
3. Pay yourself first.
Save at least 10% of pre-tax income – more if possible. Pay down your
mortgage as quickly as possible, especially in times of low interest.
In the short term, you'll be better off reducing a mortgage that costs you 6% than earning around a taxable 1.5% (or less) in a savings account.
Maximize your RSP/401K contribution every year and make the contribution at the beginning rather than at the end of the year.
Simply doing that will substantially increase the size of your retirement nest egg when you’re ready to cash out.
4. Avoid credit traps.
If you use credit cards, always pay any money owing before interest is
due. Consider paying off your credit card immediately if you have money in a savings account—as with the mortgage, the interest earned on the savings is certain to be lower than what’s charged by the credit card company. Avoid using credit cards for cash advances.Usually the interest charges are higher for these and the charges begin immediately. If you do carry a balance on your cards try to negotiate a lower rate with the credit card company. If you need money urgently, it's usually cheaper to negotiate a personal loan with your bank or credit union.
5. Protect your family in the event of your death. Make a Will. If you die without leaving a Will in all likelihood the only thing you’ll really leave your loved ones is a bloody mess—one that could take many years and a whole bunch of money to sort out.
Without a Will, the court/government will decide how your property and
possessions will be divided. I would expect there are two chances of them acting in a way consistent with what your wishes might have been—slim and none!
Making a Will doesn't mean the Grim Reaper is about to pay you a visit. It simply means that your affairs will be sorted out in the ways you want and, as a result, you can go about your life with a peaceful mind because your loved ones are protected.
“Don’t try this alone—use a trained professional,” is absolutely the best advice I’m really qualified to give.
Absolutely not— you need to do five key things to get started:
1. Determine your short and long-term financial goals.
Start by taking a comprehensive snapshot of your current situation—your assets, net income, debts and living expenses. Once you’ve done this you can start setting long and short-term financial goals. Decide what lifestyle you want to enjoy between now and when you retire; what retirement lifestyle do you expect to have and what sort of education do you expect to provide for your children.
2. After you've assessed where you are now and where you want to be in
the future take steps to protect your ability to get there--and stay there once you’ve arrived. A major part of your family’s financial program is to insure against major financial loss. There are simply no guarantees against serious illness, accidents or untimely death. So take the steps necessary to insure against loss of life, loss of income and loss of physical assets.
3. Pay yourself first.
Save at least 10% of pre-tax income – more if possible. Pay down your
mortgage as quickly as possible, especially in times of low interest.
In the short term, you'll be better off reducing a mortgage that costs you 6% than earning around a taxable 1.5% (or less) in a savings account.
Maximize your RSP/401K contribution every year and make the contribution at the beginning rather than at the end of the year.
Simply doing that will substantially increase the size of your retirement nest egg when you’re ready to cash out.
4. Avoid credit traps.
If you use credit cards, always pay any money owing before interest is
due. Consider paying off your credit card immediately if you have money in a savings account—as with the mortgage, the interest earned on the savings is certain to be lower than what’s charged by the credit card company. Avoid using credit cards for cash advances.Usually the interest charges are higher for these and the charges begin immediately. If you do carry a balance on your cards try to negotiate a lower rate with the credit card company. If you need money urgently, it's usually cheaper to negotiate a personal loan with your bank or credit union.
5. Protect your family in the event of your death. Make a Will. If you die without leaving a Will in all likelihood the only thing you’ll really leave your loved ones is a bloody mess—one that could take many years and a whole bunch of money to sort out.
Without a Will, the court/government will decide how your property and
possessions will be divided. I would expect there are two chances of them acting in a way consistent with what your wishes might have been—slim and none!
Making a Will doesn't mean the Grim Reaper is about to pay you a visit. It simply means that your affairs will be sorted out in the ways you want and, as a result, you can go about your life with a peaceful mind because your loved ones are protected.
“Don’t try this alone—use a trained professional,” is absolutely the best advice I’m really qualified to give.
Financial Planning Tips
Some Financial Rules Any Professional Should Live By...
While finance can be both very lucrative and rewarding, people should use caution. It takes both knowledge and discipline. The following are some basic financial planning tips any professional should live by for a secured and successful life.
1. Divide every dollar wisely
Money is dived into 4 important "buckets". Make sure you're allocating correctly. These "buckets" are:
• Essential Expenses
• Short-Term Savings
• Retirement Savings
• Emergency Expenses
2. Stay out of debt
In today's society it's almost impossible to completely stay out of debt, however try to keep it under control. Only use credit cards if you expect to pay them off every month. Bottom line - don't spend money you don't have.
3. Property
Property can be a very good investment; however it can also be dangerous. Make sure you make wise decisions when purchasing a home or office. Do plenty of research of the area, as well as the mortgage you get.
4. Get the whole family involved
It's never too early to start learning about money. Teach your children how to save and the value of planning for the future. The lessons learned will never be forgotten.
5. The importance of Insurance
While many people think it's a waist of money, insurance can be a life savor. By shopping around, you'll be able to save on premiums.
6. Family matters
Avoid lending or borrowing money to friends or family. While it may seem like a good idea, it may lead to undue strain on your relationships. It's best to go through financial institutions for these types of matters.
While finance can be both very lucrative and rewarding, people should use caution. It takes both knowledge and discipline. The following are some basic financial planning tips any professional should live by for a secured and successful life.
1. Divide every dollar wisely
Money is dived into 4 important "buckets". Make sure you're allocating correctly. These "buckets" are:
• Essential Expenses
• Short-Term Savings
• Retirement Savings
• Emergency Expenses
2. Stay out of debt
In today's society it's almost impossible to completely stay out of debt, however try to keep it under control. Only use credit cards if you expect to pay them off every month. Bottom line - don't spend money you don't have.
3. Property
Property can be a very good investment; however it can also be dangerous. Make sure you make wise decisions when purchasing a home or office. Do plenty of research of the area, as well as the mortgage you get.
4. Get the whole family involved
It's never too early to start learning about money. Teach your children how to save and the value of planning for the future. The lessons learned will never be forgotten.
5. The importance of Insurance
While many people think it's a waist of money, insurance can be a life savor. By shopping around, you'll be able to save on premiums.
6. Family matters
Avoid lending or borrowing money to friends or family. While it may seem like a good idea, it may lead to undue strain on your relationships. It's best to go through financial institutions for these types of matters.
Labels:
Financial Planning Tips
Personal Financial Planning - An Introduction
Can You Plan Your Money the Wrong Way???
If you spend mindlessly you will probably fall into lot of trouble and make quite a mess in your life.In order to avoid money problems in your life you should plan out your personal finances.Financial management is therefore quite important.You have to make goals and devise a budgeting plan to help you achieve those goals. This sounds easy enough, but is it quite so simple?
For those without a financial mind or for those who are afraid of even the word financial, money management scares them. It looks and sounds difficult and they can't imagine themselves successfully doing it on there own.
What if I spend too much on a house and I can't pay my mortgage???
What if I cut back so much on my food that I can't feed my family???
What if I choose the wrong investments and lose all my money???
These are all questions that someone who is scared to manage their money may be asking, and there are many more.You could probably think of a few right now.This is no reason not to manage your money.You are not going to mess it up. Sure, money management and financial planning is not fool-proof, but once you get the hang of it, it is not hard. Once you get your goals down and set up a budget, all you have to do is follow it.
You can't set goals the wrong way. If you have a goal to buy a house in 5 years, you need to come up with a way to afford it. You may decide you need $40,000 for a down-payment. If you save $8,000 a year, or about $670 a month, you can have it. If you invest the money, or put it into a savings account, you will need less, or you will have extra, because your money will earn interest. Even if you didn't know this and you just stuck it in a bank account that earned interest without realizing it, you would have done anything wrong. You would just be happy to have a bit more money when the time came to buy.
A big part of money planning is budgeting. You need to write down what you will spend your money on and spend only on that. Figure out what you need to save and then work around it. The only way you can mess this up is by not sticking to your budget. The worst way you can plan your money the wrong way is by not planning it at all.
Visit...http://financialplanningmadeeasy.info/ for more details
If you spend mindlessly you will probably fall into lot of trouble and make quite a mess in your life.In order to avoid money problems in your life you should plan out your personal finances.Financial management is therefore quite important.You have to make goals and devise a budgeting plan to help you achieve those goals. This sounds easy enough, but is it quite so simple?
For those without a financial mind or for those who are afraid of even the word financial, money management scares them. It looks and sounds difficult and they can't imagine themselves successfully doing it on there own.
What if I spend too much on a house and I can't pay my mortgage???
What if I cut back so much on my food that I can't feed my family???
What if I choose the wrong investments and lose all my money???
These are all questions that someone who is scared to manage their money may be asking, and there are many more.You could probably think of a few right now.This is no reason not to manage your money.You are not going to mess it up. Sure, money management and financial planning is not fool-proof, but once you get the hang of it, it is not hard. Once you get your goals down and set up a budget, all you have to do is follow it.
You can't set goals the wrong way. If you have a goal to buy a house in 5 years, you need to come up with a way to afford it. You may decide you need $40,000 for a down-payment. If you save $8,000 a year, or about $670 a month, you can have it. If you invest the money, or put it into a savings account, you will need less, or you will have extra, because your money will earn interest. Even if you didn't know this and you just stuck it in a bank account that earned interest without realizing it, you would have done anything wrong. You would just be happy to have a bit more money when the time came to buy.
A big part of money planning is budgeting. You need to write down what you will spend your money on and spend only on that. Figure out what you need to save and then work around it. The only way you can mess this up is by not sticking to your budget. The worst way you can plan your money the wrong way is by not planning it at all.
Visit...http://financialplanningmadeeasy.info/ for more details
Labels:
Personal financial planning
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