Some Basics of Financial Planning and Stability
The scope of this book does not include space for a comprehensive treatment of financial planning. Financial planning can be complex and requires the proper analysis of your particular situation.
However, some basic components should be part of every financial plan. A few of these are covered in the sections that follow. In addition, some forms and spreadsheets are available on the accompanying toolkit CD to help you in putting these basics together.
Regardless of the method you use to track and control finances, it is important that you, in fact, use it. Tracking your finances should be a simple and disciplined part of a weekly or daily routine.
Remember: Financial pressures can create a huge drain on the energy and options you need to build a dynamic career. Your diligence in this area will pay great dividends.
Defining a Basic Budget
The single most important aspect of financial control is a budget. Dave Ramsey, the noted financial planner, author, and radio talk show host, refers to a budget as "telling your money what to do." However you refer to it, a budget is a vital component to your overall financial health.
To create a budget, you need to assess your core needs, create at least a cursory spending history, and divide your spending into meaningful categories. Doing so provides you with a clear picture of where your money goes and can help you identify areas where you can save money.
Defining Your Core Needs
The starting point for your budget is core needs—housing, food, clothing, and transportation. All these areas are identified in the budget spreadsheet located on the CD.
Create a quick snapshot of your core needs and compare that to your current income. If you notice a huge disparity (that is, if your expenses come close to or actually exceed your income), you must take immediate action.
Only two courses of action are feasible:
- You must reduce your expenses.
- You must raise your income.
It is likely that you will need to do a combination of both. This might require taking a second job, selling a more expensive car for a less expensive one, brown bagging your lunch, and so on.
The idea is to bring your core needs to a base list that is manageable. Once again, this book is not a comprehensive financial planning book. It is not meant to remedy extreme financial hardships. If you are in an extreme financial hardship (you are considering bankruptcy, receiving numerous creditor calls, and so on), you need to get professional assistance right away.
Establishing Your Spending History
Tools for tracking spending history are readily available. Microsoft Money or Intuit's Quicken help you to track checking accounts, investments, and cash flow and can provide accurate spending histories. You can even use a simple spreadsheet program or a manual ledger.
The most important aspect of the entire exercise is to use the tools that are available. Simply having the tools is not enough.
The CD that accompanies this book includes a simple weekly cash flow planning spreadsheet that uses key spending categories and allows you to compare monthly spending against a budget (also included).
Creating Your Budget
Some mistakenly think that a budget restricts the freedom that is associated with your finances and spending. This is the opposite of the actual truth. The fact is that a budget provides the ability to have true control and freedom in your spending.
A budget is not judgmental—it does not assess what you spend your money on. It merely provides a tool that allows you to plan where that spending occurs. If you decide to budget $1000 per month for dining out, you can do so. Although I might question the wisdom of that allocation, if you are able to meet your other financial obligations and the funds are available, at least you have planned it out.
The budget isn't meant to restrict your spending as much as provide direction on where to spend it. Of course, a budget does provide an honest accounting of where your priorities are. This, in and of itself, might be frightening.
Ultimately, the idea is to use the budget as a way to help refine your attitude toward spending. In doing so, you can control your spending, create a financial plan, and open the door to more creative career options.
Cash Flow Summary: A Weekly Plan
The weekly cash flow summary is a tool that is essential for both business and personal use. It's a short-term budget tool that you can use to plan your spending for the coming week.
If you utilize it accurately, this tool is a precise spending plan. It can show you where you are spending your money and lets you see what will be left over at the end of the week. It also allows you to see the impact of the current week's spending on subsequent weeks.
Once again, the CD-ROM that accompanies this book includes a cash flow planning spreadsheet with instructions. I've created categories that suit basic budgeting needs. However, I've included blank areas for additional categories, if needed.