It is amazing how many people are barely making ends meet. It is even more amazing how many people are taking their finances for granted by failing to plan and budget. People assume that planning and budgeting is for the other guy, or some large corporation.
I personally believe that it is a shame that our society has not focused on teaching these basic, and yes I say basic, life skills. Planning and budgeting focus on creating short and long-term life goals, and creating controls and measures by which we can discipline ourselves to meet and achieve those objectives. Some people cringe when they hear “controls and measures”, but we must remember that knowledge is power. Controls and measures provide you with the knowledge to know when adjustments must be made to keep the course. You must not be afraid of what a budget plan will disclose, instead use that information and everything at your disposal to change a potentially bad situation into something positive. The idea is to not bury your head in the sand, but with open eyes plot an expected end.
Everyone should have goals and a vision for their lives. It is not enough to just want something; you must consider and learn what it takes to get that thing you desire. A critical and base part of knowing how to get something, is knowing what you currently have. When you think of navigation, whether it is for boating or airplanes, they both must know the starting and ending points before they can plot the best track to the destination; you must also have a realistic understanding of your starting point. Your financial starting point comprises, but is not limited to your current cash flow, and other resources at your disposal.
In order to reach and achieve your goals and thusly realize your vision, you must plot a course and direction that will guide you to the destination (goal). Budgets provide the financial roadmap (navigational plan) to achieving your goals. At its best the budget should be living, and adjustable, consistently providing a view to the prize (the goal). When I say adjustable, I mean it must provide the visibility to be able to change upcoming discretionary debt sources to accommodate current day unexpected expenditures; these changes will in effect balance the budget. With regards to view, your ability to follow-through with the budget will greatly depend on your ability to keep the goal in sight.
To be successful you must plan and budget. Every small, medium, and large business including corporations plans and uses budgets. Budgets provide the roadmap for their fiscal success by ensuring that the money is applied to items that will help the company meet its goals. We than as everyday people should do no less, and use budgets as a means of achieving our goals.
Another reason to budget is because budgets provide the ability to realize goals by exposing your cash potential. Your cash potential is represented in December’s ending balance. For most people it represents the monies that flow through their pockets, it represents an untapped potential to realize goals, and it can provide additional stability through rough times.
Given the times in which we live, budgets are more of a requirement than an option. Look for a budgeting program that provides visibility, changeability, and maintainability. Visibility is the ability to consistently see the goal; your vision and goals will provide the continued motivation to follow-though with the plan. Changeability is the ease at which you can make changes that are rolled out through the entire budget. The ability to be able to easily create, edit, and delete income and debt sources will determine the ease at which you will be able to tailor a budget the meets your requirements. And lastly, the budget must be maintainable, it must be living and not rigid; you will need the ability to see where a current expenditure has caused the budget to go negative in the future, so you can adjust an upcoming discretionary expenditure to balance the budget.
Tuesday, February 24, 2009
Friday, February 6, 2009
Budgeting - Personal Spending and Money Management a Key to Weathering the Storm Part 2 - FV
Money management, finance, and budgets can no longer be regarded as concepts and applications used predominately by businesses. Our economy and the economic forecast are causing individuals to become more spending conscious. In this article I will discuss how to take full advantage of budgets so you can steer, and adjust your course through these economic storms.
In the closing thoughts of Part 1, I presented the case that all business large and small create and maintain budgets. Medium and large corporations require their department heads to submit and follow approved department budgets. A component of the department head’s yearly increase is based on their ability to keep the department on or under budget. Businesses plan and budget to become successful, individuals should adapt that same mindset. You might say “I have a job and I pay my bills on-time what more do I need.” Well, if we consider you a business I might reword those thoughts like this: “My business’s sales have always been adequate, and the doors remain open.” Recently we have seen business after business, large and small, close their doors. We cannot afford to be complacent, the status quo has changed and we must adapt to these changing times. We must choose to take an active role in the management of our resources.
As we focus more on budgeting, we must ask ourselves why people fail to follow-though with their budget. Why do people start a budget and then leave it like all those other New Year’s resolutions. I would suggest that most people do not have a vision, or goal. A vision (goal) will help you keep focused on the bigger picture, which will help keep you on track and on plan. Goals must be attainable or they will remain dreams. If you are focused, you can break long-term goals and objectives in smaller chunks, knowing that the long-term goal is getting closer. In these high-tech times, I would suggest that you select a budgeting software package. Paper and spreadsheets are not going to provide you with the visibility, changeability, and maintainability you will need to succeed.
The software you select must be designed with visibility, changeability, and maintainability as core functions. Visibility is the product’s ability to display your cash-flow or budgetary plan in a meaningful way, where you can see the full potential of your earnings. The ease at which the product provides for the creation, edit, and deletion of income and debt sources is what I call changeability. Changes should immediately update the entire budget. Lastly, to be successful, the software should be maintainable. It should provide an easy means of updating the budget with current data. Optimally, an integrated check register would provide a familiar yet efficient interface for updating the budget.
With the right software you should be able to easily make those adds, edits, and deletions and tailor a budget that meets your requirements. Don’t forget the vision, whether it is to save up for a home, pay-down a bill, or you just want to put away money each pay-period towards an emergency fund. A budget can provide the roadmap you need to reach your goals; it can provide visibility to your goals, which is an incentive to follow-through with your budgetary plan.
To take full advantage of a budget, you must ensure you have added as much detail as you can stand. Too much detail is far better than not enough. Remember detail is not going to constrain you; lack of detail however could potentially invalidate your plan and budget. As an example if you know it costs $7.10 for you and your spouse every time you visit the coffee shop, and you normally visit it twice a week, be sure to include it in your budget. This example of only $7.10 per visit actually becomes $681.60 per year. If it were just you, that would still be $340.80 per year.
With your initial base budget complete, look at December’s ending balance to discover your financial potential. Realistically, this amount represents the amount you can potentially apply to goals, minus the amount you want to keep in your checking account as a buffer. If your goal is to apply additional amounts to existing debt sources like credit cards, than all you need to do is increase the base amount of that debt source. Your budgeting software should be able to rollout that change across all pay-periods. Next check all your pay-periods to ensure the budget has not gone negative. You can follow this same procedure for new debt sources. If you wanted to keep a minimum buffer amount in your checking account, be sure to add that minimum amount to each pay-period balance. Continue to make changes and adjustments to the budget until you feel it has met all of your goals.
Finally and most importantly, do not create a budget that is too tight. If you have allocated every dollar and an emergency or unexpected purchase arises, it could blow your budget and hopes. But don’t fear, if an emergency or unexpected purchase occurs, you re-evaluate your budget, and make some short term corrections which could get you back on-track. You could choose for example not to double up on that credit card payment for a couple of months until you are back on-track. In order for the budget to work, it must be living, it must be changeable; the big picture and overall goal is to close the year on or under budget.
In the closing thoughts of Part 1, I presented the case that all business large and small create and maintain budgets. Medium and large corporations require their department heads to submit and follow approved department budgets. A component of the department head’s yearly increase is based on their ability to keep the department on or under budget. Businesses plan and budget to become successful, individuals should adapt that same mindset. You might say “I have a job and I pay my bills on-time what more do I need.” Well, if we consider you a business I might reword those thoughts like this: “My business’s sales have always been adequate, and the doors remain open.” Recently we have seen business after business, large and small, close their doors. We cannot afford to be complacent, the status quo has changed and we must adapt to these changing times. We must choose to take an active role in the management of our resources.
As we focus more on budgeting, we must ask ourselves why people fail to follow-though with their budget. Why do people start a budget and then leave it like all those other New Year’s resolutions. I would suggest that most people do not have a vision, or goal. A vision (goal) will help you keep focused on the bigger picture, which will help keep you on track and on plan. Goals must be attainable or they will remain dreams. If you are focused, you can break long-term goals and objectives in smaller chunks, knowing that the long-term goal is getting closer. In these high-tech times, I would suggest that you select a budgeting software package. Paper and spreadsheets are not going to provide you with the visibility, changeability, and maintainability you will need to succeed.
The software you select must be designed with visibility, changeability, and maintainability as core functions. Visibility is the product’s ability to display your cash-flow or budgetary plan in a meaningful way, where you can see the full potential of your earnings. The ease at which the product provides for the creation, edit, and deletion of income and debt sources is what I call changeability. Changes should immediately update the entire budget. Lastly, to be successful, the software should be maintainable. It should provide an easy means of updating the budget with current data. Optimally, an integrated check register would provide a familiar yet efficient interface for updating the budget.
With the right software you should be able to easily make those adds, edits, and deletions and tailor a budget that meets your requirements. Don’t forget the vision, whether it is to save up for a home, pay-down a bill, or you just want to put away money each pay-period towards an emergency fund. A budget can provide the roadmap you need to reach your goals; it can provide visibility to your goals, which is an incentive to follow-through with your budgetary plan.
To take full advantage of a budget, you must ensure you have added as much detail as you can stand. Too much detail is far better than not enough. Remember detail is not going to constrain you; lack of detail however could potentially invalidate your plan and budget. As an example if you know it costs $7.10 for you and your spouse every time you visit the coffee shop, and you normally visit it twice a week, be sure to include it in your budget. This example of only $7.10 per visit actually becomes $681.60 per year. If it were just you, that would still be $340.80 per year.
With your initial base budget complete, look at December’s ending balance to discover your financial potential. Realistically, this amount represents the amount you can potentially apply to goals, minus the amount you want to keep in your checking account as a buffer. If your goal is to apply additional amounts to existing debt sources like credit cards, than all you need to do is increase the base amount of that debt source. Your budgeting software should be able to rollout that change across all pay-periods. Next check all your pay-periods to ensure the budget has not gone negative. You can follow this same procedure for new debt sources. If you wanted to keep a minimum buffer amount in your checking account, be sure to add that minimum amount to each pay-period balance. Continue to make changes and adjustments to the budget until you feel it has met all of your goals.
Finally and most importantly, do not create a budget that is too tight. If you have allocated every dollar and an emergency or unexpected purchase arises, it could blow your budget and hopes. But don’t fear, if an emergency or unexpected purchase occurs, you re-evaluate your budget, and make some short term corrections which could get you back on-track. You could choose for example not to double up on that credit card payment for a couple of months until you are back on-track. In order for the budget to work, it must be living, it must be changeable; the big picture and overall goal is to close the year on or under budget.
Wednesday, February 4, 2009
Budgeting - Personal Spending and Money Management a Key to Weathering the Storm Part 1 - FV
Money management, finance, and budgets can no longer be regarded as concepts and applications used predominately by businesses. Plant shutdowns and job layoffs have caught many people off guard. Our economy and the economic forecast are causing individuals to become more spending conscious.
It has been said “If you are not planning, you are planning to fail.” There is much truth and reality to that adage, given the economic climate. Planning and budgeting are all about being prepared; you might say it is all about opening your eyes to the true long-term costs of decisions and direction. Far too often our thoughts, actions, and decisions are based on what we are currently feeling. We must change our mindset, and become more prudent, thinking and acting with long-term objectives in mind.
Your dreams and aspirations are the basis for your goals and long-term objectives. With regards to dreams and aspirations, I am not necessarily talking about something grandiose or extravagant. Your dreams might include paying down debt using accelerated payments, or being able to own your own home. Today, it might include ensuring you have a financial buffer to get you through the tough times. It all comes down to writing out your goals and then developing a plan that will reach those goals.
A budget is defined as: a plan to show how much money a person or organization will earn and how much they will need or be able to spend; a sum of money allocated for a particular purpose. Taking the time to develop a detailed budget will open your eyes to the true potential of your earnings. Without budgets, money has a tendency to flow right through you pockets. I have often referred to your hidden potential money as “black hole” money; you never see or realize its potential.
Creating a detailed budget does not mean creating a budget that will overly constrain you; it only means providing the proper detail to fully present an accurate picture. It is up to you to determine how much spending cash is available or affordable based on your budgetary goals and constraints. The whole idea is to provide visibility as only then can you make informed decisions.
It will probable take around an hour or two to compile (gather) all your budgetary information. I would suggest you take the time to enter that information (income and debt sources) into a spreadsheet, word processor, and text file. This way you will always have the data and you can easily import it into most budgeting software. I would suggest that you capture the following information at a minimum: description, income or debt, amount, and pay date.
Although it is possible to build a budget using spreadsheets, I don’t suggest it. First you will need a fair amount of knowledge to create the spreadsheet formulas that are required to link all the worksheets; linked worksheets are required to provide the visibility to see the whole picture. Additionally, the insertion of a single income or debt source would have to be replicated on all the worksheets, which means you must ensure all the links are still operating as expected. Spreadsheets don’t provide you with the ability to easily make changes and see how those changes affect the overall budget. For that reason alone I suggest that you research and purchase a budgeting software package that will meet your needs.
In Part 2 of this article, I will discuss how to take full advantage of budgets so you can steer and adjust your course through these economic storms.
Please note that all businesses large and small create and follow budget to achieve an expected outcome. There is nothing hindering you from doing the same and achieving your goals, receiving the expected outcome.
It has been said “If you are not planning, you are planning to fail.” There is much truth and reality to that adage, given the economic climate. Planning and budgeting are all about being prepared; you might say it is all about opening your eyes to the true long-term costs of decisions and direction. Far too often our thoughts, actions, and decisions are based on what we are currently feeling. We must change our mindset, and become more prudent, thinking and acting with long-term objectives in mind.
Your dreams and aspirations are the basis for your goals and long-term objectives. With regards to dreams and aspirations, I am not necessarily talking about something grandiose or extravagant. Your dreams might include paying down debt using accelerated payments, or being able to own your own home. Today, it might include ensuring you have a financial buffer to get you through the tough times. It all comes down to writing out your goals and then developing a plan that will reach those goals.
A budget is defined as: a plan to show how much money a person or organization will earn and how much they will need or be able to spend; a sum of money allocated for a particular purpose. Taking the time to develop a detailed budget will open your eyes to the true potential of your earnings. Without budgets, money has a tendency to flow right through you pockets. I have often referred to your hidden potential money as “black hole” money; you never see or realize its potential.
Creating a detailed budget does not mean creating a budget that will overly constrain you; it only means providing the proper detail to fully present an accurate picture. It is up to you to determine how much spending cash is available or affordable based on your budgetary goals and constraints. The whole idea is to provide visibility as only then can you make informed decisions.
It will probable take around an hour or two to compile (gather) all your budgetary information. I would suggest you take the time to enter that information (income and debt sources) into a spreadsheet, word processor, and text file. This way you will always have the data and you can easily import it into most budgeting software. I would suggest that you capture the following information at a minimum: description, income or debt, amount, and pay date.
Although it is possible to build a budget using spreadsheets, I don’t suggest it. First you will need a fair amount of knowledge to create the spreadsheet formulas that are required to link all the worksheets; linked worksheets are required to provide the visibility to see the whole picture. Additionally, the insertion of a single income or debt source would have to be replicated on all the worksheets, which means you must ensure all the links are still operating as expected. Spreadsheets don’t provide you with the ability to easily make changes and see how those changes affect the overall budget. For that reason alone I suggest that you research and purchase a budgeting software package that will meet your needs.
In Part 2 of this article, I will discuss how to take full advantage of budgets so you can steer and adjust your course through these economic storms.
Please note that all businesses large and small create and follow budget to achieve an expected outcome. There is nothing hindering you from doing the same and achieving your goals, receiving the expected outcome.
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