Personal Finance & Budgeting

Getting ahead financially can seem like a challenging prospect during downturns in the economy. But planning for a successful financial future extends beyond immediate conditions. It requires an ability to look far ahead of tomorrow with a firm plan in place. No matter when you begin to enact a plan, there are a series of fundamental strategies for getting ahead:

Take Control
With more families facing significant amounts of personal debt, the first step to financial success is to take control of your money. Financial success can only be achieved with a realistic budget. And a realistic budget is one that is based on an income that is sufficient to meet expenses. The only way to know if this is so is to track actual expenses in a typical month. Tracking expenses shows where money is being spent and where it might be potentially wasted. With that in mind, you can find areas where spending may need to come under control. Those whose expenses exceed income have two choices: increase income or decrease spending. There are always ways to reduce spending to free up additional funds for spending and saving goals.

Another way to bring spending under control is to spend less than you earn. This can be a challenging goal but think of it this way: If every time you earned a raise in the marketplace and instead of increasing spending, maintained the current lifestyle, the extra money could be used to pay off debt, bolster an emergency fund, or go towards retirement. One rule is always true - no one can get ahead finically if they spend more than they earn.

Be a Debt Buster
With a clearer idea of where money is being spent, the next step in the plan is to examine any existing debt. Credit card debt is the number one obstacle to achieving financial success. Incredibly, some people are unsure of how much debt they are actually carrying. It’s important to add those figures up and be aware of how much interest you’re paying on each card. A large portion of a successful financial goal should include goals to pay down debt and resist adding to it.

Pay Yourself First
In an effort to achieve freedom from debt, people often forget they need to pay themselves first. Meeting other financial obligations first to see what’s left over for savings is a sure-fire solution to a weak savings plan. To create a healthy savings account, set aside at least 5% to 10% before paying bills. Having money automatically deducted from a paycheck and deposited into a savings account has been a proven method for those who are serious about saving.

The other important element to savings is that it’s a necessary step in a plan to financial freedom because without any funds available for an emergency, people are more likely to use their credit cards as a backup, which further extends their debt. Some financial experts recommend that those who are just beginning to take savings seriously should accumulate at least $1,000 in an account in case of an emergency before paying off debt.

Contribute to a Retirement Plan
A 401(k) plan is one of the most beneficial ways to save for retirement, especially if an employer matches a portion of the contribution. Those who start saving for retirement in their 20s can amass a sizable nest egg with little effort, thanks to compounding interest. For instance, a 25-year-old who invests $2,000 a year for eight years and never invests past the age of 33 earns more money by the age of 65 than a 34-year-old who invests $2,000 for 32 years.

IRAs are another recommended retirement savings tool. Traditional IRAs allows participants to contribute pre-tax dollars that are tax-deferred. In other words, taxes are not paid on funds until they are withdrawn, which means the amount to be paid in taxes also earns income. Conversely, a Roth IRA will allow after-tax contributions that may grow tax-free as long as the money is not withdrawn before a participant is 59 yrs.

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The advice often given to young couples starting off in life is “Not to buy what you cannot afford”. The same basic advice should be heeded by many. If you cannot afford it- then do not buy the item. But what of investing in your own future in terms of an investment in your personal education or training as well as investments in your own personal career. Is this not getting ahead in life? Is this not money well spent? Even if you have to borrow and go into debt is this not money well spent?

If at the end of the day, year or decade you will be much further ahead in position, salary as well as benefits in addition to “job” and “personal” satisfaction is this not money, time and effort well spent and allocated? Indeed it is and can well be.

In the case of your education a dollar borrowed now will result in better jobs - that you will most likely find more challenging and enjoyable, and have a lot more financial reward than a job on the status scale – say as a bus driver or a technician doing oil jobs at your local Wal-Mart. In the case of a vehicle or car loan it may be a godsend. If your vehicle is not reliable – then how can you show up on time, keep your job without an image and reputation of reliability? Not only do you want to keep your employment and income associated with the job but also the job references from your employment superiors for use with other employers for better positions and pay, or for promotion within your present organization. You may even run into a case of promotion within your present firm to another branch office or plant. Not having reliable transport may limit your promotion offerings and flexibility. In addition, if you take out a loan to purchase that vehicle, you may well have upscaled and upgraded your car or SUV, from the models that you most likely would have purchased. By doing so, and driving a higher grade auto model, you may well appear as a more established, senior, more experienced and established employee as well as individual. Fortunately or unfortunately in life most comes down to appearances and perceptions.

There may be a much better and / or better paying job but its way across town, or in an area not served by the bus transit system. Or it may be the case that there is bus service - but if devours a good two to three hours a day of travel time. Good bye to your personal social life. You may have all the money in the world – the wealth of Bill Gates Himself and yet no time or energy to enjoy it. So much for all that pay of that new wonderful job.

A real step foreword as they say. It is always a case of reward versus cost or cost versus benefit. It is a case by case analysis.

In addition you should think of additional or add on costs. Do not stretch yourself too thin – financially. A course at university may not be offered in your calendar year – you will have to complete your schooling fully at a later date than expected. A course may be full – ditto for time delay. Or you may even have to repeat a course or change plans along the way necessitating longer time duration of studies. Leave a buffer of funding both for yourself and as well with the agency that provided the loan – be at bank, savings and loan, credit union or even parents or relatives. Don’t break the bank so to speak at the first step. The same analysis of benefit versus costs prevails in the car / transport / job scenario situation. Many people will drive across town for a bargain to save a dollar and spend $ 10 on gas costs in the process. Incorporate the price of gas into your final net salary not as an aside.

Lastly and most importantly – always pay your bills. Never take on more than you can chew, or in this case afford. Before making that commitment for a loan or undertaking always evaluate carefully before signing on the bottom line. It’s not only a matter of convenience. Your credibility itself is on the line, in addition to your personal honor and integrity and reputation. Pay your bills on time – even earlier than required. This applies to all loans – whether they are for rent, mortgage, utility bills, bank loans, charge card payments or student loans. If you cannot pay in full, then at least pay a bit above the minimum payment. If you are really stuck then contact the lender. Explain the situation honestly. Make a commitment and follow through. Remember the whole point of the exercise was your self improvement – an investment in yourself. To not take the exercise seriously is to shortchange yourself and your future opportunities as well as income stream in the future. To borrow for yourself and personal gain make prudent sense.

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Needless to say that managing money makes you feel accountable, motivated, and secure.  Though introducing better improvements to your financial situation is a good thing to do at any time of a year most of people prefer to do it at the very beginning of a new coming year. Regardless of the time you choose all techniques are the same. Here are 5 key points of everyone’s personal financial success:

1. Work out your budget

Your personally planned budget is a must-have thing. How can you see where your money go if you don’t budget? Without a strict budget you will spend all your money no matter how much you earn, hundreds or thousands of dollars. And your budget should be created depending on your earnings. A must-have item of your budget should be a retirement plan, think of your future today.

2. Keep your work paid what it’s worth

Before getting to the job perform a market research if you haven’t done so yet. Find out what others charge for a kind of job, and evaluate the difficulties of specifically your task, which would result in at least minor changes of the basic cost. Don’t try to work for quantity, irrational working doesn’t lead to a prospect. Remember that too much work leads to health damage, and without financial return that is obviously absolutely unacceptable.

3. Spend always less than you earn

Once planning your budget always remember that you should not spend everything you earn. Have a savings plan. When the funds are going away for your bills and living requirements try to do everything possible to decrease your expenses and save. Effective cost-cutting efforts may result in big savings taking to attention that it is often easier to spend less than earn more. If you can’t allocate funds for your savings try to exclude anything that might be not absolutely vital for your living.

4. Keep your records clean and positive

The more black spots you’ve got in your history fixed the worse your reputation is considered and the harder it is for you to use available to you tax deductions and credits. That’s why it is vitally important to keep your credit records and other history public records clean.

5. Pay off your debts in time

Not paying your debts in time is number one problem that most of financially unstable people experience, and that is the worst problem out of all named above. While your debts prevent you from following your savings plan due to need to pay much more than expected, they also may result in bad credit history. Credit cards are very easy to use, and sometimes you may forget this is real money, but the time comes when you have to pay off your negative balance, which is always a painful thing if you don’t control your expenses. The better way is to try to use cash when possible.

Of course these are only basic advices, and there are many more like updating your will, insurance coverages, additional investments and others. But if you manage to follow at least these 5 rules you are guaranteed to proceed to your financial success, and the first step as you know is the most important.

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