Many people say that money is not everything. This may be true. However, the truth is that it can buy us a lot of things that we need and can also make us live comfortably. That is why, planning your finances and their use is essential to achieving personal economic stability.
Financial planning is perhaps the best way to properly utilize one’s money and investments. some of the advantages include:
- Financial resources can be protected and used wisely.
- Financial affairs will be controlled more by the individual.
- Personal relationships are improved.
- The individual does not anymore have to be worried about the future.
Sometimes, people are not into financial planning for the main fact that there is no money to plan in the first place.
And to begin financial planning, one needs to have a financial plan. This can be a budget or a plan for spending and saving present and future income. As a budget, it should allocate money for expenses such as bills and utilities, basic commodities, and savings.
Do you have a compulsive spending problem?
Those who struggle with financial planning, may be compulsive spenders. You could be a compulsive spender, if;
- You buy something simply because it’s on sale and you might need it someday.
- You spend every penny you have as soon as you get it.
- All money left over from bill paying is spent on whatever you want, whenever you want.
- You never have any money in savings.
- You can’t stop shopping and your spending is out of control.
Did You Answer “Yes” To Any Of The Above Spending Habits?
There are several ways to control compulsive spending. Here are a few that seem to work well for others.
Five ways to fix spending problems
Planning your finances means to budget your money and budget in some spending money. Don’t go over this amount. Try to only use cash.
Go to a cash only system. Lock up your debit and credit cards and use cash for everything. When you’re out of cash, you’re out of money until your next pay day.
Consider an envelope system. Divide money up between envelopes for each budget item. When the money’s gone, it’s gone. Again, lock up the credit and debit cards to avoid spending what you don’t have.
Set a daily spending limit. After paying your bills set yourself on a daily spending limit. It could be as little as $3 or it could be as much as $100 depending upon your disposable income.
If you’re a compulsive spender chances are you’re also deep in debt. Have a yard sale or garage sale and get rid of some of that excess and pay yourself back by paying off your debt.
You are responsible for your own happiness and spending won’t really make you happier in the long run. You need to start financial planning right now, and stop that compulsive spending.
Here are 6 essential steps to doing financial planning.
Know one’s current financial situation
Determining one’s financial situation is simply done by compiling financial balance sheets and income statements.
Personal balance sheets include cars, houses, clothes, bank accounts, and stocks. This is combined with personal liabilities which include mortgage, car loans, or credit card loans. On the other hand, income statements refer to personal income and expenses.
Develop one’s financial goals
Setting goals is very important as these give direction to one’s plans. Financial goals are the things that one would want to achieve in a few years. Short term goals would mean those that can be achieved in 2-3 years while long term goals are those that can be achieved slowly for a long period of time.
Find alternative courses of action
It is not just enough to make goals. More importantly, one should do things to achieve these goals.
Planning your finances by looking at alternatives
Think of ways to achieve the desired goals. These would include investing money in the stock market or in mutual funds, reducing expenses, and increasing income.
It could even mean insurance as well. For example, all doctors have income protection insurance, and so do other professions like lawyers and accountants. There’s a good reason for this.
Apply or implement the financial plan
The preparations of planning your finances had been done. The next thing to do is usually the hardest—implementing the financial plan. This step will not be easy as temptations will be around all the time. There will be the urges to spend and suspend saving up.
These have to be overcome or else the financial plan will be useless. It would be wise as well to seek the help of financial managers, accountants, planners, investment advisers, and lawyers. This stage requires determination, perseverance, and self-discipline.
Be frugal however not cheap
Remember, that you have to always buy twice as much of cheap things to make up for their inferior quality. You can have fun with a small bit of money or without spending money at all. Rather than buying a new iPhone, can you visit an Apple repair store and get yours fixed?
Tell your children that you are taking them on a photo shoot at the local park and let them model their favourite outfits or jerseys. Then download the photos and place them in the family scrapbook. These are the moments that the family will cherish. Spending quality time together as a family is one way to save money and make memories at the same time.
Review and revise financial plan
No financial plan is perfect the first time. Results have to be evaluated every time and the plan should be monitored and reviewed every so often. By doing so, necessary changes to planning your finances can be made and strategies can be employed to yield better results.