Getting your finances in ORDER pt 2

Setting a Financial Goal

Most people go through life without any guiding plans or set of goals. For the very few who do, a fewer still actually set specific plans for their finances. Although most of the goals and dreams we set out to accomplish may require some amount of funds, we almost always do not consider that fact until we are faced with financial struggles.
To experience any kind of financial success, a specific well laid out plan must be put in place. As we discussed in the previous post, a budget is always the first and best option to begin with. After drafting a budget, you need to assess your specific financial status and then aim for a higher one.
There are basically four financial statuses i will talk about today.

1. Deficit : this is when your expenses always exceed your income. In effect, you are always in debt or have to borrow to meet your financial obligations

2. Neutral or Balanced : This is when your expenses are always equal to your income. With this you are always at zero.

3. Security : This is where you have at least three to six months worth of your monthly expenses in an account you don't touch except for emergencies. With this status, you can maintain your lifestyle without having to sacrifice anything for the specific number of months you have saved as security.


4.Freedom : This where you have been able to create several multiple streams and passive income from other sources that is either equal to or more than your current income. In effect, you can decide to quit your regular job, take longer vacations and holidays or simply take time off to develop other interests without having to worry about money.

The ultimate aim of every financial plan or target is to reach Financial security but one cannot jump from 1 to 4 without passing through the other stages. Your goal is to determine where you are and aim towards getting to the next level in the shortest possible time.

Next time i will deal with how to move from deficit to neutral. Have a great day.

Getting your Finances in ORDER.

Lifestyle changes

Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are – James W. Frick

                           

    Many people complain that money is hard to come by and even harder to keep around yet some others are still well off and very comfortable. The secret is financial discipline and the first step towards having any success in this area is to design a budget and stick to it. Your budget should be simple and easy to use. It should be a well detailed plan that spells out expenses and money allocated to them and must be strictly adhered to. To design a very simple personal budget, you just need to pick a blank sheet and divide it into three segments. On top of the three segments you indicate; items, amount and percentage. Under items you list the basic stuff you will need to buy or allocate money for and write their corresponding estimated costs under amount. Items can be groceries, medical expenses, bills and taxes, clothes, entertainment, investment, debts etc. Using your expected income as a total which equals to 100%, you can calculate the percentage of the total each item in your list forms.  Below is a sample you could follow or modify and adopt;

Items	Amount	Percentage (%)
Total

Until you can actually tell exactly what part of your income goes into which specific item, effectively managing your expenses and keeping track of possible excesses and leakages is almost impossible.

Next time i will talk about specific lifestyle practices.