Budget Planner & Financial Planning
Before you can effectively make use of a budget planner or successfully complete any kind of financial planning, you must determine how much money you currently spend on a monthly basis and on what you spend it. Knowledge is the key to planning a budget that fits your needs and keeping yourself out of debt. Arming yourself with information about financial planning can help you understand your credit report, manage your money better and make educated financial choices.
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Break It Down
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Many people try and fail to construct a budget they can stick with for the long haul. Just the idea of coming up with a feasible budget you can easily live with is overwhelming for many people. Breaking the entire task down into smaller, more manageable segments can make it less intimidating. When you are able to focus on one or two areas of budget planning at a time, you are more likely to create a budget you can actually follow.
Total Expenditures
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Most people know about how much they spend each month, but few people know exactly where their money goes or keep close track of all expenditures. Approximately 43 percent of Americans spend more than they earn on an annual basis, and the average household carries around $8,000 in credit card debt (see the Resources section). By keeping a running total of all monthly expenditures for one month you can see exactly where your money goes and identify areas where spending can be reduced.
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Budget Planner
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A critical step to successfully managing your money is comparing your total monthly income to total monthly expenses. It is also important to establish savings goals. The standard target is to save a minimum of 5 percent of your net income (after taxes). Following the 20/10 rule helps keep tabs on yearly debt. The rule is to never borrow more than 20 percent of your annual net income, and your debt payments should not be more than 10 percent of your monthly net income. For payments that occur only twice a year such as property taxes, the total amount should be broken down into a monthly amount when planning a budget. A website like Moneystrands.com offers a free monthly budget planner tool to help people plan their budgets and save money.
Financial Planning
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Financial planning is the process of establishing your financial needs or goals for the future and what needs to be done to achieve them. The process involves choosing investment vehicles and activities best-suited to your personal economic circumstances. Once a plan is developed for achieving your goals, the plan must be implemented and monitored for goal-oriented progress. Sound financial planning offers a way to ensure financial security throughout your life.
Features
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A thorough financial plan encompasses more than debt management and budget planning. It includes insurance, retirement planning, investing, borrowing and using credit, tax planning, creating a will and making sure the right people end up with your assets. Typical life goals of personal financial planning consist of buying a home, saving for a child's college education or planning for retirement. Clearly defined goals are a critical aspect of a successful financial plan.
Benefits
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When events in your life affect your financial needs or situation, a sound financial plan will provide a means for adjusting to those changes. Having the foundation that financial planning provides will allow you to prioritize adjustments in your plan to keep your financial goals and activities aligned with your current economic situation. Creating a financial plan helps you achieve your immediate short-term financial goals, making it easier to focus on the long term.
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References
Resources
- Photo Credit Making a financial plan image by Allen Stoner from Fotolia.com
