|
Whether You Call It a Budget or a Spending
Plan, It's a Good Way to Start 2009
Granted, the New Year is a time for best intentions. People
vow to stick to a diet, knuckle down at work, spend more quality
time with people they care about, start scratching off that long
list of key chores around the house, and of course, keep a
closer watch on their pocketbook.
If you find you can do only one of these things, focus on
that last item-making and sticking to a budget. It might help
you handle the rest of those resolutions:
- Being in control of
one's finances reduces stress. Stress can make people eat
more and spend more.
- Having a spending plan
in place means you'll have already prioritized the key
activities, expenditures and projects you'll need to make
for the year and the money you'll need to afford them.
- Spending less time
worrying about money means you'll have more time to think
about the people in your life.
Here are some ideas you may want to incorporate into that
process:
Don't be afraid to ask for help. Do you know where you
need to be? A financial planner can ask the right questions and
develop a customized plan to figure out your starting point and
where you'll finish based on your age, earnings potential and
the new habits you'll develop.
Start tracking every dime you spend. Whether you do it
with a pen and a notebook or a computer program, make a
concerted effort to track your everyday spending. Physicians say
overweight people should track every morsel of food they eat;
with money, it's the same thing. Knowing where every penny goes
gives a quick picture where certain pennies can be saved or
invested.
Prioritize… When it comes to spending, there are
needs and wants. Try this exercise. You can do this on a big
2009 desk calendar (or an electronic calendar that allows space
for lots of notes to yourself). Mark down at the appropriate
dates and times of the year items for which you need to spend
and those for which you want to spend. What are needs? In part,
food (not carryout or restaurant meals), monthly mortgage,
tuition, auto or rent payments; monthly utilities; home, auto,
life or disability insurance; retirement savings; property taxes
and credit card payments. What are wants? Non-essential items
like vacations, non-essential home improvement projects,
restaurant meals (you can cook at home) or treats like clothing
splurges or electronics. Compare these total expenditures to
your total income. What will this crowded calendar tell you?
That by attacking debt, making certain sacrifices and spending
and saving smarter, you can eventually un-crowd that calendar
and your financial life.
…then zero in on each month. There has to be a living,
breathing side to budgeting that accommodates change. Do this:
Near the end of each month, make a list of the specific
"needs" and "wants" you'll face next month,
and figure out how much money you'll have for wants after needs
are addressed. For example, if your car needs a necessary
repair, that's certainly going to boost the "needs"
side of the page. If you find due to a one-time event (paying
off a particular credit card, for example) that you have more to
spend in the "wants" column, then it's time to decide
whether it's time for a treat or to throw more into savings,
investments or attacking any other debt.
Identify and plan for long-term goals. You need to
think about the things you really want to do with your life and
what those things will cost. Putting goals in writing gives them
a formality and a starting point for the planning you must do.
If these goals require saving, make sure you put those savings
dates on the financial calendar you made.
Build failure and recovery into the plan. How many
diets have evaporated with the words, "I blew it!" The
fact is, with food or money; everyone goes off course at times.
The important thing is to have a plan for corrective action; if
you're about to make an impulse purchase, implement a three-day
spending rule. That means you should give yourself three days to
check your budget and think through the purchase before you make
it. If you can minimize the damage and get back on course, your
progress will continue.
January 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
|
