Personal financial planning is probably something you can always do better. It’s a sad truth that 26% of Americans have no savings for emergencies while 36% have put nothing away for retirement yet. Getting started with personal finances may seem daunting. But your investment of a few minutes of time pays off big times. What are you waiting for? Grab a pen, paper, and your bank statements. We are about to start a journey to financial contentment right now.
Do you know your number?
For years I have been living with only vague ideas about how much money we have exactly to spend each month. Our bank accounts didn’t allow us to take out more than a tiny amount of overdraft loans so we basically lived within our means because we had to. But with no car, no kid, and no other vacation than one or two trips to Morocco to see family it was all good. Except that we had nothing, nada, zero in savings because we mindlessly spent all that was coming in. Living paycheck to paycheck wasn’t uncomfortable but it didn’t allow us to build a nest egg to fall back on. Any unexpected event could have led into a complete disaster and we completely missed the “build wealth in your 20s (or even 30s)” thing.
We didn’t have many choices living that way and today I’m sorry for the missed opportunities.
Don’t let your hard-earned cash just slip away. Set up an easy equation now to jumpstart your personal financial planning.
Set up a Basic Budget
- Make a list of all your income (salaries, benefits, etc) in one month. Sum up your incoming money.
- Find all fixed expenses that you pay in one month. Include savings for yearly payments. (See next chapter). Sum them up.
- Subtract your expenses from your incoming money. This is the money you have in one month to spend, pay down debt and save.
- If you want to you can then calculate how much you have to spend in one week or day to stay within your means.
Please, read this post about how exactly you can create a basic budget for your family to learn more. Find free printables included and editable digital spreadsheets to work with on your journey to personal financial planning masterhood! (No opt-in required)
Little margin? Try to save anyway using the change trap method.
Deal with yearly payments in your personal financial planning
One of my financial misconceptions was to only look at our finances on a monthly basis. When yearly payments rolled around it hit us hard because we were never prepared. To not let this happen to you make another list of yearly and quarterly payments. Sum up what you have to pay in one year. Divide by 12. This is the amount you have to set aside each month to prepare for yearly payments. Don’t forget this in your personal financial planning.
Prepare for upcoming payments with a simple cash flow sheet
As I said I didn’t care much about what was going on in our bank accounts. Until I discovered that this or that amount has been debited. I started to use a simple piece of paper to keep track of financial movements. I would just note the amount of money in the bank account and then what is still to be paid and when. That way I could take a glimpse of our bank accounts’ future and would know exactly about any margins. Include regular fixed payments like rent as well as payments you have made with your debit card or with your credit card, etc.
Learn how easy you can create and use a cash flow sheet in this post, including free printables and digital worksheets to edit. Be sure to check this out so you will not be caught be surprise any longer.
Look back by tracking expenses with a budget book
If a cash flow sheet lets you look into the future the budget book is for looking back where your precious money went. Track your expenses and note what you bought. Use categories to check how much money your family spends on groceries, luxury, gas, pet supplies, etc. You can then find margins to save money. A budget book is a valuable asset in your personal financial planning strategy and can help you save a lot of money.
Learn how to get started with a budget book in this complete guide and use the free budget book templates to use on your computer or to print out. Take a few minutes each day or week to write down all your expenses. Then sum them up at the end of the month for each category and totally. (The digital spreadsheet I provide will automatically do that for you. Also, it is designed to track your expenses over six months and then average them so you can have a clear picture of where your money goes.)
Have one or more saving accounts for competent personal financial planning
You need to have a place to put away some extra cash here and there. If you cash it away in your sock and keep it under your pillow you will always be tempted to take something out of there. You should get yourself at least one account for savings only. If you have several savings targets it may be a good idea to have several savings accounts, too. Maybe even one for each target. Check this list of the Top 5 Online Savings Accounts put together by CreditDonkey. Use your savings accounts strategically in your personal financial planning and set goals for each. Then put an amount X to each account each month and watch your savings grow.
Follow these fundamental five steps and you will be well on your way to managing your personal finances competently. Take responsibility now with only a few minutes time invested in personal financial planning. You will set your family up for financial success. You will be so glad you did this! Don’t waste another day.