As students, we are taught that financial planning starts
at an early age, but it seems easier to talk about financial
planning than to actually implement it in our daily lives. Nonetheless,
we can increase our net worth while decreasing the financial
flab caused by excessive debt by observing a few simple rules.
Set Financial Goals
Dreams can become reality when supported with long-term planning.
Whether the dream is as simple as paying off a small credit
card debt or as complex as buying a brand new house, setting
financial goals is the first step toward realizing it. You have
to determine what is most important for your future, set a time
frame for achieving it, and start today by saving and investing
your income to accomplish it.
Monitor Your Spending
Someone once said, “Money talks...but all mine ever says is
good-bye.” As our income increases, our expenses also increase,
a problem that most of us face. When our basic income is increased,
we think our standard of living should go up, but this is not
necessarily true. We need to look at the bigger picture: what
parts of our expenses are inflated due to overspending?
The usual suspects are entertainment, clothing, and groceries.
These probably make up a significant portion of the expenses
on your budget. A simple way to decrease expenses would be buying
groceries in bulk and/or using food coupons. Instead of buying
your clothes at Banana Republic, purchase them at the Gap or
Old Navy, lower-end outlets of the same company. A simple 10
percent trim of monthly expenses from a $2,000 budget can produce
$2,400 in savings at the end of a year.
Before you receive your next paycheck, figure out whether you
can afford 5 percent or 10 percent savings from your monthly
income. When the check arrives, take the estimated savings amount
and deposit it into a savings account. Do this with every paycheck,
for savings should be a regular habit. Better yet, arrange for
direct deposit of your paycheck, with part of it automatically
going to savings.
Most people attempt to fund long-term financial goals with short-term
investments. This type investing strategy is an oxymoron; long-term
financial goals need to be funded with long-term investments,
equities (stocks), mutual funds, or bonds. Short-term investments
usually lie in savings accounts, certificates of deposit, and
short-term bonds. Remember to use a strategy funding for each
type of goal.
Establishing and sticking to a budget can help you achieving
your financial goal. Budgeting can be complicated, but if you
understand the basic layout you should be able to put together
a budget for yourself. Here is an example:
1 GROSS INCOME – before taxes 2000
2 Payroll Deductions - taxes 400
3 401(k) 100 4 Medical Insurance 50
5 Total Payroll Deductions 550
6 NET INCOME (1-5) 1450 EXPENSES
7 Savings (5 % of net income ) 73
8 Rent 500
9 Household (soap, etc.) 30
10 Utilities 100
11 Clothes 50
12 Debt Payments 100
13 Food (includes dining out) 250
14 Auto (gas, oil, insurance, etc.) 75
15 Entertainment 50
16 Total Expenses 1228
17 Income left over (6-16) 222
Your income left over (line 17) should never be a negative
number. There always will be emergencies, but also you can invest
the additional amounts in savings or increase debt repayment.
Budgeting is one of the most important elements of successful
financial planning; without a budget, the money controls you.
Learn about finance
Even if you are not a business major, you may wish to take classes
in personal finance, accounting, and taxes. Such classes will
help you determine which decisions you need to make to maximize
the return on your investment.
Business classes can also in help you sunderstand financing
and the proper way to approach situations that deal with money.
The more you know, the easier it will be to make decisions that
create a lifetime of financial security.