A Statement Of Cash Flows Is Prepared From The Budget Planning And Your Financial Freedom

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Budget Planning And Your Financial Freedom

Budgeting and cash flow….. two simple phrases that you would expect to learn in grad school. If not, definitely by high school. Well guess what…NO!!! I suspect this is the main reason why so many young people get into financial trouble at such a young age. They have no idea how the whole process works. Have you heard the joke about newlyweds arguing… one says “Why do we run out of money before the month ends”, the other says “We don’t have money, we have loads of money. Checks left!” The truth of the matter is that not properly budgeting can put your financial freedom at risk!

As you begin budgeting, you should keep one basic principle in mind. That is, honesty is the best policy. When you first start out, you have to take some guesswork. Here you have to be true to yourself. For example, if you are trying to figure out how much you spend on food every day, don’t forget the daily stop at Java Palace on the way to work or the lunch at the office canteen. A well thought out budget will put you on track to meet any and all goals you set for yourself. Additionally, writing down everything you need to know when budgeting will help you uncover all the black holes that are secretly consuming your paycheck month after month. Once you have your budget in place, honesty has to start all over again. You have to make a sincere effort to stick to your budget or you will fail. It doesn’t happen automatically. There will be parts of budget planning that you can put on auto pilot. Doing so will help you in your pursuit of financial independence.

So where and how budgeting begins. Since I didn’t learn that much in school, it was a unique gift that put me on the path to never having a check bounce or ever getting a collection phone call. Many years ago, while applying for a new car loan, the bank prepared some loan documents for me to fill out. One of them was the Personal Financial Statement (PFS). I filled it then and have been filling one every year since. I think this is the greatest tool for learning how to budget. If you’ve never seen one, go to your local bank branch and ask for a PFS. If they ask why, say you’re preparing to apply for a mortgage. Anyway, I haven’t had one from a bank in a long time because it’s so easy to make your own PFS. In short, here’s what you do. Take a blank piece of paper and draw a line down the middle. At the top of the left side, it is titled INCOME and at the top of the right side, it is titled EXPENSES. Now this is where the fun begins. Back to the left…Write down all sources of your monthly income on an after-tax basis. This is important because you can’t pay bills before tax income, which means your total paycheck number doesn’t matter for this exercise. Also remember that if you get paid weekly, take the after-tax number and multiply it by 52 and divide by 12 to get your actual after-tax monthly number that’s higher than just multiplying your weekly number by four thanks to the extra week. Take a peek once every quarter. When done, add the left side to get your total monthly income from which you can work your magic. Now go to the right side. Start by listing all of your monthly expenses, which include your home mortgage and your car payment and your utility bills if you have balanced billing, which are the same each month if you don’t have balanced billing. You should think about it because it will help you stay on track. Once you’ve finished listing all of your fixed monthly expenses, start listing all of your variable monthly expenses. Here are some guesses. Try your best to guess and leave nothing out. Don’t forget birthday gifts, entertainment, bowling nights, newspapers and daily java stops. Finally, put it in the miscellaneous category, because you know you need it. Add the right side. Is the number greater or less than the left side? If it’s less than the left side, you’re in a better position to budget. If it’s less than the left side, you have some work to do if you want to achieve financial freedom.

If the above answer is yes, or in other words, you are spending less than you are bringing home, then congratulations are in order. You are in good company and on the path to financial freedom. You may have acquired some good habits from your upbringing or other financial sources. Let me ask you a question. When you listed all your expenses on the right side, did you enter your own? Have you included an entry called Savings? Are you putting any monthly income into a 401(k), IRA, or funding any type of retirement planning? I doubt you are paying attention to this most important aspect of your finances. One more question. Have you included credit card debt? Is this number increasing, decreasing or staying the same? Again, if you’re in this camp, I suspect all is well on this front.

If the above answer is no, then you probably belong to the couple we talked about at the beginning who run out of money every month before the end of the month! what to do In one word…discipline! Keeping your finances in order takes discipline. One of the reasons your number is negative is because you were honest enough to write down all your expenses, and that’s a good thing. However, your day of reckoning has come. Now you have to start doing some introspection. You have to ask yourself “On the cost side of all those things… do I really need all those things?” 5 Is monthly magazine subscription really necessary? Is going out to eat once a week really that important? How about once a month instead! If you make this change alone, not only will your budget planning look better, but it will take on more importance when you actually move out. Believe it or not, this will make you happier than the “weekly grind” of going out to eat. If you don’t like the word discipline, I’ll throw another word at you… pinch. It’s time to pinch the right side of the sheet. Take a long look at each entry, line by line, to determine where you’re going to tweak. This is the only way to fall right in line with your resources. Sure you can extend the left side, but that’s easier said than done.

Now that you have a general idea of ​​how to budget, we need to focus on fine-tuning the right side of the equation because early on, you have the most control. For a while, the left side is out of our control. Sure you can work longer hours or get a second job or start a side business all of which will increase the income side of the equation, but as we just mentioned, this is easier said than done. Get this part of budget planning right and your financial freedom will be a reality before too long!

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