January and February are traditionally busy months in
financial industry as many New Year's resolutions typically include goal of becoming debt free or saving for a major purchase. While many of our clients understand importance of getting professional help when managing their business bookkeeping, only a few think to ask for our services in managing their personal finances.In business world, a budget is a financial framework that provides checks and balances to prevent overspending and ensures availability of funds should company run into unexpected trouble and requires capital. These same principles can be applied to our personal lives.
We are still close enough to Christmas holidays to understand how easy it can be to overspend. Presents for kids, dinners with family and friends, new clothes for New Year's Eve party all can add up to significant debt come January. I'm reminded of a Visa commercial that typically gets a lot of airplay in December: The postman comes bearing monthly bills. The Visa statement is opened showing a large listing of purchases all with zero balances and recipient can't believe his luck and faints from shock. The commercial advertises Win What You Buy Contest. The more you buy, more chances you have to win. A certain recipe for financial disaster!
While statistically speaking I don't know chances of winning Visa promotion, I haven't met or read about one person who has. We shouldn't base our spending on chances of winning our purchases or even lottery. With a little common sense and a trusty calculator, you can manage your spending and save for future and for unexpected expenses - and feel like you've won lottery!
Fortune 500 companies rely on budgeting and financial reporting. CEOs of major corporations do not make a move without consulting their financial plan. Revenue and expenses are carefully tracked and estimates are created for variable expenses. Corporate debt is studied with goal of reducing amounts owing without incurring additional debt. Money is diligently earmarked for future expenses and “rainy days.” Almost every financial expenditure is determined a year before incurred – a business cannot thrive without actively managing its cash flow. Most people understand that business success relies on creating a budget and sticking to it. I'm here to tell you that personal success does too.
Everyone talks about setting up a budget and sticking to it, but how do you really go about figuring out what your budget is, or should be? There are a few simple steps to creating a personal budget. We’ll use example of Steve, a computer technician.
1. Calculate your income
Calculate your monthly household income from all sources: salary, investment income, pension funds, lottery winnings - both yours and that of your spouse or partner.
For example, Steve earns $50,000 after taxes annually. He has no other income. Dividing by 12, Steve calculates his monthly income as $4,166.67.
