Originally published on primopreneur.com
Many people find the thought of budgeting and financial planning anxiety-inducing. It’s the sort of chore that people repeatedly put off for another day until they’ve lost sight of their finances. Situations such as emergency car repairs, health crises, and job changes can quickly deplete your savings, forcing you to start from scratch, which is never fun.
Creating a financial plan is an ongoing process, so once you get on top of it, it’s easier to maintain, rather than something you neglect year after year until you’re scrambling to understand where you are and what you need to do next. Though financial planning can be scary for those who don’t know where or how to start, it’s an integral part of being a responsible adult. Taking charge of your obligations by avoiding common budgeting missteps can help you avoid those negative account balances and over-extended credit card lines. Below, Brent Cherne, a prominent financial executive, weighs in on what to consider and what to avoid when you’re creating a financial plan:
Not Establishing Needs vs. Wants (Desires)
When the money is flowing in regularly, and bills are being paid on time, it’s easy to blur the lines of living necessities and things that you want. Items such as utility bills, car payments, and groceries are non-negotiable living expenses. But what about the $5 Friday night cocktails that you enjoy every week with your friends? While engaging in social activities is a healthy part of any lifestyle, they can also be the detriment to your monthly budgeting goals if they’re not kept to a practical minimum.
Random “Inexpensive” Purchases
Who doesn’t love to scan over the unnecessary items while they’re in the grocery line waiting to check out? Or perhaps you find yourself making random purchases on Amazon after reading the superb reviews of the latest gadget, and decide to buy one. Not a big deal, right? But what if you’re buying a handful of new items every week? Businesses make a fortune off of impulse buying and the accumulation of low-cost purchases because they know that these items require less cost-rationalization than more significant investments. But as a consumer, it’s important to keep a careful eye on impulse purchases, as they can creep up and become bigger bank drainers then you imagine.
Keeping Ambiguous Expense Records
The invention of online banking has provided consumers with a quick and reliable means to get access to their account balances 24/7. Make a list of each expense and compare it to your weekly/monthly earnings to determine what you’re able to save every month. If you’re guessing what your bills will look like each month, this could be contributing to your financial issues. Not only should every expense be grouped into the “living necessity” and “want” categories as mentioned earlier, but they should be tracked month-to-month to help with planning future costs. Why? Because expenses and earnings may have seasonal or monthly changes that can leave you in a pickle if you don’t prepare for them.
For example, if you’re an accountant, your busiest time of the year will be between December and April when most people are receiving and filing their tax returns. So perhaps you put away an extra $100 a month during this period to stash away an additional $500 in savings for May through November; now you have an extra $70 cushion for each month during your slow season.
Not Thinking About Your Retirement
When you’re in your teens and twenties, retirement can seem like such a distant phase of your life that you may neglect to consider the importance of planning for it. It’s quite common for younger people to take to the “I’ll worry about that later” mentality, investing only the minimum into their 401k or savings account to keep more money on hand each month. Saving for retirement, outside of your 401k that is, not only increases the size of your nest egg, but it gets you into the habit of putting money aside to plan for your future.
For those who struggle with finances and all of the nuances, the best way to plan your finances without worry is to employ someone to help you. There are plenty of institutions which you can pay to walk you through the process and keep on top of your plan. You don’t have to do it alone, and you can always decide later that you don’t need a financial planner any longer. But sometimes, when you’re overwhelmed, it’s easier to have someone on your side who knows what they’re doing. They can help you establish a sound plan that will allow you to move forward without the stress of uncertainty. You can rest easy, knowing that a professional is handling your finances and helping you make those decisions you’ve been putting off.
There’s no better feeling than the comfort of financial security, especially given today’s unpredictable job market. Financial planning is one of those adult responsibilities that sounds worse than it is. It’s always better to know where you stand so that you can create an action plan of how to get to where you want to go. If you’re not comfortable hiring a professional, it’s something you can do by yourself. There are a lot of online resources to help you break down your assets and liabilities and budget accordingly. Don’t let the fear of the unknown keep you from taking control of your money, and your life.
If you have issues with sticking to your monthly budget, take some time out to re-examine your monthly expenses and note any changes in spending patterns. Being diligent with your plan can translate into significant gains regarding your future financial standing.
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