Smith Business and Finance

How you spend and manage money is a tangible way to measure your values.

1. Are you able to keep the promises that you make?

When you borrow money you are making a promise to the person or financial institution that you borrow from to pay the money back. Is it more important to keep your promises to your friends and family who probably won’t legally make you pay the money back or is it more important to pay the financial institution that can ruin your credit score and will more likely use legal options. Perhaps you honor all of your obligations in an equal fashion, either trying your best to keep your promises or breaking your word.

2. How much money do you give back to others?

There is usually a correlation between the percentage of your money that you give to others who are less fortunate and the amount of time that a person volunteers to help others. The percentage of money that you give also will give you an idea of how self centered that you are. If you do not give a large percentage of money it does not make you a bad or a mean person, it just may be time to reflect upon what you truly believe in.

3. Are you a spender or a saver?

This is an area where moderation is probably the best thing to strive for. People who never have two nickels to rub together are living in the moment with no sense of what the future will bring. They are more likely to live the rest of their lives this way by making decisions with out properly measuring the potential future impact. Many adults with ADD are prone to these impulsive decisions and need to pay special attention before making any big decision. People who save every penny never truly live in the moment and deny themselves of the little joys of life.

The most important thing that you should take from this article is that the way you manage your money often tells a lot more about your values than what you say or what you tell yourself that you believe. How you spend your money is physical proof of your values. The good news is that you can change your habits with money to reflect the values that you want to have.

Setting Priorities and Making Changes

Setting priorities and making changes is a continuous process meaning that as your life circumstances change, so should your money management plan.  But this is a good starting point to begin to think about your goals for the future, including your financial goals.

Goals provide focus, purpose, vision, and direction for your life and your money management plan.

Goals can be either short-term or long-term.  Some examples of short-term goals are:

·    You want a new pair of shoes for work, your goal would be to save money to buy the shoes.
·    You want to buy a microwave oven for your apartment, so your goal would be to save money to buy the microwave.

Some examples of long-term goals in are:

·    Do you wish to buy your own house?  Your goal is to save money for a down payment on a house.
·    Do you want to go to college?  Your goal is to save money for tuition.

If you have children, think about involving them in the process of thinking about and deciding which goals are important for your family and the ways in which they can help the family achieve those goals.  With the entire family supportive of both long- and short-term goals, it will be much easier to be successful in reaching your goals!

Some final points to remember:

• Everyone’s money management plan is different.

• Money management plans change as your life changes.

• Money management plans should be flexible!  They should not rule your life, but they should help guide you.

• Your money management plan should help you meet your financial goals.

• Keep your money management plan simple!

• How much money you make is not as important as how you use what you have.

• A money management plan is for everyone.

Expenses

Figuring out where your money goes each month is probably the hardest part of a money management plan.  The best way to know how much money you spend is to keep a record of every transaction.  You can easily do this by:

Using a small notebook to jot down any spending
Carrying an envelope to collect receipts
Reviewing your checkbook register
Saving any credit card receipts

Usually, tracking your spending for two-months is enough to give you an idea of your monthly expenses.  Once you know more about your spending, you probably won’t have to keep such detailed spending records.

The following are some examples of spending categories:

Housing
Insurance
Transportation
Clothing
Food
Entertainment
Savings and investments
Health care
Personal care
Family
Donations
Education
Professional expenses
Miscellaneous
Credit payments

Remember, not all of your expenses are monthly.  Property taxes, insurance, holiday and birthday gifts come quarterly or once or twice each year.  It is easy to forget about annual expenses and not have enough money to pay for them.  A Personal Money Management Plan will help you identify and anticipate these expenses.

Expenses come in two types:
fixed expenses and flexible expenses.
Fixed expenses are those expenses you must pay the exact amount each time you pay your bills.  Flexible expenses are those expenses that you can control, such as the amount of money you spend on eating out or how many movies you rent.

Sources of Income

Add your current total family income from all sources.  Include income from other family members if it is used for family expenses.  Remember to use the take-home amount, or what you actually have left to spend after deductions.

Some sources of income include:

Earnings from employment.
Interest from checking or savings accounts or a credit union.
Tips or commissions.
Interest or dividends.
Gifts from family or friends.
Child support or alimony.
Income from inheritances and trusts.
Unemployment compensation.
Educational scholarships.
Social Security, pensions, or annuities.
Supplemental Security Income (SSI).
Public Assistance.
Food Stamps.
Veterans’ benefits.

Comparing Income and Expenses

Add your expenses and compare the total to your current income.  Are your expenses more or less than your income?  If they are more, what can you do to bring your expenses in line with your income?  Consider adjusting your expenses by doing one or more of the following:

Cut spending.  What are the easiest flexible expenses that you can cut back?
Increase your income.  Is working a part-time job feasible for you?
Don’t buy on impulse.  Tell yourself, “It it’s not in the budget, I can’t have it.”  Then take your own advice.
Barter or trade for services.  Trade your skills or product with someone else without using money.  (Find Example)
Substitute a lower-priced item or similar item for something you must buy.
Borrow or rent things, rather than purchase them, if they won’t be used frequently.
Look at your other assets.  What savings or investments do you have that could be used, or converted to cash, to meet emergency expenses?  Remember that borrowing and using savings should only be a temporary, last-resort solution.
Reduce your fixed expenses.  If too much of your income is going to fixed expenses such as housing or debt payments, there may not be enough money left to cover your other living expenses.  As a last resort, you may need to refinance your loans or move to lower-cost housing.

Do you feel like you do not have enough money? Try as, do you have a difficult time paying your bills? Can you barely make a living out of your paycheck?

Many women expressed these same frustrations. Sometimes we splurge on a good pair of shoes or a nice dinner with friends. Or, we forget someone’s birthday and at the last minute and left without buying a gift. Or, simply can not seem to stretch our salary to pay all our bills.

That’s why it is important to begin to find out where our money goes – every year, month, week or even every day. The following information provides some basic guidelines to help you develop your own plan for managing money.

Personal Money Management is a plan for managing income and expenses. It tells how much money you have and how much you spent. It also tells you how much you can afford in the future. It tells you what you can and if you can afford.

With a personal money management:
- You can plan how to spend your money so that you do not get into financial trouble.
- You will be in full control of your money.
- You will be prepared for emergencies
- You can avoid getting into serious debt.

It also provides you with economic security and have the ability to plan long-term goals such as buying a car, buying a house, or going on nice vacations.

How do we start?

There are four steps in developing your Personal Money Management Plan:
1. Listing your expenses.
2. Listing of income sources.
3. The comparison of income and expenditure
4. Set priorities and make changes so that your income will exceed its costs.