Whether you are saving up for a new car, budgeting for gifts or trying to make ends meet between paychecks, developing a personal financial plan will get you there. Personal financial planning is the process of managing your money prudently so you can live within your means while saving for a future need.
Personal financial planning can’t be done in your head. Drawing up a financial plan calls for some basic tools that will help you visualize how your money is being managed. Here are five tools that I use to keep my personal finances on track.
Money Management Tool #1: The Budget
We’ve all heard of budgeting, but what does it mean exactly? A budget is an itemized record of all your expenses and income. Budgets are important in personal financial planning because they:
* Track spending habits and isolate areas that are out of control.
* Remind you of regular monthly expenses that otherwise might be forgotten.
* Prevent spending more than is earned.
* Identify areas that could be cut to generate extra cash for retirement, college or savings.
* Help visualize how much income must be earned to cover your debt.
Free budget programs can easily be found online and are a valuable tool in preventing a budget from derailing.
Money Management Tool #2: The Check Register
A check register is a running ledger that lets you know how much money is in your checking account at all times. While many people use their online banking program to check daily account balances, this figure isn’t totally accurate since it doesn’t account for outstanding checks and debit charges. If you’ve been saving up for a new dress or power tool, the register is the most accurate record for knowing how much money is really available.
If you don’t like using the free check register that comes with your checkbook, consider using a free on-line check register program instead.
Money Management Tool #3: The Calculator
Until you are good at adding up multiply rows of numbers in your head, the calculator is the most reliable and fastest way of adding up bills, balancing and reconciling your checkbook and totaling up your month-to-date budget items. One little trick I used quite a bit as a single mom was to shop with a pocket calculator and add up the cost of my groceries as I shopped. Tracking the total in this manner kept me on budget and forced me to put those unnecessary grocery items back. As a financial planning tool, calculators are a must-have item for keeping accurate count of your expenses and income.
Money Management Tool #4: The Savings Account
If one of your financial planning strategies includes saving up for some big ticket item, a savings account is the best place to store those funds. Stashing money in a jar is never advisable, since you run the risk of having it stolen, plus it’s too easy to dip into for personal use. Money that is being saved needs to be out of the house and not linked online to your primary checking account to avoid the temptation of spending.
Money Management Tool #5: Personal Bookkeeping Program
A personal bookkeeping program does more than keep a running checkbook balance; it can also organize your expenses by category (which is great for budgeting and tax time), auto-record monthly debits, manage multiple accounts, run side-by-side comparisons of your projected budget vs. what’s been actually spent, and much, much more. Free basic personal bookkeeping programs are available online. For a program with more advanced features, visit any office supply store.
Personal financial planning is all about setting financial goals and tracking your money carefully so those goals can be met. Tools such as a budget, calculator, check registers, savings accounts and a bookkeeping program will accurately track your expenses and income while you plan ahead for the future.