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Organization is the main key step toward personal finance. Organization involves knowing your spending patterns and knowing spending and saving priorities. The first step toward getting organized is by gathering your important financial documents, and filing them in one convenient location. Financial papers such as tax records, investment records, insurance policy, living wills, loan document etc.
After Getting organized, the following step is to create your financial Blueprint, which includes your income and your expanses.
The best way to calculate your total income is by creating a cash flow worksheet. To complete the cash flow worksheet, you will first write down everything you currently earn monthly from your job, your investments, and any other type of income you receive on a regular basis, such as rental income, disability or veteran’s benefits, trust fund income, etc. This part of the worksheet represents your monthly income from all sources.
Next, write down everything you spend on a monthly basis. Not all expenses are paid monthly, if you make payments once a year, such as insurance premiums, you can divide the amount by twelve and list one month’s worth on your budget.
The last step is subtract your expenses from your income, If you have a positive number then it is time to invest, otherwise you have to look closely at your expanses to see what you can eliminate, or at least reduce.
Keeping track of all your expanses is not an easy task to do, the best way to achieve this task is by maintaining a spending diary for few months. Write down every dollar you spend on meals, groceries, clothing, entertainment, automotive expenses, etc. This activity should help you nail down some expenses that you only guessed at when you completed the cash flow worksheet. The purpose to the cash flow worksheet to help you develop a budget, once the budget is developed; you can track where your money goes.
Set Up Goals
Where do you want to be in ten years, or fifteen years, what are your financial goals, how much money you need to save. There are 3 financial goals
- Short Term Goal: Goals that for the next six to twelve months, such as establishing an emergency fund
- Intermediate Goals: Goals for the next year or two such as new car, new home etc.
- Long-term Goals: goals for the next five to ten years, such as starting a new business etc.
Calculate how much you will need to save and invest each month to reach the above mentioned goals. You might find that you need to cut back in some areas in order to afford the things that are most important to you. Click on SAVING TIPS link and you will find dew tips on how to cut back.
Once you have your goals on paper and you have a sense of where your money is going, you can set up a monthly budget or a quarterly budget. The more conscious you are of your budget and the ways you might stray from it, the more likely it is that you stick to it.
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