The Family Budget

Uncertainty in the workplace, early retirements and the desire for financial independence are just some of the factors that have contributed to the increased popularity of financial planning

Cashflow measuring and successful budgeting are critical in achieving financial objectives and may be most important elements in successful planning

While measuring your cashflow and budgeting can be challenging tasks, they provide important information on on which you will base your decisions.
If is best to be honest with yourself and record your spending habits as actually are. This information can help you find ways of increasing your savings or paying off debts sooner.
How you adjust your spending habits and design your budget will depend on your financial goals. Setting and prioritizing your goals will help you determine how to allocate your income. Goal setting is a personal choice, but some basic cashflow goals are

  • Ensuring funds are available to meet ongoing expenses
  • Ensuring contingency funds are available to meet unexpected expenses
  • Minimizing unproductive investments
  • Avoiding liquidity problems.

The following are tips than may be helpful to you in achieving your ultimate goal of financial independence.

1. Set up a spending plan
The “where does the money go” question frequently comes up because of spending on a day-to-day basis, without any sort of plan for taking care of needs and wants. A money management program can help you use your money wisely and reach your goals. Establish and prioritize your goals, short and long term. Review your present spending pattern and make adjustments where possible to contribute toward your goals.

2. Set up a cash reserve
Financial experts recommend that every family have a cash reserve of at least three moments expenses to meet unexpected costs. Acquiring this means developing good saving habits and demonstrating self-restraint in spending knowing you have a cushion of savings will give your greater security and more flexibility while working towards you financial goals.

3. Develop large expense provisions
We all have large, predictable obligations that come due at irregular intervals during the year. A large, forgotten insurance premium or tax bill can cause financial chaos if you’ve neglected to accumulate sufficient find. Divide your large annual. Expenses into 12 equal installments and save for them over the course of the year. The same practice can be applied to save funds for larger purchases due in a few years time, such as new appliances.

4. Limit your use of credit
Credit’s pitfall in the families overextend themselves and become obligated to larger payments than they can afford, A consolidation loan may help to improve cashflow. Remember that credit as you do for goods and services, and be sure to know the real cost of credit. The payments must fit into your budget and don’t take on more than you can handle. Keep track of expenditures made with charge accounts or credit cards, and have a definit target date for paying the debt off before credit is used for making the purchase.

5.Use windfalls constructively
Most families tend to spend the extra money on luxuries of various financial uses.
For example, paying down a mortgage by a thousand dollars can save significant interest over the term of the mortgage. There are many ways to put windfalls to constructive use.
Thought should be given to applying some of the windfall to financial needs and some for luxuries. Pay raises to your savings before you get in the habit of spending the increase will improve your ability to save.

6.Eliminate spending leaks
The convenience of quick access to our money through ATM’s etc. has made impulse buying and frittering away small amounts here and there on little things a dramatic drain on our resources. Write down every cent you spend for a your spending leaks. Using an allowance can help minimize this problem and assist you to forecast spending patterns.

7. Evaluate the cost of ownership
The purchase price is not the only cost of ownership, there is on going maintenance and sometimes financing costs. Be sure to reflect on all the possible hidden costs of a purchase, and also remember that there is a difference between a purchase and an investment. One could go up in value while the other is consumed and eventually must be replaced.

8. Make saving a habit
“Pay yourself fist”. It is never too early to begin saving for your financial independence. Don’t be discouraged if the amount you can save is small. Five dollars saved every week will be more than $500 in less than two years. It is important to develop the habit and maintain it even when we may be focused on paying down debt.
(David Acbeson, B.Com., C.F.P. is a Chartered Financial Planner with the Civil Service Co-operative Credit Society, Limited. The CS CO-OP offers a Financial Planning Service that specializes in individual plans and educational seminars for government departments. For more information of if you would like a cashflow worksheet, Please call (613) 560-6675)

Financial Planning Tips: A look at cashflow and budgeting