Planning for Your Life
Learning how (and why) to manage your money is an important foundation for financial success. These basics will help you develop your own money management system.
Balancing your checkbook
To ensure that your records match the bank's records of your checking account, it is important to balance your checkbook each month.
First, find your starting number by updating your checkbook register and comparing it to your current bank statement. Then subtract the amounts of the checks that do not appear on your current statement. Finally, add the deposits that have been made that do not show up on the statement. This gives you your balance, which should match the balance shown on your statement.
If it doesn't, double check the math and entries in your checkbook register. If it still doesn't match, make sure that the dollar amounts in the register match the amounts on the statement. Then, compare your register with the deposit slips and your statement… it's possible that you didn't record a transaction.
A quick tip: if your balance is off by a whole number, first check your addition and subtraction… a miscalculation could be the culprit.
Creating a budget
Whatever the state of your financial life, developing a sensible budget allows you to take control of your money. Budgeting is about planning, and planning is crucial to produce a desired result. A budget can show you exactly where your finances stand and allow you to plan for major purchases or pay off debt.
Creating a budget generally requires five steps:
- Determine your total monthly income
- Include all types of income, from salaries/wages to alimony, child support or retirement income
- Determine your total monthly expenses
- Include housing, communication (phone, internet), transportation (car payments, insurance), utilities (electric, water, gas), entertainment, groceries, credit card bills, etc.
- Analyze your expenses
- Divide your expenses into categories: Fixed, Variable or Discretionary
- Fixed expenses are those which stay the same every month and don't go away, like a mortgage or car payment.
- Variable expenses are ones that can vary depending on your activities but can't be eliminated. For instance, you may be able to clip coupons to reduce your grocery bill, but you'll always incur some sort of food expense each month.
- Discretionary expenses are the ones over which you have the most control. These are typically things you "want" rather than you "need."
- Divide your expenses into categories: Fixed, Variable or Discretionary
- Evaluate your spending and look for ways to cut back
- Are your expenses greater than your income? Look at your discretionary expenses. While it isn't the most fun way to cut back on expenses, these are usually the easiest to live without.
- Track your spending on a regular basis
- Set limits for yourself with your monthly income. If you plan to spend $200 per month on groceries, and after a few months you realize that you are actually spending $400, you'll need to find a way to either reduce the amount you are spending, or reduce your spending in another area to cover this increased cost. By monitoring this regularly, you can set comfortable guidelines for each of your expenses. Just stick to it to accomplish your goals.
What is credit and why is it important?
Credit is money given to a borrower by a lender, which the borrower promises to repay over a period of time. By repaying these loans on a timely basis, you increase the likelihood of "good credit." Having good credit gives you purchasing power, especially for large purchases like an automobile or home. In today's age of information, your credit report is available to creditors almost instantaneously at the push of a button.
Creditors use a variety of mathematical formulas to determine your credit rating. Your rating is based on factors such as how well you have paid debts in the past, if you've missed payments, your length of employment, how long you've lived in the same place, and many other factors. Your credit history is a measure of how reliable you are when it comes to paying your bills, and your rating is established over time by previous payment patterns.
A credit report represents your financial habits for the past 10 years or so, including information such as employment history, repayment history and salary history. Good credit ratings are achieved with prudent financial management. Because good credit can take time and effort to achieve but can be ruined relatively quickly, it's important to be aware of and safeguard your credit.
*The information provided on this page should not be considered financial advice, as we cannot provide this advice, please consult a financial advisor for more information.
