Wednesday, January 16, 2008

A Spending Plan - Your Key to Making It in 2008

Many times when someone mentions a spending plan or budget people get nervous and run and hide. A spending plan is an essential component is getting out of debt and achieving many financial goals such as: start a savings account, paying for your children's college education, planning for retirement, planning for a family vacation, starting a business and more. Many economic experts state that we are in or almost in a recession. It is more important now in 2008 than ever to properly manage your finances and ensure you have an emergency fund to make it through these tough times.

A spending plan is simply a recording or documented list of all of your monthly expenses and monthly income. Once you record all of your spending for the month you can readily see what areas need to be addressed. A good guide for monitoring your monthly spending plan is as follows:

1. 35% of your monthly net income should be spent on housing (includes bills)
2. 10% of your monthly net income should go towards savings
3. 15% of your monthly net income should go towards transportation
4. 15% of your monthly net income should account for debt
5. 25% of your monthly net income should go towards other expenses

You can create your spending plan manually using pen and paper, a spreadsheet or using a software tool such as Quicken or Microsoft Money. Whatever method you use stick to it and use it every month.

Another component to making it through 2008 is to create an emergency fund or savings account. A savings account is not an investment account. A savings account is money that is available in the event an unexpected expense occurs. This will prevent you from using a credit card and will reduce stress that can be caused by having financial problems. In addition making a habit of saving money pays off in the long run because you will have money to buy things that you need and want without having to get a payday loan, cash advance or buying rent-to-own items.

A great way to save money without thinking about it is to deposit money directly into a savings account through your bank. This can be done by contacting the bank where you have direct deposit and request an additional amount of money be deposited into a bank savings account.

They are several vehicles that can help you save money such as: savings accounts, online accounts, money market accounts, money market funds and certificate of deposits (CDs). Do research and comparison shop for the bank that provides the best options for your savings goals.

Another component to making it in 2008 is to create financial goals. Your financial goals provide accountability and direction for your savings and how the money will be used. You can create short-term and long-term savings goals. A short-term goal can be to save $100 a month. A long-term goal can be to get out of debt. Whatever your goals stay focused on them and set a deadline date for each goal to help you stay on track with your spending plan.

Using the three components identified: creating a spending plan, creating financial goals, and creating a savings account will help you make it through 2008 with less stress and more financial security.


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