I hope all our keen bloggers have completed their homework and now have a more realistic view of their finances.
Now we move onto the second step of the budgeting process. Allocating your income.
As we pointed out in the previous post, our philosophy is to treat personal finances the same way the professionals treat theirs. By saving and managing your money effectively over a twelve month period and by planning expenditure for the following twelve months, you can avoid credit card and other high interest debt and ensure that you can pay your bills on time and still afford that holiday in the sun.
Short term expenses: These are your regular monthly bills: mortgage/rent, phone, shopping, electricity, gym membership, car repayment, any loan repayment etc. These expenses will be paid monthly directly from your current account.
Medium term/long term expenses: These expenses, such as car insurance, house insurance, summer holiday, any planned home improvements, estimated doctor/ dentist visits, clothes, should be totalled for the entire year and divided by the number of months remaining in the year. This calculated amount should then be transferred from your current account into a “savings 1” account which you should set up through your bank.
Now we move onto the second step of the budgeting process. Allocating your income.
As we pointed out in the previous post, our philosophy is to treat personal finances the same way the professionals treat theirs. By saving and managing your money effectively over a twelve month period and by planning expenditure for the following twelve months, you can avoid credit card and other high interest debt and ensure that you can pay your bills on time and still afford that holiday in the sun.
Short term expenses: These are your regular monthly bills: mortgage/rent, phone, shopping, electricity, gym membership, car repayment, any loan repayment etc. These expenses will be paid monthly directly from your current account.
Medium term/long term expenses: These expenses, such as car insurance, house insurance, summer holiday, any planned home improvements, estimated doctor/ dentist visits, clothes, should be totalled for the entire year and divided by the number of months remaining in the year. This calculated amount should then be transferred from your current account into a “savings 1” account which you should set up through your bank.
By setting up a savings account where you have instant access to your funds, you will benefit from a higher interest rate on cash you will have transferred there during the year. As these bills fall due you can then pay them from this account.
Of course not all annual bills fall due in December, therefore you will need to plan the amount to be transferred based on when bills fall due i.e. should you require 1000 for your car insurance in May you would need to save 200 a month towards this.
Discretionary income and investment: The remaining amount should be transferred to a “savings 2” account. This account can be investment in pensions/fund/ property and should represent your long-term savings/retirement/investment plan.
It is very important that all short-term debt such as credit cards, personal loans, car loans be repaid BEFORE you begin investing. Remember the bank will always pay you less interest than it's charging you, that's why they make massive annual profits!!!
Starting this process as soon as possible will help you to get far greater control of your finances and hopefully create good financial habits that will ensure you continue in good financial health throughout 2008 and beyond.
Of course not all annual bills fall due in December, therefore you will need to plan the amount to be transferred based on when bills fall due i.e. should you require 1000 for your car insurance in May you would need to save 200 a month towards this.
Discretionary income and investment: The remaining amount should be transferred to a “savings 2” account. This account can be investment in pensions/fund/ property and should represent your long-term savings/retirement/investment plan.
It is very important that all short-term debt such as credit cards, personal loans, car loans be repaid BEFORE you begin investing. Remember the bank will always pay you less interest than it's charging you, that's why they make massive annual profits!!!
Starting this process as soon as possible will help you to get far greater control of your finances and hopefully create good financial habits that will ensure you continue in good financial health throughout 2008 and beyond.
No comments:
Post a Comment