by Jet Villamor
How will I ever be able to achieve financial security when I can hardly make my ends meet? I don’t have to manage my finances; there is none to manage to start with.
One of the most common questions when talking about financial security is the question above. The reality is even worse. A lot of people don’t even want to talk about financial security because they can hardly eat three square meals a day. For many, the topic of financial security and managing personal finance is only for those who have the money already.
I have been trying to figure out how best to start managing personal finance without intimidating those who feel inadequate in terms of income issues. When one consults a true blue financial adviser, you would often hear them using some threatening terms such as, cash flow analysis, debt to income ratio, net worth statement so on and so forth. My objective now is to make managing personal finance as friendly and as less intimidating as possible.
When somebody asks you about your cash flow, or an analysis of it, it is nothing but a “budget” or a “spending plan.” It is as simple as listing down all of your expenses on a month on month basis and then subtract it from your income to obtain your net cash flow.
A student can practically start with his/her own cash flow by assuming that the monthly allowance is his/her income. From there he/she should keep track of all the expenses against that monthly allowance. Monthly allowance minus expenses should either result to: positive or negative. When the results are positive, (you are a good child to your parent – you are a model student) – you have to plan what to do with the excess. When the results are negative, (hmpt… you better be prepared for your parents’ sermon); when its negative or break even, (you should be able to convince your parents to send or give you more); the best way of course is to cut on your expenses or you can still do both (depends on the mood of your parents). If one is no longer a student and is in fact already working and the net cash flow yields negative, the same is necessary. Increase your income or reduce expenses or just do both for a better outcome.
At the very core of every basic financial planning is a good budgeting or a spending plan. Your budget is primarily your financial game plan. It is a blueprint, a map so you will arrive at your destination in the easiest and shortest time possible without hassles.
Why is a budget very important? Why is this at the heart of any financial plan? Your budget and sticking to it is your very protection against impulse buys and fiscal tragedies.
We all need to know where our hard earned money is going if we want to have a grip of our finances. Many of us have misconceptions about budgeting. Budgeting is not actually limiting, restricting or controlling what you spend money on and eliminating all the fun in our lives. It is actually about understanding about how much money we really have, what it is for and planning how best these resources (funds) can be maximized.
