Money: everyone has to spend it, and all but one-percent of us have to spend it carefully. For those of us who are not independently wealthy, choosing how we spend our money is an ongoing necessary task that ensures our financial survival. Everyday, we are forced to consult our budgets before purchasing a coffee, a night on the town or electronics. Every year, we reevaluate our financial situations to forecast our spending and plan major purchases, such as vehicles, houses and vacations. This means that those who plan for their purchases are financially prosperous while those who have no plan for their purchases are financially troubled. But what exactly does good spending verses bad spending look like?
Intelligent spending is its own science. It may be a complex science or a basic science, but simply having respect for it as a science sets the good spenders apart from the bad spenders. Everyone’s individual science of spending looks different depending on factors such as income, cost of living, tax bracket, benefits and other financial variables. But everyone’s budget is also fluid, meaning there is an element of choice involved, and those who choose wisely come out on top. When spending decisions are made considering long term and short term financial goals, and when the spender uses restraint and respect for saving money, they are spending wisely.
Bad spending, on the other hand, is usually marked by a capricious attitude toward money. Interestingly, psychological factors are some of the strongest influences toward bad spending. Sometimes people are raised without an appreciation of where money comes from and they enter adulthood with bad spending habits. Or perhaps their parents simply never taught them how to budget, so the concept of money planning is foreign and unfamiliar. This type of spender either does not know how to allocate money properly or does not even try, and ends up in financial crisis’ repeatedly. This type of spending should be avoided as it usually proves to be a burden on the bad spender’s friends and family, who are left bailing the individual out at their own expense.
Saving money is a necessary life practice to embrace. Every financially prosperous person on earth has practiced saving money at some point. Saving money is both a practice and an ethic. It requires a skillful execution of a budget as well as a strong value for money saving. Every example of a well made budget includes a portion that is designated to savings, and the individual who created the budget knows the value of saving money and therefore abides by it. Savings is needed for retirement, healthcare costs, emergencies, vacations or simply for the purpose of earning interest. Whether it is for a specific purpose or just to have money around, saving money is a beneficial and necessary practice to be in.
Of course, not everyone can save the same amount or in the same proportions because people have a minimum amount of money that they have to spend on their cost of living. However, almost anyone can save some amount of money, and the more a person can save, the better off they are. To determine how much you can save, create a detailed budget of your income minus your expenditures and see what is leftover. Of that amount, determine the different levels of savings to distribute it between: monthly expenditure overflow, emergencies and healthcare, retirement or interest earning. Being diligent in saving money can be challenging and requires a lot of will power, but those who are steadfast in their savings goals will reap a great deal of financial benefit.
Those who never become accustomed to the practice of saving money are financially shooting themselves in the foot. Not only is savings necessary for retirement but it is also necessary for unforeseen circumstances that arise in life. Emergencies are much less a possibility than they are an eventuality, so those who are not prepared for them will go into debt and sometimes financial crisis. In addition, the cost of a comfortable retirement in North America is estimated at one-million dollars, which means that people have to be saving a great deal more than they did in the past in order to live off of when they are elderly.
Having short term financial goals is just as important as having long term financial goals. They work together to accomplish complimentary financial outcomes. Short term financial goals are the building blocks for long term financial goals. Short term financial goals may look like a number of things. Every person’s goals look different depending on their income and their cost of living. Several common short term financial goals that anyone can benefit from are as follows.
Being aware of your own personal cash flow is crucial to good management of short term financial goals. In order to understand where your money comes from and where it goes, it is important to take inventory of your money situation by writing it all down in exact figures. This is the first step to understanding your own financial trends.
Think about what your short term financial goals are and write them down so that they can be at the center of your budget. Your financial goals are a reflection of what you personally value and it is important to be organized about them.
Making yourself a budget plan is necessary to good money management. Setting dollar amounts for how much you can spend on things and where to cut yourself off is the cornerstone to being in control of your money. It takes a little bit of basic math skill to execute a budget properly.
Being disciplined with money when it comes to spending and being aware of where your money goes every day is critical to your short term financial goals. Money discipline is a personal ethic but it is one that people cannot afford to overlook. If you tend to be undisciplined with money, now is the time to change your habits and reverse your irresponsible spending.
The idea of balancing your checkbook is a bit antiquated since people hardly use checks anymore, but comparing your intended budget to your spending is a vital part of managing short term financial goals. By comparing your financial plan to your actual spending, you will come to understand what works and what does not work for you, financially speaking.
Meeting long term financial goals is something everyone desires. While they are not as concrete as short term financial goals, they are equally as essential. Long term financial goals are comparable to a person’s dreams of where they will be in the future. People should be more flexible with their long term financial goals than they are with their short term financial goals because life can and will throw a great many curve balls and people must be prepared to make adjustments. However, simply setting a long term financial goal has a huge impact on the way that a person works for it. A person who sets long term financial goals is much more likely to have financial prosperity than a person who doesn’t.
The first step in setting financial goals is determining what you want in life that is going to cost money. People have a variety of wishes, wants and dreams. Some have a price tag and some do not. For the ones that do, long term financial goals must be set. This could be something grandiose such as owning a mansion, being independently wealthy or travelling the world. Or it could be something humble such as paying off a house, having a decent retirement or buying an RV. Knowing yourself and your own desires is very important to determining these goals. It is important to be aware of them because they will be the impetus for financial responsibility in your life.
Next, forming a plan for how to achieve your long term financial goals is critical to their success. This step is not quite like balancing a checkbook because no one knows for sure what their financial situation will be like many years into the future. Instead of tracing the exact dollars and cents that will lead you to your financial goals, try setting milestone goals for yourself. For example, if you want to retire at the age of 50, calculate how much money you will need by that age to retire into the quality of life you consider comfortable in order to estimate how much you need to make and how much you need to save.