Without financial knowledge, a budget and/or a financial plan in place you can have an income of 100,000 thousand dollars a year and still be living paycheck to paycheck and eventually end up in financial ruin. If a budget is not in place it is very likely to spend more money than you are making. By accounting for all income you receive and spend you are able see you’re spending habits. To assess whether you’re spending habits are good or bad, need to be improved or adjusted. For instance my family loves to eat out.
If I noticed that my family spends $400 dollars a month on fast food/eating out then I need to decide what’s essential to my household and what’s not; if spending that amount on fast food is not essential then I need to make a conscience effort to eat at home more and decide on an acceptable amount and give my family a fast food budget, a certain amount for fast food monthly. I can also add that additional money not spent on eating out to our savings account or add it to a 401k, IRA, or even pay extra on our credit cards.
By making good personal finance choices money can be saved monthly to add to retirement income. Personal finance choices affect your life now but most importantly they will affect how comfortable you are able to retire. To design a budget for earnings, spending, saving and investing a financial plan is a necessity. To create a financial plan for earnings, spending, saving and investing you must first understand these things separately, how they all work together and affect each other and that they are a necessity to laying a solid foundation for your family’s future.
First, a detailed budget is needed for a clear picture to see how much money you have, what you spend your money on, how much you’re spending and the amount left over. A budget allows you to make sure your money is going where it should. After a budget is created and you’ve cut back on the little things that aren’t essential and you’ve focused on getting out of debt by not borrowing more than you can afford to pay back and paying more than just the minimum on credit payments then it’s time to focus on a plan for saving and investing.
It is important to take advantage of tax – advantaged accounts like employer 401k plans, individual retirement accounts and special retirement accounts for the self employed. These accounts give way for credits, tax deductions and tax free earning on retirement savings. Insurance is also an important part of this process to protect your life, your capability to earn income and the roof over your head.
Courtney from Study Moose
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