Many people with huge and wide stream of income still go broke, why?
They go broke because of lack of Financial Planning.
Being broke does not mean having low income but not being able to manage the income to fully Carter for our expenses for a particular period
Like companies and business entities, individuals also need to always do their financial planning and projections monthly. It is not until someone is an Accountant before being prudent with one’s resources. And maybe Accountants are believed to be stingy because of their prudency towards their resources.
Nobody dispute the fact that there may be some factors beyond our control that can make us go broke BUT we should also work on the ones we can control so at least we can be on the track.
Highlighted below are 5 basic financial practices that can help us guide our spending in alliance with our income.
1. Monthly Budget or Budgetary.
Why do we think every country prepares budget yearly? They do bacause they want to know their financial capabilities so they can know which projects to be done and which not to be executed in a particular year, also to project what will be the income and the associated expenses for a year and whether they will result to borrowing or not.
As Individuals, that is the way we suppose to be planning our monthly financials and make sure our budgeted expenses doesn’t outweigh our projected income (Salary, Revenue, other income and anywhere we might be deriving money steadily).
2. Shot term Budget.
After the preparation of monthly budget (Long term) which will comprise the total income and expenses for a month, we still need to further break it down to Short term budget. By this we break our expenses down to weekly obligations, this simply means dividing our total expenses by 4 since we have 4 weeks in a month. And with this we will be able to control, monitor and track our expenses.
This accounts for Variation and difference between our budgeted expenses and Actual expenses for a month.
Contingent expenses are those expenses we incur but not in our financial plan or budget.
We have control over some while some are out of our control.
– Example of the ones under control are:
Extra expenses on clothing (trend) due to taste
– Additional spending on luxuries.
Example of those ones out of our control are:
– Hospital bills; no one will ever plan to fall sick
– Other uncontrollable and unavoidable expenses not in our budget.
We should try as much as possible to avoid and control the ones we can control and avoid and also make sure our unavoidable ones do not go beyond our savings if possible.
At every point in time, we must always be prudent with our spending and always match our expenses to our income.
Nobody says we should not enjoy live and be extravagant but we must live within our means so as not to result to borrowing every time.
Being extravagant has class and we must abide by it. Extragancy of someone with #1m income is a basic spending of someone with #10m Income. So don’t go and buy iPhone 11 pro when you know the implications of it will be huge on your networth.
5. Having more than one bank account
It is very helpful to have at least 2 bank accounts. One for operations and the other for savings.
The one for operation will at every point in time contain running expenses for the week or month. Reimbursement will always be transferred to this account at the beginning of every month.
While the one for Savings will be containing our savings and can only be touched in cases of CONTINGENCY. Savings should be transferred to this one immediately our monthly income (Salary or otherwise) hits our account.
I believe with those little points above, we should be able to plan our financials in the coming months.
Have you been practicing these before?
Comment YES or NO.
I WANT THIS TO BE INTERACTIVE, COMMENT THOSE ONES YOU HAVE BEEN PRACTICING AND THOSE YOU HAVE NOT BEEN PRACTICING OUT OF THOS MEASURES.
IF YOU NEED ANY ADVICE OR GUIDANCE ON THOSE POINTS, TELL US IN THE COMMENT.
Please I beg you to share with people to educate them on their financial planning.