Parents as Educators

Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Components of personal finance might include checking and savings accounts, credit cards and consumer loans, investments in the stock market, retirement plans, social security benefits, insurance policies, and income tax management.

A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:

1. Assessment: One's personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.

2. Setting goals: Two examples are "retire at age 65 with a personal net worth of $200,000" and "buy a house in 3 years paying a monthly mortgage servicing cost that is no more than 25% of my gross income". It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.

3. Creating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market.

4. Execution: Execution of one's personal financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.

5. Monitoring and reassessment: As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments.

Typical goals most adults have are paying off credit card and or student loan debt, retirement, college costs for children, medical expenses, and estate planning.

The role of a personal budget is to help you manage your finances and eventually become debt free. This is the dream of us all, isn't it? Most people shy away from doing the budget thing, but it is the best, most trusted and proven method for getting your finances in order. You can have your own budget completed within a couple of hours. What's holding you back?

The task of preparing your own budget is a liberating experience. You can finally see the true state of your personal finances. The benefits listed below may help encourage you in making your decision to start today. Ready to begin? Let's go.

Benefit #1. The budget focuses your thinking.
Without a budget you are not able to clearly see the extent of your spending compared to your income. This is the most important role of your budget. It will show you whether you are living within your means or whether you are living on borrowed funds. It is also the tool that can show you where all your money is being spent. This allows you to answer important questions, such as "Am I wasting money on things I don't really need?", "Is my credit card debt to blame for my predicament?" and "How much better off would I be if I could manage to be debt free?".

Benefit #2. Helps you save money and set goals.
Once you have correctly prepared your budget, it will show you how much you need to save from your income to meet your expenses and set aside some funds for emergencies. It allows you to set goals, both for the amount and the timing. For example, you may set a goal of paying $3,000 (the amount) off your credit cards, within 1 year (the timing). Once you make a commitment to yourself to make this work the budget becomes a tool that will help you stay on track.

Benefit #3. Keeps your goals in your mind.
It is easy to slip back into your old spending ways if you do not commit to making the budget work. The budget will help you keep the goals you set in your mind when you are tempted to give in. When you are out, it can help you say no to frivolous expenditure, say no to that daily coffee-shop coffee, think twice before you hand over your hard-earned money on things you don't really need and wait until that item you really want goes on sale.

Benefit #4. Helps you live within your means.
Every time you make a spending decision, it has a positive or negative impact on your financial position. The budget can show you clearly how your spending habits affect your finances in advance. Your budget can help you understand that if you spend money on this item you can't use the same money to spend on something else. You only have a finite income. If you spend more than you earn you are living on borrowed money and the cost of that money is interest. The interest on borrowed funds is most probably the cause of your financial worries.

Benefit #5. Puts you in control of your finances.
If you've prepared your budget correctly, you will see how much you have available to spend, after taking into account your debt repayments and savings requirements for your future needs. This information can take away the guilt you may have felt when purchasing some item(s) you knew you couldn't really afford. With a budget you know what you can afford and what is beyond your means. When you know you can afford an item you really want, the purchasing experience will be much more enjoyable and rewarding.

Benefit #6. - Tracks your progress toward your goals.
Once you prepare you budget it should not put into a drawer and forgotten. It should be a live document that you refer to weekly, or at least monthly. This is your guide to financial freedom. You need to check your progress towards your goals, thus giving you the incentive to keep going and achieve your financial objectives. If you make the effort and follow your plan, you'll be surprised how easy it really is to reach financial freedom

The most important thing you can do when it comes to a budget is become educated. Experience has shown that when your budget is intact, and functioning correctly, everything else takes care of itself (the bills are paid on time, retirement contributions are made, and unnecessary debt is eliminated). You Need A Budget (YNAB) Rocks! In a truly frightening kind of "I spend that much money on THAT!" way but in a great way because you can see the impact of your daily coffee habit on your car insurance payment 6 months away.

The heart of the YNAB system is a "buffer" which is comprised of last month's paychecks in order to allow you to save this month's paychecks. So the buffer is one full month's income. So I'm earning May's income and it is just pouring into my checking and sitting there. Also sitting there is all of April's income. April's income is what I'm paying my current bills with. May is accruing. And I'm budgeting for June's expenses with an eye to leftover April income instead of instantly using May's income.

I earn a good living. Yet earlier this year, several months after buying a house and getting settled back into the swing of things I couldn't escape the notion that my family was living beyond its means.

And we were. And YNAB helped me see it.

The YNAB software will allow you to spend less time managing your finances than ever before. YNAB let's you import your transactions directly into the software from you bank - you don't have to spend time each week updating your financial software to match what your bank account already says. It allows you to make your own categories for things, track anything you want to, and even contains the tax forms you will need to fill out at the end of the year.

Now that you have an accurate picture of your financial situation in front of you, it's time to do the dirty work. What can you afford, and where do you have to make cuts? The first things that need to be taken into account when determining where your money goes each month are your "Needs". Once those are accounted for (including, if at all possible, paying into a savings account), you can start adding some of your "Wants" to the list prioritize these, as it's unlikely you'll be able to accommodate them all.

Once you have a budget worked out for yourself, make sure you keep it on hand a budget is useless if you don't use it. Update it often, and feel free to make changes and alterations if you need to. Think of your budget as a fluid, living document. Your needs may change from month to month or quarter to quarter, and your budget should reflect that. Finally, don't get discouraged if you go over budget one month. Remember, it's a tool, a guideline. If you use it correctly, it will help you achieve long-term financial stability.

With YNAB you can track your spending and debt repayment over time, set goals, and do just about anything you can imagine to design your own budget. It is by far the cheapest, most sophisticated piece of financial software I have seen to date.

Every Goodbye Ain't Gone
By Jo Ann Brown - Author - Getting Started On Your 401(k) Plan

Becoming disgruntled and packing bags to move out creates a never ending revolving door at the home.
The results are the same whether the child moves out on their own, or the parents put them out. In either case, the child returns in a few weeks, months, or years, with heads bowed asking for forgiveness and expecting to move back home.

Next time, negotiate differently and sign a contract. Have a rental agreement, the same as you would sign if you were renting from someone else. List all rental terms and conditions in the contract and charge rent. If you want the lawns mowed or garbage taken out, state it as a contract condition. This will eliminate confusion later. Collect late fees the same as you'll pay if your rent is late. Honoring a rental contract teaches responsibility.
This is tough love. Parents are required to provide food and shelter only during childhood. For most, this ended on the child's 21st birthday. If conditions necessitate a prolonged housing arrangement, make sure that you and the child benefit. This is an unexpected phase two of rearing your child and it's teaching the child to be the "man". You're both finding money to save, in the meantime.

There's no shame to continue living at home with your parents if you're honoring the rental contract terms and gaining experience. The commitment to pay rent in a timely manner is an experience. There is and should be shame if you live off of your parents or anyone else for that matter. The negative connotation given to living in mom's basement will no longer apply.

I Told You So

When you're trying to decide whether to buy gas or food, the last thing you want to hear is "I told you so". Tough times may be with us longer than you think. Analyst expect gas prices to continue rising. Get ready to tighten the belt strap one more notch.

Some people have already lost their jobs and homes. Families are now making room for children and grandchildren to return home because they can no longer afford to live on their own. The economy has become Issue #1 since over 325,000 people have lost their jobs this year.

How long will it take the average person to find a job? The job market is more competitive. You may have to accept a job paying less than what you were accustomed to making. Cutting back and sacrificing may become a way of life. An emergency fund is designed to help you 3 - 6 months, during these tough times. During today's economy your emergency fund may need to last longer than 6 months.

Find a way to save money if you currently have a job. Companies close their doors, relocate, and outsource at the drop of a hat. Recently General Motors announced they will be closing plants in the US because trucks and SUV sales have decreased.
Moving back home with your parents or in with another relative becomes an additional burden to the family. Don't move in empty handed. Don't expect a relative to feed and house you free. You should always be able to offer money to cover your living expenses, the same as you would if you were on your own.

Keep on Keeping on

We'll all face setbacks and obstacles in our lifetime. How you handle the disappointments in life will determine how far you go. When confronted with disappointment, you have two choices. You can either quit or you can keep on keeping on. It takes tenacity and determination to keep moving forward.

It is said that the average person has over 30 ideas a year that, if acted upon, any one of them can make them a millionaire. When God releases an idea on this earth, you don't know if it will affect 10 people or 10 million people. However, I can guarantee you that if you don't act on that inspiration, you will never know. Don't let fear stand between you and greatness.

One well conceived idea that is acted upon can change the lives of millions. John H. Johnson started Ebony/Jet magazines with an idea and $500.00.

Just as each new day brings new mountains to climb, each new day can also bring with it the seeds of greatness. It's only a matter of planting the seeds in fertile soil and providing the nourishment needed for them to manifest. Sometimes in this life, you must be the soil that fertilizes the dreams of others. Never underestimate the importance that you play in the lives of others. You may be the key to their breakthrough.

Find your dream, not the dream life that someone picks for you. No one is going to knock on your door with a bucket full of dreams. You have to find and manifest you own dream. It's going to take hard work, dedication, and intestinal fortitude (guts).

Communication

One of the first things you need to decide as a couple is that financial security is your responsibility and no one else's. Once you make that decision, the way you think about and use money will change. You'll realize that only you are in control of your financial destiny.

You have the power to improve your financial position now and well into the future. Combining your values and finances begins by following these three steps:
Determine what's important to you.
What do you want to accomplish and experience as a couple? Do you want to have children, buy a home, travel, continue your education or pay for your children's college? Talk about the things that are truly important to you and create a list. Look beyond cars, electronics and material goods, and focus on the things that will enrich your lives and your relationship.

Prioritize the things you feel are important.
If you could only accomplish one thing, what would that be? Take the list you just created and rank the items according to your priorities.

Start living your life to support your priorities.
This is probably the most challenging step because it may require some sacrifices and compromises. But if both of you are on the same page and working toward the same goals, this step will provide the foundation on which you can build.

The extent of your sacrifices and compromises will depend on how willing you are to discuss - without emotion -- the money issues that affect you. You must talk with each other frequently to keep your journey to financial harmony from hitting a big pothole.

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