Can You Be a Better Spender?

Many people think that if they live on a strict financial "budget":/articles/budgeting.html, they can't spend money on anything fun anymore. Nothing could be further from the truth. It is not just about stashing your money away every month and never enjoying the fruits of your hard labour. We work hard to earn our money so we certainly should enjoy some of it as well. We just have to learn how to do so wisely.

Understand it is just stuff

How many times haven't we just had to have an item only to finally buy it and it wasn't quite what we thought it would be? One of the key principles to spending wisely is to remember that this stuff is just that, stuff. Nice cars still get old and break down. Electronic goods still become outdated, and even beautiful homes need to be maintained and repaired over time. Nothing we buy will ever bring us true happiness. Owning nice stuff isn't wrong, but you just have to remember where that "stuff" falls in priority to the rest of your life.

Don't forget the big picture

Another key factor in spending money wisely is to understand what the "opportunity cost" might be. If you are more concerned with what you're driving or what designer labels you're wearing than you are with your retirement planning, you might just end up working much longer than you ever planned on doing. When we make decisions to spend some money, that money is no longer available to be used for other future opportunities. I am not suggesting that you never buy anything nice and just stash all your money away in investments. Instead, I am encouraging you to remember to consider the big picture of what you want to achieve in the long run and see if your spending habits are matching up efficiently to those priorities.

Have a plan

Have a plan for your money. Most people don't just get in their car and drive off without some kind of idea of where they are going. We usually have a general idea of where we are going and the most direct way to get there. Sure we may stop off here and there to enjoy some attractions or enjoy the scenery along the way, but at the end of the day, our goal is to get wherever it is we are going. The same is true for spending your money. Have a plan. Tell your money what it is going to be doing and then stick to that plan. If there's something you just have to have, then consult the plan and make the necessary adjustments to accommodate that one thing. Remember however that the goal of dealing with your money is to enjoy the process of doing so. Make sure to have fun but avoid unnecessary things that might just cost you more in the end.

Run Your Household like a Corporate Business

Running your everyday life and making ends meet at the end of the day is an exhausting task, but it’s one that has to be done. You spend so much time and energy concentrating on your job, family and dealing with everyday events and stress that your personal finances gets left behind. How many times have you not been shocked to find that there just isn’t enough money going around to cover all the bills and unexpected emergencies that just seem to appear out of nowhere. That’s why you need to become your family's Chief Financial manager.

Here are my five easy guidelines for treating your personal finances like a business:

Be Your Own Board of Directors.

To make good decisions, you must know what you're trying to achieve. Always keep your long term goals in mind. In a business the Board of Directors will write a mission statement to keep the company on track towards achieving its goals. At home, it's up to you to define your mission and make sure you're fulfilling it by writing down your goals. Not just your financial goals either, but your "life" goals because, let's face it, most goals involve money. So sit down and jot down a few things you plan to do when you have some spare cash or those things you know needs to be sorted out as soon as possible. Does your car need a service soon? How much will this cost? How much would you need to set aside each month to save up for this to happen? Get the idea?

Know Your Operating Costs.

Keep on top of your monthly income and expenses by knowing exactly where everything is going. Determine how much your income is and how much you spend on a monthly basis on average.

Businesses know exactly what’s going on since they have to work to strict budgets and make their future projections according to prior year’s spending patterns. There’s a good chance that you don’t know what it costs to run your household without going broke on a monthly basis. By making out a detailed budget you will start to understand what happens to your money from month to month and that alone will empower you to budget better by cutting out or reducing the costs of unnecessary spending habits.

Know Your Net Worth.

Companies will measure progress toward achieving their goals through detailed balance sheets which list all their assets and liabilities. Compile your own balance sheet listing everything that you own and what it’s worth. For example; list your house (if you own it) checking and savings accounts, investments, vehicles, etc. then subtract everything you owe like personal loans, outstanding credit card balances etc. Now ask yourself - "If I had to sell everything today, how much cash could I get?" That will give you an idea of what you are worth when you add up any ready cash and investments you can sell. Review your net worth at least every four months to make sure you're moving towards achieving your personal goals. Without this step, you will only discover the impact of your money decisions probably when it's too late.

Forecast the Possible Results of Your Financial Decisions.

When a business makes important decisions, they use a future planning process where they look at the possible financial impact of one choice compared to another. You can use the same planning process to make smarter money decisions. For any choice you need to make, pick two options, and then look at what each answer would do to your cash flow and net worth. Bad choices put you farther away from your goals. Good choices get you closer much sooner.

Give Your Family an Annual Financial Report

Companies report their outcomes to their shareholders in their annual reports. You need to review your list of priorities with your shareholders - your family members, every year. Make them part of the solution. By involving your family members you will achieve your goals faster and easier than trying to achieve them on your own. Get answers to the goals you set for your family. Ask yourself this; Have your spending patterns changed? Did you spend less than you earned? Did you save as much as you planned? If you followed these five steps, your household will be a successful company in no time!