Aging Capriciously

One of my major regrets in life is finding out late how important financial planning is. I realize that our schools cannot teach us everything, but I think all students should have some training in financial planning at least by the time they get out of college. If you want to manage your life well, you must have a financial plan. A financial plan will help to insure that you have the money to spend when you have the time to spend it. There is no sense having a lot of extra time if you do not have the money to go anywhere or do anything. Although staying at home can be relaxing and fun, we need to have the choice of doing nothing or something. Money gives us this choice. I have always liked the quote that “love makes the world go round, but money greases the wheels.”

It has been said that the great Duke of Wellington had a goal to make enough money when he was young so that he would be financially secure enough to make his own decisions when he was older. When you cannot afford to quit your job or you do not have the resources to feel comfortable, you must rely on the good will of others perhaps to a greater extent than you might desire. This does not mean that you will not need others or that you will not need to work. However, having enough in the bank to cover your bills and expenses for several months might just mean the security to start a new job or to even start that business you had long dreamed about.

You do not have to be a financial planner to have a financial plan. The major purpose of a financial plan is the same as for a business. It is to chart your income and expenses. A financial plan should have both current and projected expenses and it should be as detailed as possible. I like to have a list of projected or “desired” expenses to itemize those things that I am planning to buy in the future. My projected expenses also include bills that will come due someplace down the road such as my home taxes, car registrations and even new running shoes. A good business would not think of running without an Income Statement, Balance Sheet and Cash Flow Analysis. These same forms in a much simplified version can help you to control your expenses and even put money away for your future.

You can start your financial plan with using a software program like Moneydance or RichOrPoor or you can simply use an Excel spreadsheet. Here is a link to a review of the top budget software packages for 2012 – http://money-software-review.toptenreviews.com – These software programs will cost you from 30 dollars to sixty dollars but will be worth the cost. If you choose to use Excel, it is easy to use and you can later migrate to a more sophisticated package. We often use Mint, which gives us mobile phone notices of upcoming deposits, withdrawals and bills.

Using Excel, in one column, list all your monthly debts, for instance, Visa or insurance or mortgage. In the columns across the top, you should put each month from the time you start your plan. Your bills will be very similar from month to month but you can list your monthly bills and expenses for the next 12 months by cutting and pasting from the first month you start your plan. If you know of any differences that are coming up, you can place these figures in the appropriate box. Fill the boxes for the next upcoming month with any fixed or essential expenses. You should also list all expected income on this page and keep a monthly total of your checks or cash received. Your income should either match or exceed your expenses over a six month period or you can expect to have cash flow or credit problems. Credit debt is always something that should be minimized or paid back as soon as possible. Few businesses can afford a large credit debt and fewer people can afford this type of debt. The interest is just to great and it will eat your budget up in no time.

You can then use another page to set up a “forecast” for projected expenses that are desirable but not essential. For instance, I may want to buy a computer or a new suit. I will put the item in the left hand column and then under a future month, I may budget the item in. I will try to find a way to project the expense out so that I can manage my money to cover the expense and not rely on loans or credit. You can use this second page for items like clothes, vacations, concerts etc. By having both sheets you can see first what you must pay and then second what you would like to buy. If you do not have the money to cover these future expenses then you may need to think more about what are your basic needs and what are your wants. I may not need a new computer or suit. On the other hand, if my work derives from a computer, I may need a new computer. The suit may be a “want” which I can put off for another year. We all need to have a clear distinction between wants and needs.

I also add a third spreadsheet where I track large recurring debts such as home equity loans or credit card loans. This third spreadsheet helps me track my monthly payments on these debts and how much I have left to pay on each debt. Right now we have only a couple of these debts one of which is due to our taking the payment of a school loan for our daughter. I put down the total amount of the loan, the loan payments and then I use my Excel to work backwards to see when the loan will be paid off. My goal is to make steady payments on any loans and whenever possible to pay them off before the final date. This way I can minimize interest payments on the loans.

Well, does this sound simple? It is! But the benefits are huge. You will take charge of your life and your finances. You will know where your money is going. You will be able to prioritize and spend your money on the things that are most important and eventually you will be debt free and have few financial worries. It really works. Have you started yet? Why not? What is holding you back?

By the way, I am not saying that any plan will make you rich. But being debt free and financially secure are not the same as being rich. There are many rich people who are neither and who do not sleep well at night. My goal is to be able to pay my bills, remain healthy and have a fun life. As I go out this morning to run the Desert trails up at Casa Grande Mountain, I would not trade these morning jogs for all the money in the world. Money is important but you must manage your money and not let your money manage you.