Monday, December 29, 2008

2009, a new financial year

I've always thought that this is a great time period during the year to really have a sharp look at our personal finances and tweak, refresh, and look ahead for the new year. If you have been thinking about getting your financial house in order for some time now, I believe you should act right now. This short time period between Christmas and the new working year is a great time to:
  • Start a budget, review your budget, or alter your budget to fit your goals and needs

We don't strictly follow a budget in the truest sense of the word. For example we are not careful to only spend $120 on groceries every week. What I like budgets for is that I have Excel spit out a number (income minus expected expenses) ($B). This number is the main reason why I run a budget. I then have this number in mind as a measuring stick to determine if we had a good month or not for savings. If we are not coming close to saving $B, then there better be a good reason, or something is wrong with the budget. If we saved $B for the month, then we are on track and are doing well. I also know my budget is accurate when we can save $B without anything unexpected occurring during the month.

Budgets drafted in Excel like this are also handy for:

  • seeing what percentage of your spending is going where
  • determining what percentage of your income you are saving
  • determining what percentage of your income goes toward your mortgage etc.
  • showing the affect going down to one vehicle would have on our savings level

  • Create some sort of financial vision for 2009 and write it down

You should have some rough idea of what you would like to accomplish financially in 2009. Whether you want to use your excess funds to replace your home's windows and also put a new roof on, or you want to significantly bolster your child's education plan throughout the year, you should paint a picture in your mind and on paper. I have not formally written anything down yet, but I know roughly what 2009 will look like for us financially before the year has begun.

Perhaps you could assign a value to what you want to accomplish, "I will save $10,000 cash in 2009" or "I will pay of 20% of my total debt in 2009", whatever it is write it down and it will drive you to work toward achieving your vision. It helps to state your financial vision statements in an affirmative way to solidify your commitment. It is not 'I want to....' it is 'I will.....' or even the stronger 'I have...'. Never base short term visions or goals on a variable that you have no control over like an extra large bonus at work or stock market returns.

If you are unhappy with your financial situation or state of organization, and you have never drafted a budget or set goals or visions for the upcoming year or years, I'd encourage you to do so. You might just gain some confidence in that you at least know where you are headed and you can gauge your progress toward getting there.

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