Financial Planning
In any given business, budgeting and drawing of personal financial statements is vital in the health of the business, or personal financial status. Whereas some would think of doing away without budgets and personal financial statements since they find it easy to deal with their finances without the two, it would be much easier when one budgets and draws their personal financial statements.
Budgeting is important as it puts you in full control of your finances. with proper budgeting, you can avoid unexpected overspending, running short of cash when you most need it and you will cover all your expenses since budgeting makes it easy to allocate finances for different expenses. it makes you aware of what is going on with your money as well as enabling you to save for both unexpected and expected costs. a personal financial statement enables you to know your current financial status in terms of figures. This finance statement is useful in cases where one needs to apply for a loan from financial institutions e.g. banks. a personal financial statement is important as it will let you know how you are fairing financially and if you are doing poorly, looking at your statements will help you think of solutions. (Booker, 2009)
In implementing a budget, it is advisable to differentiate between needs and wants. This will make sure that you give priority to the most necessary expenses. still, your long-term goals should be kept in mind, without letting your short-term goals interfere with your long-term objectives. For your miscellaneous expenses, it is advisable to set a finance limit and sticking to it. It is important to save up for large purchases and trying as much to avoids debts, and if you have to borrow, no debts should be taken lightly. A budget should provide for emergency savings, since it is always advisable to save something for emergencies. Your emergency fund should cover your essential living needs for at least three months. (Siegel, 2011)
Budgeting methods include the notebook method, which involves keeping a money journal of everything you earn and spend. This method is the best to develop strict and effective financial trends. However, if the money journal is not balanced well, it may be possible to incur a loss or earn just very little profit. Setting up a budget for the first time may be easy but implementing may not be as successful as you thought, so it requires one to constantly change and review their budgets to adjust to changes in income and expenses as well. A financial statement will be important to make you aware of your financial position, but at times, they may have an irregular pattern due to cases of inflation or an unstable state of economy. (Siegel, 2011)
In updating financial plans, some important factors have to be considered such as estimating the capital requirements by determining the requirements of fixed assets, investment intangible assets e.g. patents, copyrights, amount required for current assets like stocks, cash etc., and cost of setup and expenses likely to be incurred on the new issue debentures and shares. One should also determine the type of sources to be acquired plus their proportion, i.e. if it is a loan one will borrow. he/she has to know whether to take a loan, you have to determine how the loan will be procured. Projecting financial statements will be important since the profit and loss account and the balance sheet helps one to determine how much funds are required. Understanding the life cycle of financial plans is important as it enables one to plan ahead and budget for the next financial plans as well as drawing the successful business plans and the ones that don’t seem to do well. This way, one can easily evaluate their businesses financial standings. (Gitman, 2010)
Personal plan for saving money
i) Setting specific long-term financial goals. Setting explicit targets such as "deposit $1,000 into savings account by end of may" rather than having general targets like "contribute to savings account".
ii) Putting raises and bonuses into debt payments or into savings account if i can survive off my paycheck.
iii) Avoiding miscellaneous expenses, e.g. reduction of entertainment and other luxurious wants.
iv) Having a savings account where every penny saved goes into that account.
v) Keeping a well-balanced budget. This way it is easy to cater for all expenses without overspending. (Gitman, 2010)
Personal plan for managing my cash each month
i) Drawing a budget. This will ensure my money is spent appropriately and in my own desired manner.
ii) Having priorities. This ensures that the most important expenses are met with first before proceeding to the less important.
iii) Drawing personal financial statements. this helps in identifying your financial standings and helps you to plan wisely for the money.
iv) Avoiding debts and loans. In this way, money that would be used to pay the loans is allocated to other important expenses. if debts have to be incurred, they should not be ignored. (Gitman, 2010)
Personal plan for purchasing a car
i) Decide on the type of a car I want
ii) Assess the cost of the car, and whether my financial status fits my need.
iii) Do a comparison of other types or models of my preference, focusing on the advantages and disadvantages of each.
iv) Settle on the car that best suits my needs, one i can afford to pay for and maintain. (Gitman, 2010)
Personal plan for purchasing a home.
i) Research on advertisements on real estates in real estates journals.
ii) Lay my preferences on what type of a house i want, size, and suitability to my needs.
iii) Consider factors such as security, infrastructure, and climatic conditions.
iv) Settle on a house i can comfortably pay for, or in the case of mortgages, settle on one whose mortgages won’t distort my financial nature. (Gitman, 2010)
References
Booker, J. (2009). Financial Planning Fundamentals. New York: McGraw Hill press.
Gitman, L. (2010). Personal Financial Planning. New York: Black Well publishers.
Siegel, J. (2011). Budgeting Basics and Beyond. New Jersey: Prentice hall.
