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1. Keep it Simple Financial Planning (Part Three)
2. Keep-It-Simple Financial Planning (Part Two)
3. Keep-It-Simple Financial Planning (Part One)

The first step in creating a budget is to gather your financial information. You will need the following:

• Income
• Expenses

Regular Income items are paychecks, or other sources of income which repeat on a regular basis, like every month.

Irregular Income items are income which you get regularly, but not in a fixed amount. One possible source of Irregular Income would be profits from a small business.

I suggest you use a simple method of forecasting your irregular income, by averaging your last 12 months of irregular income. This will let you approximative what your income will be. You then put aside extra income above this amount to help cover the times when you bring in less.

The next step in the creation of a budget will be to gather, and organize your expenses. There are monthly expenses, and there are expenses which occur less frequently. Organize all of these into categories.

When it comes to bills which reappear less than every full month make a decision, on if you are going to budget a monthly amount for them, or make a special budget for those months.

Some possible expenses are:

• Housing and Utility Expenses
  • Mortgage payment or rent
  • Insurance
  • Taxes
  • Electric
  • Natural gas
  • Water
  • Garbage pick-up
• Common Household Expenses
  • Groceries
  • Cleaning supplies
  • Laundry
  • Dry cleaning
  • Home improvement projects
  • Towels, linens, etc.
  • Clothing
• Transportation
  • Car payments
  • Insurance
  • Gas
  • Routine Maintenance
  • Repairs
  • Air travel
  • Rental cars
  • Public transportation
• Entertainment
  • Cable TV or satellite service
  • Dining out
  • Sporting events
  • Lessons and recitals
  • Clubs
• Communication
  • Telephone
  • Internet access
  • Cellular phone
  • Voice mail, etc.
• Health and Beauty
  • Hair cuts, perms, etc.
  • Make-up
  • Medical, dental, vision
  • Perscriptions
  • Weight loss, diet products
  • Nutritional supplements
• Debt
  • Credit Card Payments
  • Loans Payments
• Other Possible Items
  • Child care
  • Items for baby/elderly
  • Allowances for children
  • Book clubs, magazines, music, etc.
  • Fast food
  • Investments
  • Vacation
  • Spending money
  • Donations to church or charity
  • Gifts (Christmas, birthdays, anniversary, etc.)
  • Emergency fund
  • Coffee, soda, cigarettes, etc.

Now, add all income items together, and add all expense items together.

Now subtract expenses from income. If there is a positive amount, or zero left you are done!

If there is a negative amount left you need to drop some expenses quick. Some quick items you can usually drop are:

• Internet
• Cable/Satellite TV
• Anything which is not a necessity

Remember, you need to review your budget. Every month at the least, or every pay day. This lets your budget be responsive to your changing financial situation.

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Related posts:

1. Keep-It-Simple Financial Planning (Part One)
2. Keep-It-Simple Financial Planning (Part Two)
3. Keep-It-Simple Financial Planning (Part 3) Expanded

From the link above:

Title : The Richest Man in Babylon
Author : George S. Clason
Publisher : Signet/New American Library
ISBN : 0-451-20536-7
Pages : 160

This book is not a hard, or a long read, and it packed with principles which will lead people into financial stability!  If you do not have time to read the book, here it is with the principles pulled out.

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1. Keep it Simple Financial Planning (Part Three)

The first rule of financial planning is Do Not Go into More Debt. Plan to spend only as much as you bring in every month (or less). If you use your credit cards make sure new balances are paid in full each month. Credit cards become crutches and all too often we find ourselves not having enough balance on the card when a true emergency arrives. However, if you find it hard to wean yourself off the credit card, then make them hard to use. Wrap them in paper, and freeze them in ice. Or slide them in an envelope that gets tucked away in your filing cabinet. Because the cards are no longer accessible, you become forced to consider how you use your cards.

When planning for financial freedom, print out a copy of the List of Debts form to list all of your liabilities that are debts. Debts involve paying off balances, like credit cards, automotive loans, and Mortgages. Some debts, like automotive loans, and mortgages have set periods of time before they get paid off. Some, like credit cards, do not necessarily have a period of time that they will last. List the debt’s name, The Annual Percentage Rate (A.P.R.), its balance, and minimum payment. This form lets you look at each loan you have as a whole and decide on a payment plan for each type.

Before you begin to pay the debtors listed on your form, consider how much you can afford to pay, and decide on the amount above the minimum payment that you want to pay. Spending a little more than the minimum balance for all your debt can help speed up the pay off of your loans. Now organize the debts from the one with the lowest balance to the one with the greatest. Doing so allows you to feel good about paying off your debts and helps to reinforce your plan. As the lower balanced debts become paid in full, you see how well your plan works.

Follow these Steps for each debt.

1. Print off an Amortization Table.
2. Enter your beginning balance.
3. Enter your Yearly Interest Rate.
4. Divide you Yearly Interest Rate by 12 to get your Monthly Rate, and Enter That in the Monthly Rate Box.
5. Enter the Minimum Payment in the Minimum Payment Box.
6. Enter 12 in Periods a Year for Monthly Debts.
7. Multiply the number of years left by the number of periods this year,
   if your loans have a specific number of years left, and enter this in the Periods in Loan box.
8. Enter the balance as your ending balance in Period Zero.
9. List the ending balance from the previous period as the beginning balance for the current period.
10. Enter your minimum payment into the Payment section.
11. Multiply the beginning balance of the current period by the periodic interest rate, and enter that into the interest section of the current period.
12. Subtract the interest from the payment. Put that value into Principle.
13. Decide on an extra payment for the first loan, if applicable.
14. Subtract the principle from the beginning balance, and subtract any extra payments you’re going to make from the balance. This becomes your Ending
    Balance.
15. Follow this process moving through periods in the loan until the loan reaches a balance of zero.

I have included a spreadsheet that shows how to do these steps at the end of this article.

As you pay off individual loans, add the payment from each of the loans that were paid off to the extra payment of the current loan. Once you have amortized each of the loans use the Debt Elimination Schedule, and enter the total payment amounts for each period.

Usually at the end of a loan you will have extra payment money left over. In that situation add that extra payment money to the next debt to pay off.

The final step is to print off the Debt Elimination Schedule. Now enter the names of each of your debts in the top row. Start with your first debt, and enter all of the payments for each period. Then do the second, and so on. Now add up each period’s payments. The sum of each period should be the same, until possibly the last payment. Congradtulations! You have your get out of debt plan.

The Enlightenment gave us the philosophy that people should not be slaves. When we take on debt we become slaves to that debt. The bondage of debt ruins relationships, drives joy from our lives, and can cause us to lose our homes. When we free ourselves from it, we allow ourselves to pursue our interests, sleep easier at night, and secure both our home’s and family’s futures. Financial Security comes from living within our means and paying off all debt. Remember Debt is a tool. Do not abuse it and let it serve you well.

Attachnments

• ListOfDebts.zip – List of Debts Sheet in OpenOffice.org Draw Format and PDF Format
• AmortizationTable.zip – AmortizationTable in OpenOffice.org Draw Format and PDF Format
• ExampleSpreadsheet.zip – Example of Debt Elimination System in OpenOffice.org Calc Spreadsheet Format
• DebtEliminationSchedule.zip – Debt Elimination Schedule Sheet in OpenOffice.org Draw Format and PDF Format

Note
The original can be found at D*I*Y Planner" src="/KISS2/image005.gif" alt="D*I*Y Planner" width="75" height="45" />

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1. Keep-It-Simple Financial Planning (Part One)
2. Keep it Simple Financial Planning (Part Three)
3. Keep-It-Simple Financial Planning (Part 3) Expanded

When you look at your finances, do you feel empowered or depressed? There are few things in our personal lives which run to such extremes as our finances. Do you understand how to pay off your debts? Will you be ready for your retirement? Will you be able to retire? Do you get calls from collection agents because you have late bills? When an investment advisor tells you they have the perfect investment, do you know how to do the research for yourself, or do you blindly follow along, and get burned when the “hot” investment is a failure? If any of these are true for you, then I have good news: you can live comfortably now, pay off your debts, and prepare for the unexpected problems in the future.
Humans live with an insatiable amount of desires. We have more desires than we have resources to fulfill them. Bill Gates, the richest person in the world has them, I have them, and if you examine yourself carefully you will find that you have them too.

There are two ways for us to deal with all of these desires: we can spend for every desire regardless of our income; or we can think about what we really want, control ourselves and make a plan to reach our real goals and desires. The first option will cause us to dig a financial hole that we may never dig ourselves out of. The second option will allow us to achieve our true goals, and help us to achieve financial freedom.

Striving to follow the common-sense notion of “plan and save” is hard, because there are people constantly trying to convince us that there are things we need now. They use phrases like “You Deserve It!”, “No Money Down!”, “Thirty Days Same as Cash,” “Buy Now, Pay Later,” “Buy with your _____ Card and Save 10%!” These messages are powerful siren songs that lure people away from their paths.

Economists talk about how people choose between desires in terms of utility. For example, when we have a dollar and choose to get ice cream over candy. We have decided that –at the time– ice cream has a higher utility to us than candy. Sometimes, the messenges above convince us of utilities that may drive us into debt.

So, is debt bad? The answer is yes and no: debt is a tool, which can be used to accomplish good in your life. It will help you get through school, buy a house or car. Debt can also be bad. If you are spending more than you make, you will eventually be unable to pay off your debts. Then you can lose your home, your car, or ruin your credit, which is your ability to gain new loans.

There is an old saying in the business world — “Those who understand interest, collect it, and those who do not, pay it.” When you take on a debt, the debt amortizes. This means that you have the same payment for the length of the loan, but the amount of the payment that is interest will be greater at the beginning of the loan. For example, if Mr. Jones buys a house for $200,000.00 at 15% interest rate for a year, in a 30 Year loan each of his payments will be divided between that interest and the principal. Principal is the amount of the payment that actually repays the loan. Interest is pocketed as profit by the lender. On this loan he will pay $2,528.89 a month for the loan. In the first month of the loan he will pay $2,500 in interest, and $28.89 in principal. In the last month of the loan he will pay $31.20 in interest, and $2,496.30 in principal. So, in this loan, Mr. Jones will pay $710,398.31 in interest over 30 years. The process of amortization of a loan is usually expressed in a table, starting with the first month of the loan, and ending in the last month of the loan. Interest each month is figured by multiplying the monthly interest rate by the balance on the loan after paying the principal the previous month. Your loan’s Annual Percentage Rate, or A.P.R., is found by multiplying your monthly rate by twelve. We’ll get back to this a little later.

Because our finances are a very important part of our lives, we need to track them, and know where we are at all times. I suggest that you keep all of your financial information together in at least two places. You can make a finances section in your handy planner, keep it in a separate folder in your office, on your computer, and so forth. This information is too valuable to lose, and it also needs to be where you can easily see it when you need to.

I suggest that you decorate your financial planner with images that show you why you are going to stay on top of this aspect of your life, and make a plan to get, and stay out of debt. Some suggestions for inspiration could be pictures of family, images representing your dreams, and goals for your life. Just be sure to keep ALL important financial papers in a safe place that will survive a major natural disaster. This way, if the papers are destroyed, then they are easily misplaced.

What are some possible contents of a financial planner section? The following are some possibilities:

• A Net Worth Analysis, a summary of what you own versus what you owe.
• A Get Out of Debt Plan, a solid plan in writing to pay off your debt.
• Monthly Budgets, to handle the tracking of your finances throughout the month.
• A Bill Tracker, a list of all of your bills in one place, with payment amounts.
• A Financial Plan, your overall plan to reach your financial goals.
• A summary of all accounts — a listing updated regularly of the balances on all debts, bank, and investment accounts.

Remember this should be YOUR planner, make it what you need to be successful.

The first step of starting your financial plan, and therefore getting out of debt, is to conduct a Net Worth Analysis. It’s snapshot of where you are financially, right now. Basically, we are going to list what we make, and what the items we own are worth if sold, and subtract from that all of our bills and debts. I have made a sheet for this exercise, called Net Worth Worksheet. Let’s start by printing out the Net Worth Sheet, which is attached to this article in a zip file (see below) containing a PDF document and its source file, done in OpenOffice.Org Draw.
Let’s start with assets. An item is an asset if it makes you money, or can be sold for money fairly easily. Some examples of assets are:

• Houses
• Automobile
• Computers
• Furniture

You should also remember to include your income under assets. I suggest that you record your income after taxes, and multiply one month’s income by twelve, to get a year. Once you have listed all of your assets under assets on the Net Worth sheet, add up the values of each asset and list it under Total Assets. Remember to write down both the name of the asset, like “car,” and its value, like $1,500.00.

Now list out all of your liabilities. Something is a liability if it takes money away from you. Start by listing all of your bills, and multiply each monthly bill to be a yearly value. Next list all of your debts, items that you pay because you owe someone money.

The last step is to subtract your liabilities from your assets. Something is a liability when it can be considered money that you owe. This can be debts or bills. I suggest that you take one month’s payment and multiply it by twelve for a yearly bill. List each liability with its name and amount. When you have all of your liabilities listed, then add up the amounts for all of them, and record them under Total Liabilities.

Is the number positive, meaning you have more assets than liabilities? Or the number negative meaning you have more liabilities than assets? You now know exactly how much money you owe, who you owe it to, and what it will take to pay them off. With this knowledge, you will be able to create a full blown plan to get out of debt after my article next week!

Attachment

NetWorth.zip – Net Worth Analysis Worksheet in OpenOffice.org Draw Format and PDF Format.

Note

The original can be found at

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1. Keep-It-Simple Financial Planning (Part Two)
2. Keep it Simple Financial Planning (Part Three)
3. Keep-It-Simple Financial Planning (Part 3) Expanded