In my last post I talked about making a making a plan for your money.
Today I want to focus on the personal side. The reason this is important is because it is the foundation of your finances. You need to know how much money you’re going to need each month to meet your needs and hopefully wants as well. Once you have a grasp on the personal side, it will make planning the business side even easier.
I want to remind you that making a plan for your money is not about restricting yourself.
It is really quite empowering, because you are able to take control of the money and where it goes. Rather than blindly spending or freaking out when the bank balance gets low, you will begin to know where every penny is going and what your account balance should be. A key element to planning is to eliminate debt and only spend as much as you earn each month. The more money you owe other people, the more stressed you will be and feel out of control. Follow this exercise and you will be able to use the plan as a tool and take total control of your money and eliminate your debt in the process.
The first step to making a plan(or budget) is writing down the essentials.
What do you need spend on an average month to survive? I’m talking about food, shelter, transportation, and health. So if nothing else was earned or spent that month you would still survive.
Categories should include: Rent or Mortgage Payment, Gas/Electric, Trash, Water, Groceries, Personal Care, Phone, Gas for Car, Car Insurance, Health Insurance, Homeowners or Renters Insurance, and Childcare.
After you’ve dealt with the essentials to survive you can start adding in the things that are important, but could be cut once in awhile if it came down to it. These are things like clothing, cosmetics, eating out, gadgets, toys for the kids, local trips/events. You also want to consider setting aside money for emergencies like car repairs, Dr. Co-pays, or other bills that may pop-up.
The next group of things to list out are debts and the monthly minimum payment on them.
If you have no debts then extra high five to you! The reason I want you to list debt is to see how much it costs you to owe other money. If your focus is on eliminating debt then you will free up money that can be used for other things you want and love.
After debt we can look at the rest of everything, which includes irregular expenses like holidays and gifts, vacations, fun stuff, and savings goals if you’re out of debt. It’s important to think about the types of things you spend money on monthly, but also the things that pop-up every couple months or once a year.
Are you still with me? I did not say this would be easy. Money is hard work.
OK you have your first draft of your personal spending plan. This will be a baseline to help you know how much money you need to pay yourself from your business. If you have multiple income sources it will show you how much you need total. Let me remind you that this plan will not be perfect! It will require tweaking and the longer you work with it and on it, the more precise it will become. The ultimate goal is to take control of your money and not spend more than you earn.
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