Part of the Money Talks Series
I was recently luckily enough to be payed double my normal fee for a contract that I completed which I must admit was a rather difficult job. As a result I now have a rather large sum of money and while it is ever so tempting to use this windfall to purchase an entire new wardrobe and decorate my new flat with everything I am lusting after I decided instead to “save it for a rainy day”. And so, I embarked on a quest to find out the best way to go about putting my money away and along the way I accumulated a wealth of information in the form of a book which which I thought I would share with all of you :)
So, to begin with you need to formulate a plan.
How To Formulate A Plan
You need to know:
- Amount you are receiving
- Amount you are paying out
- Amount you are owed
- Amount you owe
- What your financial goals are
Your plan needs to be:
- realistic
- and flexible, must be able to adapt to your changing lifestyle
The 4 steps of creating your financial plan
1.) Set your goals
Your goals should be divided into categories:
- Short term goals: these are usually needs as opposed to wants eg. paying for studies or a car
- Medium term goals: these are both wants and needs eg. starting a blog to support yourself
- Long term goals: these are goals that are mainly thought of for when you are working
Ideally you should have an estimated cost of how much each will cost you. The types of goals which fall into each category will be different for everyone and depend on which stage of your life you are in. Don’t frightened in to thinking you have to start a retirement fund today. The concepts outlined here are to help you get a general idea and hopefully give you a sound financial knowledge that you can use for many years to come.
2.) Make a Budget
This records where you are planning to spend your money and how you have spent your money. It outlines what you get in and what you spend. This helps answer the question that many students and young people have of, “where did all my money go? What did I spend it on?”
You have to:
- Be realistic
- Make sure income to exceed expenditure
- Prioritize
- Paying yourself first
These will be expanded on later.
3.) Your Balance Sheet
This is a representation of what you own and what you owe others. Do not be deterred if you do not have many things if anything to list.
4.) Finally, you need to pull everything together into a cohesive plan
Your aims here are to use what you have identify what you need, what you can realistically afford and to determine which of your goals are a priority.
- All ideas and concepts are based on reading the book “Getting Started – Money Matters for Under 25’s” by Bruce Cameron