Personal finance

How to earn money and spend them wisely

Personal Finance Needs Business-like Planning

sometime Alex Pak

These are a few of my favourite thingsWhere money is concerned, I treat my life like a business. That’s how I’m able to set tangible goals and achieve them within set times. Business planning begins with setting annual revenues/sales targets. Although the process is slightly different and more complex than your personal finance goals, the purpose remains the same – goals/targets direct the course the business takes during the year. I defined my personal finance goal so I would know how to proceed. To buy this home, I needed to make an additional $12,000 last year.

Here’s how you could do it, too:

Set Goals

For your goal to be SMART (specific, measurable, attainable, realistic and timely), it’s important to know exactly what you want to achieve ($12,000) and when (in the next 12 months). It makes moving forward a whole lot easier than keeping your goals abstract.

Break it down to chewable bites. If $12,000 looks too big a goal, try $1,000 a month or $250 a week. Breaking a target into sizes you can manage does two things: it keeps you from getting discouraged and it helps you stay on track. Just by looking at the figures, I’m not sure I can raise $12,000 in a year; that seems like a lot of money. But I can certainly raise $250 a week; that doesn’t sound too impossible.

List Expenses

This is the key to your success. This list helps you identify opportunities to save. It is easier to identify and take advantage of opportunities if you’re actually looking at it. You can be as detailed as you want. But to be an effective tool for your personal finance goals, at least classify expenses into fixed and variable, controllable and uncontrollable.

Rent is a fixed expense; you pay the same amount every month. DVD rental fee is variable; you only pay for movies you watch and only as often as you want. How about your mobile phone bill where you pay a basic service fee and a per minute call rate? That’s a mixed expense. Basic service fee is fixed; the usage-based fee is variable.

Rent is an uncontrollable expense. The amount fixed by a contractual agreement. The same thing applies to your monthly service fee for mobile phones and all other similar items. Groceries, dining and entertainment expenses are controllable..

Analyze Expenses

When you’ve listed and classified your expenses, analyzing each item is an easy step towards achieving your personal finance goals. Fixed and uncontrollable expenses are committed, regular spending, so set aside the portion to cover these items. Calculate what’s left of your income after fixed and uncontrollable expenses and this is the amount you can play with.

Look into each item of variable and controllable expense. What portion of your income goes holiday trips? How much are you spending for communications? Perhaps you can cut back on international calls and use free web-based voice-video chat facilities. Go down your list and estimate how much you can save on each. Write the figures down beside each item as they would become part of your monthly money saving goal.

Choose Your Income-Generating Strategy

Say you’re able to make $300 of your $1000 monthly target just from cutting back on expenses. How do you intend to raise the $700 balance?

Take on a second job or a part-time, after hours or on weekends. Sell real estate, used cars, weird art and other things online. Mow your neighbor’s lawn or baby-sit for them. To achieve your personal finance goal of making $12,000 a year, you need to earn an additional $175 a week. That’s not too hard, is it?