As we rush through the day commuting, working, taking care of the kids, cooking, cleaning; we barely have anytime left for ourselves. It is when we have to rush to get everything done that we take our eyes off our long term goals.
During a day like the one I just described, managing your finances like a business is probably the last thing on your mind. Regardless of the amount of time you can dedicate to creating goals and monitoring their completion, you can run your finances like a professional. In order to do this all you need is the right tools and a little focus.
The "Secret" Financial Planning Tool
There is a misconception that creating a financial plan involves complex mathematics, computer based algorithms and tons of formal financial education. While these things do not hurt, they are not necessary to create an above average financial plan. However there are a few tools that can definitely help you create a financial plan. Excel, for starters, is an extremely powerful application.
The best part about using excel for financial analysis is that it is flexible and many people already have a version on their computers. In addition there are a bunch of free budget worksheets available at office.microsoft.com. Most of the hard work has already been done for you.
You Don't Need an MBA
In addition to having the right tools, managing your finances professionally also requires some common sense, not a MBA. When managing your finances just remember the following fundamentals: don’t spend more than what you make, save for a rainy day, don’t keep a credit card balance more than a month or two and diversify your investments.
If you choose to live by these simple concepts, at the very minimum, you will be ahead of many of your peers. I will admit that the most challenging part of achieving financial freedom is maintaining financial discipline. This is also why I have automated my own financial planning process.
Leverage Financial Service Technology
With the advances of technology in the past couple decades it have become easy, and in all honesty convenient, to automatically save, invest and pay bills. Direct deposit has even taken away the temptation to spend money before you have a chance to put it in the bank.
In addition, online banking has reduced the complexity of having more than one bank account. All of these services enables us to create an automated financial plan. By creating a process in which your paycheck is automatically divided into different bank accounts helps reduce the time it takes to allocate funds to the different parts of your budget.
My Trademark Automated Financial Plan
So with that said, one of the ways that you could decide to automatically allocate your paycheck is into three different accounts. The first account could be used to pay your household expenses; mortgage, cell phones bills, utilities, insurance and car payments. These expenses usually take up the majority of the average American’s income.
The second account that you could send money to is a savings account. This can serve as your safety fund and once your savings get over a certain limit (let’s say $7000) you could send the excess to a brokerage account to invest. The remaining pay should be deposited into a checking account and be used to pay for gas, food, clothing, entertainment and other day-to-day expenses.
I hope this article helps you manage your household finances like a pro. Chances are you already have all of the tools you need to create a financial plan and budget. Remember to download some of the Excel files as they will help get you started.