Money Release: Making, Saving, Investing and Debt Management » Financial Planning

5 Ways to Manage Your Money Wisely

Vic — Thu, 09 Dec 2010 05:22:37 +0000

Money is valuable. We need it to conveniently move and live in this world full of economic transactions. Thus, we need to manage our money wisely so that we can always enjoy financial freedom. Managing our finances should be started as early as now to avoid pecuniary problems and escape from being trapped in various debts and loans. The following are five ways that will help you manage your money intelligently.

1. Plan and stick to that plan. In managing your money, you must have specific goals. These include your definite financial objectives, such as increasing your income and savings or reducing your expenses to a certain amount or percentage. In order to achieve each of your goals, you must have strategic procedures which include your steps to reach those goals. Also remember that like all plans, a financial plan or a budget should be one that is S.M.A.R.T. (specific, measurable, attainable, relevant and time-bound) plan. In this way, you will be assured that you have a definite and achievable financial mission with the required strategies to accomplish it.

2. Put your things in order. Everything that is in chaos is unmanageable. This is the same with the tangible and intangible things around you. Thus you need to organize your stuff and activities to save time, as well as money. Remember that time is gold, and that every time lost is money lost. Just imagine if you spend an hour looking for your lost car key you’ve misplaced in your messy room. If you are earning $20 an hour, then you have already lost that amount dealing with your cluttered way of living. To manage your money, you must organize your stuff and tasks to make your life smooth, optimized and productive.

3. Choose the people whom you will be dealing with. Peer pressure is one of the major factors that influence our financial decisions. If you go around with people who are extravagant, it’s likely that you will also become one of them. If you also mingle with people who are financially irresponsible, unreliable and love to rely solely on your pocket, then you will be in a big economic trouble. Thus, you need to wisely choose the persons whom you will be with. You should choose the right friends and activity partners to be with. This way, you can prevent negative pressures and influences that cause you to use your cash and other resources impractically.

4. Motivate yourself. This is the most powerful way to manage your personal finances. All your plans, procedures and tools to achieve your money targets will depend on your principles, attitudes, values and habits. If you want to reach your financial goals, you must learn how to motivate yourself. If you want to realize your target income, you should be more diligent. Furthermore, if you want to reduce your expenses, you must be humble and patient to resist spending on things that are beyond your needs. Remember, that planning and budgeting are futile if you will not have the passion to execute and accomplish them. Hence, to optimally manage your money, you must know how to direct your whole personality into it.

5. Track your records. Lastly, tracking will give you lots of advantages in effectively managing your finances. This is the monitoring and controlling process of your financial management. Without records, you cannot gather important financial data to be used in analyzing and formulating the best economic decisions. Therefore, you need to keep records of your economic activities, such as your cash flow and statement of income. These records will help you determine your financial strengths and weaknesses. These will also give you important data, such as the things you need to continue and the areas you need to improve. Moreover, those pieces of information are useful in detecting financial risks. These early warnings will give you the ability to prevent them in an efficient manner.

Conclusion:
We don’t need to be so smart to manage our personal finances wisely. Becoming wise is becoming diligent and passionate in collecting data and knowledge that we need to analyze and come up with the best financial decisions. Then, these raw data must be organized into specific procedures and objectives. Finally, we must be equipped with the right values, attitudes and habits to execute those steps, achieve our goals and maintain financial success.

Why You Have Too Much Debt

Vic — Tue, 12 Oct 2010 13:25:47 +0000

Except the children, most of us have debts. We might have incurred them because of financing our home, car, education, business and even our regular spending through credit cards. Having a debt to pay is just fine as long as you are really capable to pay it at the right amount and at the right time. It only becomes a financial problem when your debt exceeds you capacity to pay. Thus, we need to take time to determine if we are already having too much debt, identify the reasons why we sunk on that financial obligation, and find an effective solution to manage that kind of situation.

How much debt is too much?
To determine your debt burden or overload, you need to calculate you debt-to-income ratio (DTI). DTI is the percentage of our gross income that goes toward paying our debts. To know if your debt is acceptable or high, simply add up the amount you spend to pay your debts every month, and divide it by your monthly income before tax. Then, multiply the result by 100 to arrive at a percentage. For example, let’s assume you earn a monthly income before tax of $5,000. Let’s also imagine you spend $800 on your monthly house mortgage, $500 on your auto loan, and $400 on your monthly credit card payments. Your debt-to-income ratio will be computed as $1,700 / $5,000 = .34. Multiplying this by 100 will give you a debt-to-income ratio of 34%. This example means that you are spending more than one third of your monthly income in paying your debts. A ratio of less than 30% is ideal, while a ratio of more than 40% is a red flag for a potential financial disaster. Since our example arrives at a ratio of more than 30%, it already indicates a yellow flag and should be given some significant attention.

Why you have too much debt?
Debt overload arises when a person’s debt-to-income ratio exceeds the ideal ratio. Debts that are considered burden come from a person’s inability to manage his debts, which may include failure to make a personal financial planning, organizing and controlling. Debt-to-income ratio has two main factors: debt and income. Thus, the reasons of too much debt lie on these two elements. People incur overloaded debts because of unnecessary expenses as indicated by their excessive use of credit cards. They also don’t strive to increase their earnings to cover their fixed monthly obligations. This can be illustrated by our example above which shows an extra income not sufficient enough to absorb its home mortgage and auto loan monthly payments.

How to manage debt overload?
Managing your debt overload is a practice you should always practice overtime. It should be a continuous process from financial planning, to personal motivation, and to ensuring that the process is effectively executed. Home mortgage and car loan are fixed and basic loans we should pay regularly. However, credit card expenses are variable and can be controlled to reduce them and improve your debt-to-income ratio. There are also other personal expenses which we can trim down such as our entertainment and leisure expenses, traveling expense and other expenditures that are not necessary to our healthy living. To have a favorable ratio of our debt against our income, we also need to increase our earnings. As mentioned earlier, we cannot just control our long-term loans such as home mortgage and auto loan. Hence, we should focus on generating more revenue to warrant an increase in our income. An increase in income means an increase in our production (for businessmen) and increase in our work force (for professionals and employees). Lessening our monthly expenses requires a lot of self-control and patience, while increasing our income requires more hard work and diligence. Without these habits, we cannot get rid of those extra debt burdens.

Personal Finance Tips #7: Educate Yourself

Victorino — Wed, 09 Jun 2010 16:08:58 +0000

Knowledge is power! That is why if you want to strengthen your personal finance, you need to gain knowledge. Our seventh personal finance tip is to educate ourselves. Education doesn’t only mean you need to go to a school or a university to acquire it. It also includes education outside from schools. Education can also be our personal asset that cannot be robbed from us by any theft – though it can be shared and make yourself useful to the community. Knowledge or wisdom can be acquired from listening, reading, experiencing or from reflecting one’s self. It serves as our light in every direction we are heading. It also makes our market value increase. When you are an employee, you are considerably more valuable if you got a master’s degree or a prestigious certification than if you are not.

As we can be our best assets, we need to improve ourselves. We need to increase our market values. But how can we do that? We can do that by increasing our knowledge and education – formal or informal depending on our necessity. If you are an employee, it is just advisable that you get higher education (master’s degree, certification, etc.,) to aid your promotion. If you are an entrepreneur, you can also get higher education like MBA or the like, attend trainings and seminars or just conduct your own research to develop your business.

The fruits of education are these: if you are an employee, you can get a higher salary and if you’re an entrepreneur, you can bring your business into progress. Moreover, if you don’t have the both (business and employment), you can gain the capability to have one of them or both if you become educated. Knowledge also brings skills. Skills can give us opportunities to earn money and solve financial problems.

Education helps us reinforce our finances. It can also boost our earning capacity, orient us the discipline to control our spending, and teach us how to save and invest our money. Sometimes our financial world is dark and uncertain. But because of knowledge, we have light and calculations that give us almost precision. Therefore, education cannot be ignored. It should be prioritized just like how we prioritize our selves. There are many books that can be read. There are many reliable articles on the Internet where you can get the wisdom to manage your finances. We should not stop from learning. We should not stop and claim that we are already wise. We should be like that if we don’t want to be called fools. Remember that foolishness can lead anyone to shame.

Wise people are humble. They also live in modesty. These attributes keep them away from excessive expenses and unwanted debts. Apparently, foolish people are boastful and live in extravagance. Consequently, they lose most of their money and they fall into the trap of debt. By having wisdom and knowledge, we can have the information and cautions we need to plan strategically. We can set effective procedures that will help us achieve our financial goals. Finally, we can learn the principles and behaviors that will fortify our personal finances.

Personal Finance Tips #5: Be Diligent

Victorino — Tue, 08 Jun 2010 08:08:28 +0000

When it comes to delivering wisdom to my readers, especially on money and finance, I often refer to the Bible. I believe that the Holy Scriptures, which already existed thousands of year ago, are filled with powerful wisdom that if practiced by us, will make our lives better. Its passages can also guide us to better financial living and better management of our money, as well as our debts. Now, in my fifth personal finance tips series, I am introducing diligence as an important virtue that will help us achieve our financial success and freedom. I’m telling this because diligence, according to the Bible can bring us the wealth that will stabilize our financial condition.

”Lazy hands make a man poor, but diligent hands bring wealth.” – Proverbs 10:4 (NIV)

Diligence is important as an action is important to accomplish every task or plan. Intelligence is good. Yes it is good because we need to be wise in making our financial planning and in designing our steps and procedures in managing our personal finances. However, this wit is inadequate without putting them into actions. Using our brain is good, but without using our hands, it can never be better. Even if we have the confidence in our hearts to succeed in our financial life, it will only come short if we will not walk the talk. Remember that faith without deed is dead.

Our financial program is composed of a good plan, nice goal and a series of effective steps to achieve that financial goal. In this program, the steps are very important – and we can only walk all the steps if we are constantly diligent. We need to do what we think. We need to realize what we feel. We need to work for the things we want to achieve. The debts we want to extinguished must be paid by our earnings. These earnings should be the fruits of our consistent labor. If we only think of repaying the money we owed, but never work for the money we will be using to pay off those debts, we will just find ourselves still slaves by lenders.

In saving money, our actions play a very important role. It is our hands that hold, make and or spend our money. In order that we can save money, we should increase our income by working more. We also need to control our hands not to spend excessively.

In investing money, especially when we invest it to our business, diligence is our key to success and prosperity. If you will refer to your financial statements (balance sheets or statement of financial position and statements of income), you will find in your balance sheet that equity increases when your income increases. If your equity increases, your asset may also increase, and your liability may be decreased. Take note that the statement of income, which is also known as the statement of performance and results of operation, reflect a company or an individual’s performance and results. This just means that the success of a business or financial activity indeed lies on our performance and results – which are the manifestation of our works and our diligence.

Money Bible Verses: On Budgeting

Victorino — Mon, 17 May 2010 16:32:21 +0000

In the first two articles of the series Money Bible Verses, we have shared what the Holy Scriptures said about investing and debts. This time, we will move to the Bible passages that discuss budgeting. Budgeting can be relative to all of us, whether we are rich or poor, business owners or employees, and young or old. It involves plotting our reasonably estimated income, expenses and savings for a certain period or series of periods in the near future. The purpose of budgeting is to provide us a forecast of revenue and expenditures which will serve us as our guide for an effective an efficient flow of our financial transactions. It also gives us the ability to control our financial run by comparing our actual financial performance against our forecast.

Many people perceive that budgeting just give us financial restrictions. They thought that these financial limits are things that need to be broken to achieve financial freedom. However, as we will discover the Words of God, we will realize that financial limitations are God’s ways to keep us in the right financial position. As the Bible teaches as self-control and discipline, it also shapes us to persons who are not slaves of debt but persons who are free. When it comes to budgeting, the following verses are written in the Bible:

Proverbs 3:9-10
Honor the Lord with your wealth and with the first fruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.

Proverbs 6:6-8
Go to the ant, sluggard; consider her ways and be wise; who, having no guide, overseer, or ruler, provides her food in the summer and gathers her food in the harvest.

Proverbs 22:3
A prudent one foresees the evil and hides himself, but the simple pass on and are punished.

Proverbs 21:5
The thoughts of the diligent tend only to plenty; but the thoughts of everyone who is hasty only to poverty.

Proverbs 21:17
Whoever loves pleasure will be a poor man; he who loves wine and oil will not be rich.

Proverbs 24:3-4
Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches.

Proverbs 25:28
He who has no rule over his own spirit is like a broken down city without a wall.

Proverbs 27:12
A sensible man watches for problems ahead and prepares to meet them. The simpleton never looks, and suffers the consequences.

Proverbs 27:23
Know well the face of your flocks; set your heart on your herds.

Proverbs 27:26
The lambs are for your clothing, and the goats are the price of the field.

1 Corinthians 16:2
On the first day of every week each one of you is to put aside and save, as he may prosper, so that no collections be made when I come.

Luke 14:28-30
For which of you, intending to build a tower, does not sit down first and count the cost, whether he may have enough to finish it; lest perhaps, after he has laid the foundation and is not able to finish, all those seeing begin to mock him, saying, This man began to build and was not able to finish.

The passages listed above may not represent all of the verses in the Bible that discuss budgeting. If you have other Bible verses in mind that are related to budgeting, feel free to share them by making a comment below.

The important key to effective budgeting

Victorino — Sun, 09 May 2010 13:21:21 +0000

Budgeting is like enacting our spending, earning and saving today what we will do in the future. In other words, it is a process of bringing in a piece of paper or spreadsheet the lists of our planned revenues and expenses. The objective is to minimize expenditures, maximize earning, and fuel our savings. Budget may also come in the forms of imposed rules and policies. That is why many people sometimes view it as something that hinder their financial freedom. But this misconception is not practically right. Financial freedom doesn’t mean you are free to spend it all, buy all what you want, and get all what you want. This freedom means the capability to harmonize every financial element around us such as revenues, expenses and savings.

There are many important things to consider if we want our budget to go into success. These include making them specific, quantifiable, realistic and documented. We should specify our budget and make details so that we can have a clear picture of what we will follow. Measurability is also important in any financial plan, especially that we are dealing with money. Quantifying our budget is also vital in estimating future financial figures. We must also see to it that our budget is realistic and achievable. A conservative approach is more likely to succeed than a frustrating idealistic budget. Moreover, budgets must also be supported by documentations which are very useful in tracking and monitoring them. Tracking our earning, spending and saving behaviors will give us an idea on our weak points and strong points when it comes to our personal financial matters. With this, we can always find ways to strengthen our weakness and preserve our strengths. However, all of these things may not be enough for our budget to be taken efficiently. We should also realize one thing, and that is what I will discuss in the following paragraphs.

The important key to an effective budgeting lies on the value and importance we give to it. We may have a specific, measurable, attainable and trackable budget but it may not just be enough to help us reach our financial objectives. It is important to ask ourselves the following questions. Why are we making a budget? What is its great importance to our lives? These questions should be answered by our selves. We need to have a sense of direction. Budgets are tools that we can use to make our finances stable. But still we need to know its essence and values. Many people failed their financial plans because they don’t value them. Several financial gurus will teach you how to manage your personal finances. But without the sense of purpose you may only falter at the end. Our own budget should have a great impact in our lives.

In every plan we build, we need to assure that it is important to us. In every budget we create, we should see to it that it is relevant to our lives. As for me, I am budgeting because I want to save money for the establishment of my own corporation. I want to have a company that will employ people and give them jobs. I also want to offer quality products and services that will give my clients and customers satisfaction. This is why budgeting is so important to my life. Now, you can also try to meditate and know the roots why are you making a budget. Even a child can give great importance to his own budget to save a few bucks from his school allowance to buy a nice toy. Therefore, ask yourself once more, why I am budgeting? We all know that systems and tools facilitate our goals (financial goals), but our values are the ones who will give those goals the sense of direction and the sense of destination.

How to reduce your monthly expenses?

Victorino — Thu, 29 Apr 2010 07:50:49 +0000

We are facing a monthly challenge, and that is how we can manage our monthly expenses. Business, professional, personal and household expenses are spent because we need or we want them. But sometimes coping our expenditures become a hard task that usually goes beyond our income and resources. The result is falling into debt and other financial troubles. Who wants to have stability in his or her personal finances? Of course everyone wants. That’s why, we should learn how to handle and tame our expenses daily, weekly, monthly, yearly or even permanently. The following are ways to reduce our monthly spending:

1. Plan ahead
Make a budget of your monthly expenses. Establish your next month’s expenses now. Know and study what you will spend and what you will need to buy next month. Ask yourself – do you have enough current and future resources or income to cover those future expenses? Can you still save money if you will fill up those expenditures? Always remember to have your financial plan the S.M.A.R.T features. That is being specific, measurable, attainable, relevant and trackable. In planning ahead, you should also make a prioritization of your expenses. You will need this to determine what are those which are important are and what are those which can be eliminated. By thinking in advance, you can also anticipate sales with discounts that can give you significant savings. The goal here is simple – knowing in advance the financial troubles and deficiencies you will encounter and having advanced solutions to prevent them. Of course don’t forget that a plan is useless if not followed. Hence you need to have a lot of discipline and determination to achieve your plans and goals.

2. Cut the unnecessary expenses
In order to have the best solution in reducing your monthly expenses, you need to apply the process of elimination. This means you need to eradicate those expenses that are not really important to you and to your well-being. The best examples of these money wasters are the vices that are currently making you poor and unhealthy. These vices include drunkenness, gluttony, smoking, gambling, womanizing and other bad habits that can snatch your money in the pocket, as well as money in the banks. Your entrainment expenses should also be lessened because this is where extravagance starts. You can also try to become more physical and at the same time lower your expenses of paying other people to do the simple works that you can do-it-yourself. Example of this is walking your own dog, washing your own car, and other simple works that may give you time to relax and simultaneously save money.

3. Obey the rules, pay your debts and bills before their due date
The objective here is to avoid expenses that you should not have in the first place. These are penalties, surcharges and interests. Pay your water and electric bills before due date to avoid interests and penalties. Remit your taxes before deadline to avoid interest and surcharges. Settle your debts on time to avoid penalties. Obeying the rules can also prevent future obligations and extra payments. A simple defiance of traffic rules can cause you an additional cash outflow. Hence, it’s best to just live freely and have financial freedom.

4. Stay fit and healthy
This doesn’t need further explanation. We all know that medical bills are everyone’s worst financial nightmares. Moreover, you cannot work and earn money if you are sick. We also know that unhealthy foods are often the expensive foods. Choosing to eat health-friendly food can also lower our expenses and save us more money. Therefore, let us take care of our best physical asset – our body.

5. Action
It’s a one word to add in every steps and every ways for a successful mission. If you want to gain victory in reducing your monthly expenses, you don’t just need to think, plan, read, analyze and promise your self – you need to act on them. This article or any personal finance article, although well and intelligently written, will not become effective and helpful if not put into action.

How to reduce income tax payable and expense

Victorino — Wed, 31 Mar 2010 13:37:27 +0000

For the year that has passed, we will be obliged again to pay our income tax dues. It’s somehow ridiculous to think that you will be punished, in the form of tax obligation, when you do well in business or in employment – that is having a net income or profit. Have you ever wished you never had an income so that you will not be charged for an income tax? But that is life, if you live in a country that relies on the profits of its citizens; you need to give back the favor for standing on its land. Now we need to face the reality. We need to bravely face that obligation. This article aims to guide everyone in legally reduce their income taxes.

To save money from our tax dues, we need to have tax planning. For our last year’s income tax, what we can do now is to pay for it on or before its due date to avoid penalties and save you money. For the current accounting period or taxable year that has not yet ended, we can still do something to reduce our taxes. As I said, we need to plan our tax flows. We can still legally avoid tax. Tax avoidance, in contrast to tax evasion, is the legal solution to reduce tax payable by utilizing of the tax system to one’s own advantage. To wrap-up everything, I listed the following ways to reduce our income tax payable.

1. Pay tax before it dues. Simply, penalties and surcharges adds up to your income tax payable, hence avoid it by remitting your dues on or before the deadline.

2. Utilize your tax credits. Sometimes, people are lazy to gather documents. However, certificates of creditable taxes can be good help or can even reduce your income tax payable to zero or negative. So move out! Search and ask those certificates to your customers, tenants or employers.

3. Claim prior year’s overage of tax payment or tax refunds. There will be no inflow or outflow of this amount. You simply claim it to decrease your income tax payable. But watch out also for expirations.

4. Deduct your deductible expenses. Since income tax is based on net income, it means the lesser your net income is, the lesser the tax you will pay. But not all expenses are deductible. In this case, you need to properly plan your future expenses to maximize what are deductible and minimize what are not deductible.

5. Earn more non-taxable income. Like expenses, not all revenues and income are taxable. Hence, if you need to choose between taxable and non-taxable income, it’s always beneficial in tax sense earning free-tax income.

Remember that tax planning should become one of your important financial planning. But still keep in mind that though there are opportunities that we can save money on our tax, it may also means sacrificing our other form of money saving. We can maximize our deductible expenses, but not maximize our revenue potential. We can also minimize our non-deductible expenses but miss types of expenses that are important in our business. Therefore, we should take the whole picture and align our tax planning to our overall financial planning to effectively manage our business and personal finances.