Financial Tips

Do You Have an Income Surplus or Deficit?

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Budgeting, retirement planning and business planning all require you to project what your current and future cash flow requirements will be. It’s interesting how often people say they have a business plan, yet they have no financial projections to support the marketing efforts they have planned. It’s equally as perplexing to hear the comments people make when discussing how much their lifestyle will cost them after they leave work. The idea of projecting a budget seems almost impossible so they choose to focus on how much money they can accumulate instead. And on a day-to-day, month-by-month basis, creating a cash flow projection is a completely foreign concept to so many people, yet, it’s an absolutely critical tool for making just about every financial decision.

How? Regardless of whether you are making a projection for business, day-to-day life or retirement, simply start by listing the income you know you will be receiving each month for the timeframe you are projecting. Then, list the expenses you know you will have for that same period. Next, subtract the expenses to get either a surplus or deficit. If you have a surplus, then you can decide where to allocate that money. If you have a deficit, then you have to decide where you will come up with the shortfall. When you have done this for the month, carry on to the next month with the surplus or deficit accumulating from month-to-month.

Obviously, at some point, you will have to turn a deficit into a surplus. By projecting cash flow in this way, you now know how much of a deficit you’ll have given certain planned expenses and you’ll also be able to see what the return on your investment will be when you add income generating activities to your projections.

Financial Tips

Starting to Invest

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How do you know where to start with investing? Well, besides having the proper foundation, and time and space and support, it is important to begin to develop your own strategies. You can learn from others – emulate them, study them, adapt them but, because we are all different and all have different interests, reference points, and access to different information at different times, one of the first ways to begin to develop your own personal investment strategy is to do an evaluation of your interests. Do some research and start to notice what companies, what aspects of companies, what type of investments, and how the information is presented to you that makes you take notice.

When do you start this process? Now. Even if you don’t have an investment portfolio and you don’t have money to invest, you can read the newspaper and watch the business news. You can pay attention to trends, to activities of stores or businesses that you know about and are interested in. Start to cultivate a financial interest in the things you are already interested in. Write down headlines, types of businesses and company names that seem to be of interest to you. Then start asking questions about potential investment opportunities or moneymaking ideas.

Financial Tips

Focus on the Reward

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If you have a lump sum of money that you will be using to supplement your lifestyle, be aware going into that arrangement and plan for the withdrawals. For example, have a set amount of money transferred to a spending account each month, rather than simply accessing the savings money whenever necessary. When you withdraw funds from a savings account for whatever purpose, even money you have diligently saved for something specific, you can have the uncomfortable feeling of watching your money diminish, which can too easily create feelings of scarcity, fear, and/or lack. The solution is to plan for the withdrawal and to focus on the plan or the reward, not the savings value.
How? If you are funding your lifestyle from a lump sum of money such as in retirement or a temporary leave of absence from work, you still need to know your monthly expense requirements and manage monthly cash flow like you do with regular income. This means a percentage of the money that you have transferred from your pool of savings is allocated to saving and giving. This way you maintain some structure and the reduction of capital is part of an overall plan.

Financial Tips

Pay Yourself First

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Pay yourself first. “Ya, ya. I’ve heard this a thousand times,” you’re saying. “But, I have expenses. I have bills. The money comes in and it’s already allocated, and then some…”

How do you implement a “pay yourself first” strategy when you’ve already established your lifestyle without it? You just do, that’s how – with a little bit of strategic planning mixed in. As soon as you receive your next amount of money from any source, get it deposited into your checking account. Then, immediately transfer 10% of the proceeds to your savings account. This will be an account you set up at the bank for emergencies or opportunities, but not for specific purposes like saving for a vacation. In the same transaction, withdraw the amount of cash you need for the expenses and giving components of your financial plans. Then, leave the rest to pay your bills with, “Ya, but…” – I know. You said all the money was already allocated for other expenses. That’s okay. You are going to be keeping good records and balancing your checkbook. You will know exactly how much money you need for your bills, and if you get to the end of the month (or pay period) and find you’re short, “Wow!! Look at how well I’ve managed my finances. I have some money in my savings account to help out.”

“What if you need all the money in your savings account?” That’s okay. You are keeping good records so you might find that for the first few months you need to transfer 100% of the money from your savings account to your checking account but eventually, you will find that you might only need to transfer 50% of the money, and one day, you will look at the balance in the savings account and be amazed to find that it’s a sizable amount of money. How do you pay yourself first? You just do!! And keep doing, and keep doing, and keep doing for always and always!!