Financial Planning

Without a plan you won't have money.

It is a fact of the world that you will have to deal with money.  You will probably have to raise it, manage it, and use it.  Without a good plan though you will most likely find that money just isn't plentiful enough for you to Get Things Done like you want to.  The goal of Create a Good Credit Rate for Myself also requires a good plan.  Having a good credit rating is invaluable in the modern world.

Budgeting 

It is very, very difficult to reach a state of permanent financial well-being if you aren't diligent with your budgeting.

The first step to making a budget is to track your spending - down to the last penny - for a month (preferably two) and find out just what it is that all your money goes to. Many times people are shocked after doing this.  Some people really think they only spend 50 or 100 dollars a week and find out later that they spend upwards of 200 a week.  

Now on to the matter at hand!
Once you have fastidiously tracked your spending for at least one month, it is time to do some analysis (and remember, you can't "analysis" without "anal," so track every single last detail and, if you have one handy, get out your largest, blackest butt-plug. You might want it later.)  Keeping receipts can help if you aren't too good at keeping things down on paper.

Step 1: Categorize your expenditures into broad groups, then break it down by percents and absolute dollar values. For example:
INCOME: +$2200/mo.
Rent: $350 - 15.9%
Utilities/DSL/Cable: $100 - 4.5%
Debt: $200 - 9.1%
Savings: $800 - 36.4%
Groceries and meals: $400 - $18.1
Gas: $100 - 4.5%
Pets: $50 - 2.25%
Booze/Bars: $50 - 2.25%
Misc/Entertainment: $156 - 7%


Step 2: Make some easy choices.
Some people think that reducing one's spending and increasing savings is somehow destined to be a pretty awful and painful process. This couldn't be further from the truth. Most folks, having once tracked their spending over an extended period of time, are rather horrified by the results and eager to slash a few items from their budget.

This is where you get a lot of the very cliche budget-reduction advice: Are you spending $5 a day on coffee drinks at Starbucks? Knock it off - treat yourself to one during each work week instead, and you will save about $80 a month. Spending $100 a month on autographed mint-condition Wham! LPs from eBay? Please, for the love of all that is sacred and holy, up that to at least $250. That sort of thing.

The advice might be cliche, but it's still good. If you see yourself wasting money, just knock it off. Your bottom line will thank you, as will your future self, who will be fishing off the coast of Aruba instead of working as a greeter at a WalMart somewhere outside of Buttfuck, Minnesota. (Although I've heard Buttfuck is gorgeous in the springtime).


Step 3: Make some hard choices.
OK, so it wasn't too hard to talk you out of an $80/mo. Starbucks habit, was it? Or maybe you've been wanting to quit that $5/day cigarette habit for years anyhow, and this just seemed like a great time. Well done. Those were easy choices that you needed to make, and you did the right thing. Now it's time to figure out where to trim the fat when it starts to hurt.

RENT: Rent can be painful to you in the extreme, depending on where you live. Very few people would consider relocating across the country, away from family and friends, just to save a couple hundred bucks a month. Discussing what it costs to live in certain cities and then telling people to move to Wyoming is dumb, but here's what works: No matter where you live, there is somewhere in the same city that is probably renting for about 8-12% cheaper than your current place. If you're not in any financial squeezes right now, then don't worry about it, but if times are getting lean, consider finding another apartment. In SF or NYC, scaling back by 10% on your tiny, one-man studio can mean saving ~$200/mo.

YOUR CAR: Driving a brand-new leased BMW when you earn $40,000 a year might not break your bank, but there are many, many more intelligent choices that you could have made. Take a look at what you pay for your wheels (and add up everything: gas, insurance, garage fees, etc.) and decide if a downgrade mightn't be a good idea (you don't have to go all the way down to a 1993 Geo Metro, but a nice late-model Toyota never killed anybody). Besides, if you're paying hundreds and hundreds a month for the Benz in the hopes of getting chicks, a $50/mo. gym membership would be a much sounder investment.

COOKING: Eating 2 meals a day at a restaurant will seriously break your bank. There is more to eat at home than Top Ramen (though we all know Ramen is cheap). Fortunately, you all have the wonderful resource of Goons With Spoons to tell you how to get started. I cannot stress this enough: Sack up, stop being lazy, learn how to cook: It will save you at least $100-200 a month and improve your general health and well-being.

LUXURIES: Life without a few luxuries can be dull, but a new MacBook Pro one month, a 37" LCD TV the next, and before you know it you're making 50 grand and still at less than zero in the savings department. Don't let this happen to you: Plan big purchases very wisely, don't be impulsive, and do plenty of research on prices. Several portions of the SA Forums can also be helpful for this.

YOUR CHILDREN: Children are incredibly expensive, and unfortunately, for the last hundred years or so there haven't been hardly any employment opportunities for them here in the USA, meaning that it's almost a certainty that your kids aren't pulling their weight, financially speaking. Fortunately, you can send them to India, where they can work as phone support team members for Dell, Samsung and the like. Not only will they learn valuable lessons about the imporance of hard work, but you will no longer have to worry about feeding them, clothing them, or wasting any more money on pricey plastic action figures.


Step 4: Run a real-time pragmatism test:
OK, so first you tracked your spending. Then you swore off Starbucks, quit buying books you didn't read, traded in your luuxury car and sent your kids to Ghana to work in a salt mine for nineteen cents an hour. Great start! The problem is, your great start is only as good as it is sustainable.

Shoot to reduce all of your expenses and increase savings by around 10% a month. I say this because (A.) spending can almost always be cut by 10% and (B.) because, if you shoot for more than 10%, you probably won't stick with it. A life of eating only Ramen, driving a used Yugo, and watching TV on a mirror pointed towards your neighbor's living room just isn't fulfilling. At some point, you need to spend a little scratch on yourself. After all, you did earn it - you just don't want to waste it.

Once you figure out how you're going to cut out that 10-20%, go for it. Take another month, do your best to stick to what you've budgeted, and keep writing down every penny you spend. At the end of the month, sit down and ask yourself these questions:

1. Did I do it?
2. How easy was it?
3. Do I WANT to keep this up?

Obviously, if you couldn't do it, you set too ambitious a savings goal. Maybe ratchet it back by 5% and start over. On the other hand, if it was a total breeze to cut 10%, why not shoot for 20%? Find that perfect zone where the amount you're saving feels rewarding in itself and you WANT to continue living on that budget because your life is pleasing to you. Continue to refine the budget every couple of months as needed.