Building your financial future is a fundamental skill everyone should acquire. Budgeting, cash flow analysis, saving and investing are four things critical to the process of taking control of your financial future. These four things: budgeting, cash flow analysis, saving and investing are the tools that allow each individual get their money working for them.
Achieving financial independence is an achievable goal for everyone. The very basic principal that is necessary is to develop a financial plan. Financial planning encompasses a gauntlet of activities that include planning for life, estate, retirement and activities of daily living. Therefore, it is necessary to develop a philosophy regarding finances. This philosophy is important because it will form the foundation for decision-making regarding your financial future. Taking control of your financial future is dependent upon the basic principles, truths, beliefs and attitude you have toward financial matters.
Financial planning can occur at any stage in life to prepare for what lies ahead. The gist of financial planning is developing a system for handling money responsibly and building wealth. Handling money responsibly and building wealth are two broad topics that seem to baffle many people. The next few paragraphs will attempt to demystify the process of financial planning to take control of your life.
Budgeting is a corner stone of financial planning. A budget allows you to develop a pictorial view of what is happening to your finances. This process of committing plans to paper by detailing how to acquire and spend money is one of the best ways of understanding why you are not in control of your finances. The budget will allow you to see if you are spending more than you make. After all, if you are spending more than you make, then you are probably already experiencing a financial disaster.
A budget does not solve your financial problems, but it does allow you to see how you are handling your money. Looking at a budget reveals your philosophy regarding finances. Reviewing the budget will give some indication of how you handle credit, pay bills or earn money. A philosophy for handling money involves your beliefs about credit, saving, investing monies and lifestyle choices.
Budgeting requires a cash flow and a cost-benefit analysis. A cash flow analysis determines sources and expenditures of income. This is how you assess if you are spending more than you make. A cost-benefit analysis is how you discover if the money you are spending is adding to or taking away from your financial future. Taking control of your financial future requires patience in completing these steps.
The next step in taking control of your financial future is to develop a plan for making your money work for you. Upon the completion of the budget, cash flow analysis and cost benefit analysis, the determination for developing a plan to reduce or eliminate debt and to begin the process of making money work for you is ready to formulate. This step is important because money will not be available for saving and investing until you become financially stable and you develop a means of survival without strain. Many financial planners suggest paying off debt, saving ten percent of your income and establishing an emergency fund as key building steps for making money work for you and investing money.
Many techniques exist for building wealth, but for the purposes of taking control of your financial future, a budget, cash flow analysis, cost benefit analysis, saving and investment strategies are a good place to start. Using these tools help to develop a GAP analysis. A GAP analysis allows you to determine the steps necessary to move you from being out of control to being in control of your financial future. This analysis determines your beginning and desired ending point. Following this you can then look at what has to take place between these two points to move you toward your desired financial objectives.
Saving, developing an emergency fund and investing are three factors in the planning matrix that will help you gain momentum in getting control of your financial future. Saving money helps you prepare for your retirement years. When saving money, if you gain a return of interest on your money, the money works for you. The sooner you start saving, the better because you can use compounding interest to take advantage of time, interest and age to build up a nice nest egg. Using compounding interest at a young age assists in creating wealth from saving at a good interest rate over a period of years.
Investing is another technique to get control of your financial future. You can invest in stock, real estate and yourself. Taking the time to learn how the stock market works is worth your time. If you have money to invest, then you can start doubling and tripling your money when you get a good rate of return. Rate of return or return on investment, is the gain one receives for the use of money over time. Therefore, to get money working for you, it is important to understand that whenever you invest money, you want to get more back.
You can also invest in yourself. Taking control of your financial future is assisted with a personal S.W.O.T. analysis. S.W.O.T. analysis identifies your strengths, weaknesses, opportunities and threats. Therefore, investing in education to improve your earning potential is a good investment. Buying a home is also a cornerstone of creating personal wealth. When you use these tools properly, they will empower you to increase your net worth, which will put you in position to take control of your financial future.