The idea of how to spend your money, may seem like a scary task but it doesn’t have to be. The first step to any plan is knowing where you stand, financially.
Make a list of all your monthly bills. This include things like housing, electric and water, as well as car payments, fuel and food. Don’t forget movie nights and entertainment either. Subtract this from your monthly income, and Voila!, you’ve started your plan. Anything left over at the end of the month is considered discretionary money. You decide where it goes.
Divvy it Up
After you determine how much is left each month, separate it into 5 categories. Short term, mid term, long term, retirement, and pocket money.
Short Term Goals are things you want to purchase sometime in the next year. It might be a flat screen TV, a game console, or computer.
Mid Term Goals are for things you want in the next 1-5 years. This could be a car, a nice vacation, or even a jacuzzi.
Long Term Goals are for items further than 5 years out. A house, a swimming pool, or maybe a trip over seas.
Pocket money is self explanatory. How much do you spend each week on a day to day basis? Coffee and biscuit in the morning? Soda in the afternoon? BBQ with the buds on the weekend? $50 a week is a common amount.
Retirement is also self explanatory, but you can put a number to this by deciding when you want to retire, and how long you expect to live. Multiply the number of years expected in retirement by the amount you think you will need each year. A good number to consider spending in your twilight years is $50,000 a year. Thus, you would need 1,000,000 for 20 years of retirement. A younger person may be able to set aside as little as $25 to $50 a week to reach that number, where somebody in their 30’s might need closer to $500 or even $1000 per month.
Consider putting your long term goals, and retirement money in a vehicle that will make you more money. Savings account typically offer smaller yields, but with little risk. It is also easily accessible. Investing will give you greater returns, and higher yields. DRiP’s, or Dividend Re-investment Plans are a great way to go. They offer good yields, with relatively low risk. However, as with any stock investment, it can take up to a month, to actually have that money in hand.
By having a financial plan in place, you allow yourself to live comfortably within your means, while still being able to get the things you want. Sure, a nice car might cost you $25,000, but with a 5 year timetable, that works out to about $75 a week. Want to pay cash for that $150,000 home in 15 years? Save $200 a week. Now, that’s not so scary. Is it?