June 11, 2012

You can be the boss!

Every business must have a financial game plan. It's the same in daily life.

No business would dream of entering a new year without some kind of financial game plan to give it an idea of how it's been doing and where it wants to go.

Me Inc. differs only in size and legal status. You, the sole proprietor, take in a certain amount of revenue and meet certain expenses out of it. If you're organized, and prudent, you'll turn a profit. If you're not, like most people, you'll probably be in debt.

First task for the CEO (you) of Me Inc. is to review the past year. That means drawing up a personal balance sheet that gives you a rough picture of your assets and debts. List all assets – anything sellable – and give them values. Then list what you owe in various debts. You hope the assets amount to more than the liabilities. If not, you know what's on for this year: debt elimination.

Next, Me Inc. has to draw up its budget for the coming year. Figure out your gross income (use your last year's as a guideline or look at your last paycheque, which should have a cumulative total income for the year) and deduct expenses taken at source, such as income tax, CPP, unemployment insurance, pension, medical plan, union dues, etc. If you don't get a regular paycheque, calculate these deductions and put them on the expense side of the ledger.

Then do some expense budgeting. If you're in real trouble include costs for everything, down to the coffee you drink at work, so you know where the money is going. If you are a little better off, budget in groupings such as household operating costs, food, recreation, insurance and pension contributions and shelter. These come off the top of your money and you live on the rest.

Budgeting and saving is just basic self-discipline and self-knowledge. It's about controllership. It's finding out how much you take in and how much you spend. If you are controlling your money instead of it controlling you, you won't be in a debt crisis.

Once you have done the budget, Me Inc. can figure out where it's spending too much. Identifying the financial holes will allow you to set up the next part of your plan, the pay-yourself first technique. This much-touted, but rarely followed, savings plan involves investing or saving a percentage of your income. Earn $60,000 a year? You should be putting aside at least $6,000. But this doesn't just mean traditional saving. It could also involve debt reduction, a bigger need for most people, or investment, or pension planning, or RRSP contributions, or even extra mortgage payments.

Most planners suggest saving 10% of your gross income but 18% is probably better. Start with 10% of your net pay and gradually work up to at least 10% of your gross. The most important saving of all is debt paydown because it's such a large problem in our modern society, where credit is granted freely and often is used by people to manage other debt. This means spenders tend to own several credit cards and use one to pay off others in a form of kiting that isn't often noticed until it's too late and the debt hole has grown too deep.

Remember, if you are experiencing financial difficulties do not wait. Call Solutions Credit Counselling at 1(877)588-9491 or fill out our Debt Consolidation Questionnaire and get your Free Credit Counselling Advice today.

For more information visit Debt Canada - your Canadian credit education centre.

If you are a woman in debt, speak with Women and Money first. We specialize in helping women with their personal and business financeMoney management advice you can count on!

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