Planning your finances for the year!!

Income may come from many sources. Start with your take home pay. How often are you paid? What is the number? If you have a financial calendar you can write on, this will be very helpful.

Now go to any other income. Do you usually receive a bonus in December? Do you usually receive a tax return? Any source of income is written down and tabulated by the month. This becomes imperative source of information when planning for the year.

Next begin tabulating your monthly basic expenses, I use a simple 2 column register, but you can do it on your computer. Expenses include groceries, gas and all other auto expenses, insurances, rent/mortgage payment, utilities, include everything you spend money on.

Include any other expenses you usually have in special months like December, might be extra money for Christmas or if you have a hobby or a sport you do on a seasonal basis. You might have to look back at last years expenses to make a good estimate of what you might be spending. Include all savings and do not forget entertainment!

The income/expense log for each month is crucial when making financial decisions. As you work on this, begin a financial diary for one month. Include all the things you spend your money on. It is surprising just how the miscellaneous things in our lives add up. Continue your financial dairy throughout the year to get the real picture of where your money is coming from and where it is going.

The monthly income/expense step takes some time but the benefits... peace of mind, informed decisions, etc. are well worth it. Keep track of all things you spent your money on... and continue doing this for several months.

As you analyze your current spending, the expenditures you may have forgotten will show up to make your expense log a more precise tool to use when creating your budget.

Next step is financial goal setting. No matter what your income may be, don't skip this step!

The first goal is always household savings. This could be called your emergency fund. Credit cards are not a household savings resource, they are a tool for spending, but that's it. Begin a separate account and save... you may want to begin with 10-15% of your take home pay. Whatever you choose, this becomes a part of your expense plan.

Second goal varies for most people.

Retirement saving should be started as soon as possible for several reasons. Taxes are the immediate reason, the compounding effect of investing a little every month and your old age security the long term goal.

If you are self employed or an employee the tax advantages can really add up quickly. If your employer does not have a retirement savings plan, your ability to save throughout the year into an IRA will be your avenue. If you have no money left in your income plan for retirement at this time, make it a goal for next year.

Saving for a home could be another goal. If you do not own a home, consider this. How much will you need? It depends, but think about 10% of what your goal home will cost. This goal may take 5 years or ten year but home ownership is a great financial goal.

Your children's education fund goal often weighs heavy on parents. It is worth planning for and saving towards. Instead of spending a ton of money on birthdays and gift giving holidays, buy something small and save the rest. It is a great financial example for your children and you can watch the money grow together. Education goals becomes a great incentive for your children to do well in school (oh, the folks have saved money so i will do my part!?) and perhaps become eligible for grants, scholarships and more. By starting early in your child's life, education becomes a lifelong goal for both of you.

Vacation goals. Travel might be a luxury, but it is inspirational! Planning vacations year-round realistically, using your income/expense plan, will help you get excited about savings. Whatever your vacation goal is, adding to savings for it year round will make it a reality.

Special projects goals. Is there a large landscaping project you have been putting off for years? Do you want to find the perfect old car to restore? Do you wish to replace old furniture? What ever it is, find out what it will cost you (ouch, this often takes a lot of time) and begin saving towards it.

The advantage of goal setting is that it gives you a track to run on for savings, and becomes an incentive to put off spending on stuff and entertainment that does not help you reach your goals.

Budgetingis not a nasty word. Budgeting is a picture of your finances to enable you to make good decisions and set limits. Once you have a good idea of your income/expense numbers, and have set financial goals, you can realistically create a monthly/annual budget. The expense part of your plan may change a little month to month but now that you have the numbers, you can begin to make better decisions. Once the budget is set, live by it.

How much are you spending on entertainment? How much are you spending on clothes? By looking at these numbers, you may wish to sacrifice a little to reach one of your goals, especially the household savings goal.

Staying home and organizing your closets may not sound like much fun at the end of a work week, but add your favorite music and you can kill two birds with one stone. You are not spending money and you are getting a good look at your families wardrobe. If your children are older, do it together. Clothing can become a budget breaker in any family. And when it comes to decision making, do I buy that coat or wear last year's and save towards our family vacation? The answers come easy when you have a budget.

How much are you spending on food? Not just groceries, but eating outside the home. It can get expensive, and in my experience, it is a place to find lots of money for savings. See some of my other hub articles for meal planning and grocery lists for how to advice.

My advice, make cooking a family hobby!!! There is so much information out there for great recipes that can challenge even the best cooks. Please, learn to create meals at home and teach your children to cook. This will become a source of savings, as well as a great way to have family time. Food is an essential but it does not have to become a bottomless pit in your budget.

How much are you spending on transportation?

Car payments, insurance, gas, upkeep can add up quickly and keep you from reaching your goals. Are there any forms of public transportation that can help you save? Can you purchase a used vehicle? This area needs to be addressed especially if you have children who drive. Exactly how much is transportation costing you? When you get this area under control, you may wish to start a separate savings account just for transportation so you may not have to take out a loan for your next car.

Do you have too much stuff? You know, the stuff that clutters up your home, garage and maybe even a storage garage. Stuff needs to be limited to things that have significance in your life. Get rid of the stuff, and stop buying it!! Have a garage sale, donate it and get a tax right off, or give it away and don't buy more.

Are you a spontaneous shopper? Cut-it-out. By having lists of things you need, you can still enjoy the shopping experience and reach your financial goals. Every purchase should be part of your spending plan and fit into your lifestyle. If shopping is a hobby, do it with your goals in mind or find a new hobby. The results will lead to less stuff and more money.

Limit spending to your goals/budget might sound boring, but for the peace of mind it brings... it is well worth it..