Cash Flow

Whether its this months bills or unexpected expenses managing one's cash flow it crucial to developing your financial plan.  There are a few suggestions we have as it relates to your income and your expenses are concerned.  First you need to budget what you can reasonably expect your fixed expenses to be. Such as mortgage obligations, debt payments, utilities, insurance, and food to name a few.  Then you budget your discretionary expenses; entertainment, gifts, clothing, etc.  You want to try and maintain a level of combined expense that hopefully allows for a 10% or more excess of income.  With this excess in income you then can determine where to apply it toward your financial goals.

Pay Yourself

Paying yourself first is a mantra all of us have heard, but is understandably difficult to apply.  It may be unexpected expenses that curtail us, or the sense that paying ourselves first is somehow selfish when other obligations exist.  We believe that making yourself a savings beneficiary of your income first leads to sound financial prudence.  When you start to save money it builds a healthy habit.  You become more aware of how you spend money because you do not want jeopardize what you have accumulated.  Start with $1 a day.  In 6 months you will have accumulated $180.  Then increase it to $2 a day for the rest of that year.  By the end of the year you will have saved over $500.  Increase it to $3 a day in the second year and by the end of that year you now have saved over $1500.  If you add a compounding factor from whatever the savings rate you can acquire on those dollars that figure could increase substantially.  Now before you say easier said than done, consider $3 a day is less than you might spend at Starbuck's for a coffee.

Debt Management

Debt reduction is something all of us are needing to face in the wake of the recession of '08.  A question we are asked a lot is what is a reasonable amount of debt.  Quite frankly, none.  That is long term goal we should all have.  However, with mortgages, auto and student loans, we are bound to have amassed some debt.  A general rule for all outstanding debt payments, it should not exceed 35-40% of your NET take home pay. So if you take home $4000 a month your monthly debt payments should be no more than $1600.